In the financial services industry, a common reassurance goes something like this: “We hold your funds in a segregated trust account and do not earn interest on them.” You will find some version of this language in the terms of service of payment processors, real estate escrow companies, legal trust accounts, broker-dealers, crypto custodians, insurance premium holders, and dozens of other intermediaries whose business model involves holding other people’s money.
The statement is often technically true. It is also, in many cases, meaningfully incomplete.
The incompleteness is not accidental. It is built into the architecture of commercial banking in the United States, through a mechanism that most customers have never heard of and that does not appear in any published financial statement. Understanding this mechanism — and the incentives it creates — is essential for anyone who entrusts money to an intermediary and wants to know whether that intermediary’s processes are designed to serve the customer’s interests or its own.
What the Earnings Credit Rate is
US commercial banks offer an Earnings Credit Rate on non-interest-bearing deposit balances. The ECR is not interest. It does not produce a cash deposit into the account holder’s account. It does not appear as revenue on the account holder’s income statement. What it produces is something economically equivalent but accounting-invisible: credits that offset the banking service charges the account holder would otherwise pay.
Every commercial banking relationship comes with fees. Wire transfer fees, ACH processing fees, account maintenance charges, lockbox services, cash management charges, positive pay, account reconciliation, foreign exchange processing — the list of banking services that generate charges is extensive. A company that processes thousands of wires per year might face annual banking fees in the hundreds of thousands of dollars.
The ECR offsets some or all of these fees. The bank calculates a credit based on the average daily balance in the account and the prevailing ECR rate. That credit is applied against the month’s service charges. If the credit exceeds the charges, the excess is typically forfeited — the account holder cannot withdraw the surplus as cash. If the charges exceed the credit, the account holder pays the difference.
The distinction between ECR and interest is real. Interest is cash. ECR is a fee offset. Interest is taxable income. ECR is a reduction in expense. Interest appears on the income statement as revenue. ECR appears nowhere — it manifests only as the absence of a cost that would otherwise exist.
But the economic substance is the same. A dollar saved is a dollar earned. A company that avoids $300,000 in banking fees because its average daily balance generates sufficient ECR credits is $300,000 better off than a company that pays those fees out of pocket. The benefit is real. It is just invisible.
How ECR rates are set
ECR rates are not published. They are negotiated between the bank and the client as part of the overall banking relationship. Larger depositors — those maintaining higher average daily balances — typically negotiate higher ECR rates, because they bring more value to the bank.
From the bank’s perspective, non-interest-bearing deposits are the cheapest source of funding available. The bank does not pay interest on these deposits, but it can lend them out or invest them at prevailing market rates. The spread between the bank’s cost of funds (zero, in the case of NIB deposits) and its lending or investment return is pure margin. The ECR is the portion of that margin the bank shares with the depositor — not as cash, but as fee relief.
During periods of low interest rates — the decade from 2010 to 2021, for example — ECR rates were negligible. A typical ECR during the zero-rate era was 0.10% to 0.25%. On a $20 million balance, that generates $20,000 to $50,000 in annual fee offsets. Meaningful, but not transformative.
During periods of elevated interest rates — from mid-2022 through 2025 — ECR rates rose substantially, though not proportionally to the Federal Funds Rate. Industry data from Curinos and Redbridge suggests that ECR rates at large US banks reached approximately 0.75% to 1.50% by late 2023, even as the Fed Funds Rate exceeded 5%. Banks were slow to pass rate increases through to ECR and fast to cut ECR when rates fell.
The gap between the Fed Funds Rate and the ECR rate is itself instructive. When the Fed Funds Rate is 5.25% and the ECR rate is 0.80%, the bank is retaining approximately 4.45% on the depositor’s balance. On a $30 million NIB deposit, the bank earns roughly $1.35 million per year from the spread, while the depositor receives approximately $240,000 in fee credits. The bank captures 85% of the economics. The depositor captures 15%.
This is not a scandal. It is how commercial banking works. But it becomes relevant when the depositor is holding other people’s money — and the other people do not know the arrangement exists.
Who holds other people’s money
The range of industries and entities that hold client funds in aggregate is broader than most people realise. Each operates under its own regulatory framework, but all share a common feature: they hold money that belongs to someone else, and they hold it in accounts at commercial banks that may generate ECR benefits.
