Earnings credit rates (ECRs) stayed flat through two interest rate cycles, but now that’s changing as more corporate clients realize they may be better off in interest-bearing accounts.
In the 2017-2019 cycle, interest-bearing (IB) DDAs and money market demand accounts (MMDAs) peaked at over 100 basis points while ECRs remained relatively stable at below 50 bp (see chart). Between 2020 and 2022, rates on interest-bearing options dipped below ECRs.
In the current cycle, however, both IB DDA and MMDA have exceeded 300 bp, while the prevailing rates for ECRs have nudged up to around 80 bp. With bank clients now having much higher-yielding options right on the balance sheet, pressures on ECR DDAs are intensifying. This means rates on large ECR DDA back books will likely increase even as market interest rates peak and then start declining.
Average Commercial Portfolio Rates
As the rate gap between ECRs and interest-bearing accounts widens, corporate clients will likely continue their move toward the higher-rate options
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