Determine your potential bank fee offset based on collected balances.
Investable Balance:$0.00
Total Earnings Credit:$0.00
Net Fee to Pay:$0.00
Balance Needed to Cover Fees:$0.00
Understanding Earnings Credit Rate (ECR) in Commercial Banking
The Earnings Credit Rate (ECR) is a daily calculation of interest that a bank pays on customer deposits, specifically within commercial demand deposit accounts (DDAs). Unlike standard interest which is paid out as cash income, ECR is a non-cash allowance used exclusively to offset banking service charges.
Key Concept: ECR allows businesses to reduce their treasury management fees by maintaining higher balances in their operating accounts.
How the Calculation Works
The calculation involves finding the "Investable Balance" and applying the daily rate over the specific billing period. The standard formula generally used by treasury departments is:
Net Service Charge: Total Service Fees – Earnings Credit
Input Definitions
To accurately calculate your potential savings, you need the following data points from your bank analysis statement:
Average Collected Balance: The average daily balance in your account that has cleared and is available for use. This is often lower than the "Ledger Balance."
Earnings Credit Rate (%): The annualized rate the bank applies to your balance. This rate fluctuates based on market conditions, often tied to the Fed Funds rate or T-Bill rates.
Reserve Requirement (%): The portion of deposits the bank must hold in reserve (not lent out). Banks typically deduct this (often 10%) from your balance before calculating credits.
Service Charges: The total fees accrued for wire transfers, ACH batches, lockbox services, and account maintenance.
Optimizing Your Treasury Strategy
If your "Net Fee to Pay" is positive, you owe the bank money at the end of the month. If the result is zero or negative (excess credit), you have fully covered your fees. Note that excess earnings credit typically does not roll over to the next month and cannot be converted to cash. Therefore, the optimal strategy is to maintain a balance exactly high enough to offset fees, while moving excess liquidity to higher-yield investment vehicles.
function calculateECR() {
// Get Inputs
var collectedBalance = parseFloat(document.getElementById('avgCollectedBalance').value);
var rate = parseFloat(document.getElementById('ecrRate').value);
var fees = parseFloat(document.getElementById('monthlyServiceCharges').value);
var days = parseFloat(document.getElementById('daysInPeriod').value);
var reserve = parseFloat(document.getElementById('reserveRequirement').value);
// Validation
if (isNaN(collectedBalance)) collectedBalance = 0;
if (isNaN(rate)) rate = 0;
if (isNaN(fees)) fees = 0;
if (isNaN(days) || days fees, net fee is 0 (or technically negative showing surplus)
var netFee = fees – earningsCredit;
var displayNetFee = netFee > 0 ? netFee : 0;
// 4. Calculate Breakeven Balance
// How much balance is needed to cover the fees exactly?
// Logic: Fees = Balance * InvestableFactor * DailyRateFactor
// Balance = Fees / (InvestableFactor * DailyRateFactor)
var breakevenBalance = 0;
if (investableFactor > 0 && dailyRateFactor > 0) {
breakevenBalance = fees / (investableFactor * dailyRateFactor);
}
// Display Results
document.getElementById('resInvestable').innerText = '$' + investableBalance.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTotalCredit').innerText = '$' + earningsCredit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
var netFeeElem = document.getElementById('resNetFee');
netFeeElem.innerText = '$' + displayNetFee.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Styling for Net Fee logic
if (netFee > 0) {
netFeeElem.style.color = "#c0392b"; // Red if you owe money
} else {
netFeeElem.innerText = "$0.00 (Fees Covered)";
netFeeElem.style.color = "#27ae60"; // Green if covered
}
document.getElementById('resBreakEven').innerText = '$' + breakevenBalance.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Show result box
document.getElementById('ecrResults').style.display = 'block';
}