Law firms hold client funds in Interest on Lawyers Trust Accounts (IOLTA). The interest on these accounts is typically directed to legal aid programmes rather than to the lawyer or the client. But the IOLTA framework was designed in an era of interest-bearing accounts. Firms that hold client funds in non-interest-bearing accounts at banks that offer ECR may receive fee offsets that are not captured by the IOLTA interest-direction requirement.
Real estate settlement agents and title companies hold earnest money deposits, closing proceeds, and tax escrow funds. In many states, the settlement agent is required to hold these funds in a trust or escrow account. The duration of the hold is typically short — days to weeks — but the aggregate volume across thousands of concurrent transactions can be substantial.
Insurance companies hold premium funds between collection and remittance to underwriters. The “float” on insurance premiums is a well-understood source of economic value — Warren Buffett has described Berkshire Hathaway’s insurance float as a key driver of the company’s investment returns. What is less well understood is that the same dynamic operates at a smaller scale in every insurance intermediary that holds premium funds in a bank account.
Payment processors hold merchant settlement funds between the time a customer’s payment is captured and the time the funds are disbursed to the merchant. The hold duration is typically 1–3 business days, but across millions of transactions, the aggregate daily balance is large and persistent.
Broker-dealers hold customer cash balances — free credit balances — in accounts that are subject to SEC Rule 15c3-3 (the Customer Protection Rule). The rule requires that customer cash be segregated in a Special Reserve Bank Account. The broker-dealer cannot use these funds for its own business, but the account generates ECR or interest that the broker-dealer may retain if its customer agreements permit.
Crypto custodians and exchanges hold fiat deposits from customers who have funded their accounts but have not yet purchased crypto, as well as fiat proceeds from customers who have sold crypto but have not yet withdrawn. The duration of these holds varies, but the aggregate balance can be substantial — particularly at large exchanges during periods of high trading volume.
Licensed escrow agents hold transaction funds between deposit and disbursement. Escrow transactions can involve significant sums — vehicle purchases, business acquisitions, domain name sales, real estate — and the hold period can extend from days to months depending on the complexity of the transaction and the speed of the parties’ performance.
Property management companies hold tenant security deposits, which in many jurisdictions must be placed in segregated accounts and may be subject to interest-payment requirements. Aggregate security deposit balances for large property management firms can reach tens of millions of dollars.
In every one of these cases, the intermediary holds client funds in a bank account. In every case, the bank may offer ECR on the balance. And in most cases, the client whose money is being held has no visibility into whether ECR credits are being generated, how large they are, or who benefits from them.
The incentive structure this creates
The ECR mechanism creates an incentive that runs directly counter to the customer’s interest — and the customer typically does not know it exists.
The customer’s interest is straightforward: have my money disbursed as quickly as possible. Every day that an intermediary holds my funds is a day I cannot use them, invest them, or earn my own return on them. The time value of money is real, and the customer bears 100% of the cost of delay.
The intermediary’s incentive is the opposite. Every additional dollar in the trust account, and every additional day it remains there, generates a small but real economic benefit through ECR credits. The incentive is to hold more money for longer. Not dramatically — the daily benefit on any individual transaction is small. But across thousands of transactions, the aggregate effect is meaningful.
Consider a payments processor that holds $50 million in average daily merchant settlement balances and has negotiated an ECR rate of 1.0%. The annual ECR benefit is approximately $500,000. Now consider what happens if the processor extends its average settlement time from 2 business days to 3 business days. The average daily balance increases by roughly 50% — from $50 million to $75 million — and the ECR benefit increases from $500,000 to $750,000. An extra day of hold time across the merchant base generates $250,000 in additional annual benefit to the processor.
No individual merchant notices. The difference between receiving settlement on Tuesday and receiving it on Wednesday is, for most businesses, unremarkable. There is always a plausible explanation: bank processing times, weekend cutoffs, compliance reviews, system upgrades. The friction is diffuse and the benefit is concentrated.
This is not a theoretical concern. The payments industry has a long history of disputes over settlement timing, “hold” periods, and the float income that intermediaries earn on client funds. The Federal Reserve’s development of FedNow — the instant payment system launched in 2023 — was motivated in part by the recognition that the traditional 1–3 day settlement cycle created float income for intermediaries at the expense of payors and payees.
When the benefit becomes material
The ECR benefit is modest for any single intermediary with a small trust balance. A company holding $5 million in client funds at 0.75% ECR receives approximately $37,500 in annual fee credits — real money, but not enough to distort the company’s business model.
