DEFINITION of 'Earnings Credit Rate (ECR)'

The earnings credit rate (ECR) is a daily calculation of interest that a bank pays on customer deposits. The earnings credit rate is often correlated with the U.S. Treasury bill (T-bill) rate.

BREAKING DOWN 'Earnings Credit Rate (ECR)'

Banks may use ECRs to reduce fees customers pay for other banking services. These might include checking and savings accounts, debit and credit cards, business loans, additional merchant services (such as credit card processing and check collection, reconciliation, and reporting), and cash management services (e.g. payroll).

ECRs are paid on idle funds, which reduce bank service charges. Customers with larger deposits and balances tend to pay lower bank fees. ECRs are visible on nearly the majority of U.S. commercial account analyses and billing statements.

Banks may have great discretion for determining the earnings allowance. While the earnings credit rate can offset fees, it is important for depositors to note that they are only being charged for services you use, not in combination with others.

History of the Earnings Credit Rate

The notion of an earnings credit rate originated with Regulation Q (Reg Q), which prohibited banks from paying interest on deposits in checking accounts (set up for transactional purposes). In accordance with the 1933 Glass-Steagall Act, many hoped this practice would limit loan sharking and other such predatory actions. The act subsequently supported consumers in releasing funds from checking accounts and shifting them to money market funds. Following Regulation Q, many banks decided to offer “soft dollar” credits on these non-interest bearing accounts in order to offset banking services.

Earnings Credit Rate and Rising Interest Rates

As of 2018, Interest rates in the United States are projected to rise gradually. In contrast, the pace of earnings credit rate growth is not expected to keep the same pace.

When money market funds yield near zero (e.g. as occurred during the 2008 financial crisis), deposit accounts, offering ECRs, can become more attractive to corporate treasurers. Yet in times of rising rates, these treasurers may look for financial instruments with a higher yield than ECRs. These could include money-market funds (once more) or even relatively safe and liquid bond funds.

RELATED TERMS
  1. Credit Rating

    A credit rating is an assessment of the creditworthiness of a ...
  2. Bank Deposits

    Bank deposits are money placed into a deposit accounts at a banking ...
  3. Credit Card Funding

    Credit card funding is the use of a credit card account to provide ...
  4. Trade Credit

    A trade credit is an agreement in which a customer can purchase ...
  5. Credit Score

    A credit score is a number ranging from 300-850 that depicts ...
  6. Euro Deposit

    A euro deposit is a deposit of foreign currency into a European ...
Related Articles
  1. Personal Finance

    6 Ways To Build Credit Without A Credit Card

    It's definitely possible – if a bit more complicated – to build a credit history without traditional credit cards. Just follow these steps.
  2. Personal Finance

    Is Your Credit Score at 850? It Can Be!

    Use these tips to increase your credit score and your ability to get low interest rates on loans.
  3. Personal Finance

    Why and How to Use Credit Cards Effectively

    When used responsibly, credit cards play a big role in establishing a good credit score that can help you obtain loans, mortgages and insurance.
  4. Personal Finance

    Credit Cards For People With Bad Credit

    Yes, you can get a credit card and start repairing your credit history. But brace yourself for low credit limits, sky-high interest and staggering fees.
  5. Managing Wealth

    5 Common Misconceptions About Your Credit Report

    Your credit report is one of the most important factors in determining your ability to get loans and new credit and has a major influence on your rates.
  6. Personal Finance

    How Credit Cards Affect Your Credit Rating

    The average American household has four cards, but does that mean more is better?
  7. Personal Finance

    How Banks Set Interest Rates on Your Loans

    Are you planning on getting a loan from bank? Here is the information you need know on how banks set the interest rates to get the best possible deal.
  8. Personal Finance

    Retail Banking vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking refers to the aspect of banking that deals with corporate customers. Check out more on the differences between ...
  9. Personal Finance

    The Truth About Store Credit Cards

    Learn about the good, bad and the ugly behind store credit cards.
RELATED FAQS
  1. What are the benefits of credit ratings?

    Credit ratings are an important tool for borrowers to gain access to loans and debt. Typically, the better your credit rating, ... Read Answer >>
Trading Center