Earnings Credit Rate

The imputed interest rate that banks use to account for the money they hold in non-interest-bearing accounts is called the earnings credit rate (ECR). Daily calculations of ECRs reveal that they are frequently correlated with the cost of safe government bond prices.

Banks frequently use ECRs to offer incentives to new depositors, lower fees, and credit customers for services. In order to lower the fees that clients pay for other financial services, banks may use ECRs. Checking and savings accounts, debit and credit cards, business loans, extra merchant services (such credit card processing and check collection, reconciliation, and reporting), and cash management services are a few examples (e.g., payroll).

ECRs are paid on unused cash, which lowers the cost of bank services. Larger deposits and balances are typically associated with reduced bank costs for customers. Nearly all commercial account analyses and billing statements in the United States show ECRs.

The earnings allowance may be decided upon with considerable latitude by banks. Depositors should be aware that they are only being charged for the services they use, not in combination with other services; even though the earnings credit rate can balance fees.