The calculus changes at scale. A company holding $50 million to $100 million in aggregate client funds — which is common for mid-sized payment processors, national title companies, large law firms, and licensed financial intermediaries — generates $375,000 to $750,000 or more in annual ECR benefit at the same 0.75% rate. At higher ECR rates (achievable through relationship negotiation or during high-rate environments), the benefit can exceed $1 million.
At that scale, the ECR benefit is no longer a minor accounting convenience. It is a meaningful revenue-equivalent that can cover a significant portion of the intermediary’s banking costs, effectively subsidising the company’s operations with the economic benefit generated by other people’s money.
The calculus changes further when the intermediary has the legal authority to sweep funds from the non-interest-bearing trust account into interest-bearing instruments. Many regulatory frameworks — including, for example, California’s Financial Code provisions governing escrow agents and the SEC’s rules governing broker-dealer customer protection — permit or accommodate some form of fund movement between account types. If an intermediary sweeps $50 million into an interest-bearing account earning 3% (achievable during the 2023–2025 rate environment), the annual benefit is $1.5 million — six times the ECR benefit on the same balance.
Whether the intermediary is legally entitled to retain this interest depends on the specific regulatory framework, the terms of the customer agreement, and the applicable state or federal law. In some contexts — IOLTA accounts, for example — the interest is directed to third parties by statute. In others, the intermediary may retain the interest unless the customer specifically requests otherwise. And in many contexts, the question is simply not addressed — neither prohibited nor explicitly permitted — leaving a grey zone that sophisticated intermediaries can navigate to their advantage.
What the terms of service actually say
Most intermediaries that hold client funds include some form of interest disclaimer in their terms of service. The language varies, but a common formulation is:
“Unless otherwise requested, escrowed deposits do not earn interest for Buyer or Seller.”
This language is worth parsing carefully. It says that deposits do not earn interest “for Buyer or Seller” — not that they do not earn interest at all. It is a statement about what the customer does not receive. It is silent on what the intermediary receives. The clause tells you what you do not get. It says nothing about what the company gets.
Some terms go further, offering the customer the option to request an interest-bearing arrangement — but attaching conditions that effectively ensure near-zero opt-in. A non-refundable fee for requesting the interest-bearing option, a requirement that both counterparties to the transaction agree, or a minimum balance threshold can each independently reduce the opt-in rate to negligible levels. The option exists in theory but is not exercised in practice.
I am not suggesting that this language is deceptive. It is legally precise. But precision and transparency are not the same thing. A customer reading “deposits do not earn interest for Buyer or Seller” reasonably concludes that nobody is making money from their deposit. That conclusion may be wrong.
Why this does not appear in financial statements
One of the reasons the ECR mechanism receives so little attention is that it is invisible in published financial statements.
ECR credits are not revenue. They are a reduction in cost. If a company’s banking fees would be $400,000 per year without ECR, and ECR credits reduce that to $150,000, the financial statements show $150,000 in banking fees. The $250,000 benefit is the absence of a cost, not the presence of a revenue line. No auditor will flag it. No analyst will question it. It is simply a number that is lower than it would otherwise be.
For publicly traded companies that report segment-level financials, the ECR benefit is buried within the cost of sales or operating expenses of the segment that holds the trust funds. A financial analyst examining the segment would see favourable cost trends — lower banking costs relative to transaction volume — but would have no way to attribute the improvement to ECR rather than to operational efficiency, vendor negotiations, or volume discounts.
If the intermediary sweeps funds into interest-bearing instruments and earns actual interest, the treatment depends on the accounting policy. Interest income might be reported in the consolidated “Other revenue” or “Interest income” line — but combined with interest earned on the company’s own corporate cash, making it impossible for an external observer to distinguish trust fund interest from corporate cash interest.
This accounting invisibility is not evasion. It is the natural consequence of how ECR works and how financial statements are structured. But it means that the customers whose money generates the benefit, the regulators who oversee the intermediary, and the investors who evaluate the company’s profitability all lack visibility into a mechanism that may be contributing meaningfully to the company’s economics.
The rate environment matters
The significance of the ECR mechanism — and the broader float benefit — is highly sensitive to the interest rate environment.
During the decade of near-zero rates (2010–2021), the float benefit on client funds was negligible. ECR rates were minimal, interest-bearing sweep accounts earned almost nothing, and the economic incentive to hold client funds for an extra day or week was correspondingly small. This was, from the customer’s perspective, a benign period: the intermediary had little to gain from delay.
