An earnings credit rate is an interest rate used to determine bank service charges for business accounts. It identifies fees charged for banking services used and offsets them with balances maintained in the account. It encourages customers to maintain larger balances and can be used as a marketing tool. Clients should review monthly account statements to ensure they are not charged for unused services.
Sometimes referred to as an earnings allocation rate, an earnings credit rate is a type of interest rate used to determine the amount of bank service charges to apply to open business accounts currently serviced by that bank. The idea behind the rate is to identify the amount of fees charged for the banking services used by the depositor, and how much of those fees are offset by the balances the depositor maintains in their account. While the earnings credit rate is usually calculated on a daily or monthly basis, it is often presented as an annual rate, based on historical data. In the United States, the rate is often guided by the current rate on Treasury bills.
The idea behind the earnings credit rate is to identify what services the customer is using and charge only for those services. This creates a situation where the actual amount of bank fees paid by customers is limited, based on their usage. The Earning Credit Rate application also encourages customers to maintain a larger inactive balance in their accounts, as bank fees are lower for larger balances and deposits.
In most nations, banks and similar financial institutions have considerable leeway in creating a profit allocation structure. As long as that structure complies with banking regulations that apply to the area where the bank is in business, the allowance can be set at levels that may or may not be competitive with other banks. Often, the use of the Earnings Credit Rate helps move those assignments in a more competitive direction, and can be used as a marketing tool to show prospects how much they save in interest rates by keeping a certain balance in your accounts or average a certain level of deposits over a given accounting period.
For the client, it is important to review the schedule of charges for various services and fees, as they appear in the monthly account statement. Doing so helps ensure that charges for services that were not used during the period are not applied in error, a situation that results in higher bank fees. While most banks have a system of checks and balances that prevents mistake fees, the potential still remains. Typically, when a customer reports that a portion of the charges applied were for unused services, the charges are reversed and the account balance is adjusted accordingly.
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