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.
Some of those better returns came from leveraging the banks' enhanced earnings credit rate
(ECR), especially for dollar deposits, because Google had identified European banks with large dollar funding needs.
The average balance maintained is then multiplied by an "earnings credit rate
" (theoretically the value the bank places on the funds left on deposit) to equal the dollar earnings credit for a given time period.
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.
They can apply the soft earnings credit rate (ECR) to balances until bank charges are covered and then pay hard interest on the rest.
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.
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.
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.