The rate hiking cycle that began in March 2022 and continued through 2023 changed the calculus dramatically. As the Federal Funds Rate rose from near zero to over 5%, the economic benefit of holding non-interest-bearing deposits increased proportionally. Banks’ ECR rates did not track the Fed Funds Rate one-for-one — they lagged significantly — but even at a fraction of the prevailing rate, the benefit on large balances became material.
For intermediaries holding client funds, the high-rate environment created a windfall. The same $50 million trust balance that generated negligible benefit in 2020 could generate $375,000 to $750,000 in ECR credits by 2024 — with no change in the intermediary’s operations, customer agreements, or regulatory obligations. The benefit simply appeared, automatically, as a consequence of the rate environment.
This raises a question that few intermediaries are being asked: did your disbursement speed change when rates changed? If the average time between receiving client funds and disbursing them was consistent across the low-rate and high-rate environments, that suggests the intermediary’s processes are driven by operational factors rather than economic incentives. If disbursement times increased during the high-rate period — when the economic benefit of holding funds for an extra day was at its highest — the correlation warrants scrutiny.
I am not aware of any regulator that has conducted this specific analysis across the intermediaries it supervises. It would be a straightforward exercise: compare average hold times before and after the rate hiking cycle, controlling for transaction mix and volume. The results would be informative.
The banking relationship dimension
There is a subtler incentive at work beyond the direct ECR benefit, and it involves the relationship between the intermediary and its bank.
For a commercial bank, non-interest-bearing deposits are among the most valuable sources of funding. They cost nothing. The bank can deploy those funds in lending and investment activities that generate returns. A corporate client that maintains a large, stable NIB deposit balance is an extremely attractive banking relationship.
The value of that relationship creates incentives on both sides. The bank has an incentive to provide favourable service terms — competitive ECR rates, fee waivers, priority processing, dedicated relationship managers — to retain the client and its deposits. The intermediary has an incentive to maintain high and stable deposit balances to preserve those favourable terms.
This dynamic can create a secondary incentive to hold client funds that is entirely separate from the direct ECR benefit. An intermediary might maintain higher average trust balances not because the ECR credits are individually valuable, but because the aggregate balance supports a banking relationship that provides operational benefits the intermediary would struggle to replace.
Trust banking — the specialised service of maintaining segregated trust accounts with the regulatory and reporting infrastructure that intermediaries require — is not widely offered. Relatively few banks have the capability and willingness to provide trust account services, particularly for intermediaries in regulated industries with specific custodial requirements. An intermediary that loses its trust banking relationship may face significant cost and disruption in finding a replacement.
This means that the intermediary’s incentive to maintain high trust balances may be driven not by greed but by institutional dependency — a need to keep the bank happy to preserve a relationship that is difficult to replace. The customer impact is the same — funds held longer than necessary — but the motive is different, and the distinction matters for how regulators and investigators evaluate the conduct.
What customers and regulators should ask
I am not alleging that any particular company is misusing client funds or deliberately delaying disbursements to earn float income. I am describing a mechanism that exists across the financial services industry and that creates incentives most customers are unaware of.
If you are a customer whose funds are held by an intermediary — a payment processor, a settlement agent, a custodian, a licensed escrow holder, a broker — here are the questions worth asking:
Does the intermediary earn interest or receive any economic benefit from holding my funds? The answer may be in the terms of service, but it may also be absent — which is itself informative.
What is the intermediary’s average disbursement time, and how does it compare to the minimum processing time that the underlying banking infrastructure requires? If a domestic wire takes hours but the intermediary’s average disbursement takes days, the gap deserves an explanation.
Has the intermediary’s disbursement speed changed over time — particularly during the transition from low to high interest rates? If disbursements slowed when rates rose, the correlation warrants scrutiny.
If you are a regulator supervising intermediaries that hold client funds, the question is structural: does the regulatory framework require disclosure of float benefits? In most cases, it does not. The customer who entrusts $50,000 to an intermediary has no regulatory right to know whether that $50,000 is generating economic value for the intermediary during the hold period. Whether it should is a policy question that the current rate environment makes urgent.
The fundamental issue is transparency. When a company tells you it does not earn interest on your money, ask the follow-up question: does it derive any economic benefit from holding your money? The answer, in many cases, is yes — and understanding how is the first step toward evaluating whether the company’s processes for handling your funds are designed to serve your interests or its own.