Earnings Credit Rate


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Earnings Credit Rate

Also called an ECR. The interest rate a bank pays on customer deposits. Rather than being applied to the deposit directly, ECRs are used to reduce the fees the customers pay for other banking services. For example, if a bank is paying a 0.05% ECR on a $10,000 deposit, the depositor earns a $5 reduction in his/her other fees. An ECR is usually connected to a Treasury bill rate.
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And three-quarters of the more than 700 finance executives surveyed said their companies realized earnings credit rates on their bank deposits.
With short-term interest rates so low, the earnings credit rate has looked attractive to companies, he said, and treasurers are comfortable with their counterparty credit risk with their banks.
Earnings allowance--the amount available to cover bank services, calculated by multiplying collected balances by the earnings credit rate.
Graves also expects that many treasuries will want to continue to get the earnings credit rate to cover their banking fees, which means they will keep funds in accounts that do not pay interest.
Lee Epstein, CEO of Decision Analytics in San Francisco, suggests keeping money in uninsured accounts when the earnings credit rate (ECR) is worth more than the yields on most cash investments is not so risky.
0 percent, primarily due to higher account analysis fees resulting from a decrease in the earnings credit rate.
Request rolling compensation cycles, hard charges only on pass-through services and an earnings credit rate pegged to a standard index like the 90-day T-bill rate.
The higher the earnings credit rate, the more the compensating balances are worth.
With earnings credit rates so low, treasury managers work to keep balances at a minimum.
Banks had been offering corporate customers attractive earnings credit rates to encourage deposits, but those earnings credits have come down or disappeared altogether, leaving prime funds among the few remaining ways to capture additional return.
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