How a Bank’s Earnings Credit Rate Affects Your HOA Deposits

If you’re looking at your monthly bank statement for your homeowner association or condo owner association, you may see something labeled as “ECR.” It’s important for you to know what this is and how it might affect your association banking. Here’s a brief overview of ECR.


What is ECR?


Earnings credit rate (ECR) is calculated every day to determine how much interest a bank must pay for their customers’ deposits, specifically on the balances remaining in non-interest yielding accounts. This concept has been around for nearly a century in the United States, and many other countries have adopted a similar process.


Typically, a bank’s ECR is related to the U.S. Treasury Bill. Although ECR varies, it could be anywhere from 0.185% to 1.5% of the account’s balance. The rate can vary widely even on accounts with unchanging balances which many see as a downside. Keep in mind that this is only applied to collected balances that are cleared and can be used for investments or transfers. It is not applied on floating or ledger balances.


The ECR helps make up for service fees that customers may pay on business loans, debit cards, savings accounts, and other merchant services. ECR can also attract new customers to start using the bank services. Because the crediting usually happens automatically, it’s easy for customers to collect.


How Earnings Credit Rate Affects Association Banking


So how does earnings credit rate impact your association? Because your association probably uses software and other banking services, ECR helps offset these expenses. If you have a surplus, you can always put it in a money market account so it can continue to grow.


There are ways you can maximize the amount that your association is earning from ECR. For example, it’s key to always know which accounts of yours might be getting earnings credit. If some are ECR-eligible and others aren’t, consolidate what you can into ECR-eligible accounts. This means you’ll make more money with your deposits just sitting in the bank. That’s extra money you can use for the benefit of your association. Management companies may already be using the ECR to offset a portion of the services they provide, so it’s a good idea to read your management agreement and speak with them first.


ECR also helps your association with liquidity if you’re having some challenges forecasting cash flow. ECR gives you fast access to funds if you need to use the money in your account quickly.


The Future of ECR


Even though ECR has been around for quite a while, there is a lot of potential for change in the future. For example, cryptocurrency could disrupt ECR as we know it. Crypto would put your association in greater control of its deposits. With this change, any interest that’s earned on the cryptocurrency would go straight to your association rather than the bank. You’d get to keep more money in your pocket!


Protect Your Association’s Finances with LM Funding


If you’re looking for other ways to keep your association’s finances in good standing, look into LM Funding’s services. Our easy process ensures that if your community members aren’t paying their dues on time, you don’t have to go through the traditional outdated collections process. That saves you money AND time!


To learn more, contact LM Funding today.