How Can Your Earnings Credit Rate Support Your Liquidity In A Rising Rate Environment?

March 27, 2024

Your deposit balances support your cash flow liquidity needs, and your Earnings Credit Rate (ECR) can help preserve excess cash even further. Having more cash on hand to use for managing your business is an excellent position to be in. Treasury Management transaction fees can add up over the month. However, your deposits do not have to sit idle if you use your ECR to offset them. In this volatile market with unpredictable rates, when you consolidate your deposit balances into a single financial institution, you can expect to increase your monthly ECR benefit, which is not a bad tradeoff for rising interest rate expenses in other areas.

What is an Earnings Credit Rate?

An earnings credit rate is applied to your deposit balance to arrive at a monthly credit paid by your bank, for deposits in qualified accounts. Your bank applies the ECR, typically on average collected balances, to your non-interest-yielding accounts. The amount calculated after applying the ECR is used to credit you for qualified monthly service fees.

Managing your cash flow is key to your business’s success and securing a good cash position, regardless of the interest rates in the market are high or low. You may need to wire money outside the country for materials, execute your electronic payroll file every two weeks or offer a lockbox service to receive your outstanding accounts receivable payments. Taking advantage of every favorable credit term and using the least cost payment method that delivers those funds on time will allow you to fluidly manage your payment services. Offering your customers a variety of easy receivable methods, including ACH, online payments, point of sale transactions, or lockbox can ensure your incoming deposits are taken care of to meet the credit terms you offer.

Having deposits on hand will allow your bank to lend you money or offer other value-added services. ECR is your monthly benefit for those unallocated daily balances and can help strengthen the relationship between you and your bank.

Maximizing the value of your transaction processing for payments or receivables is very beneficial. When your ECR increases, you have the potential to eliminate or reduce your monthly transaction analysis fees. The last thing you need to worry about is paying a large monthly invoice for Treasury Management fees associated with managing your business when you can do the same just as effectively and efficiently with your ECR allocation offsetting those fees each month. Your ECR will seamlessly accumulate each month and allow you to transact without worrying about paying the statement of fees at the end of each month.

Our First Western Trust Bank Treasury Management services are designed to support your unique transaction processing needs. Contact our Treasury Management team to create a customized account structure that supports your cash flow forecasting with our industry-leading Earnings Credit Rates. We highly value your business and the trust you put in banking with us, and we look forward to an opportunity to work with you and grow your business.