Community banks fought hard to overturn it, but starting this month, your bank will be able to pay you interest on your corporate checking account.
That’s because, as of July 21, the 80-year ban is lifted with the repeal of Regulation Q. The about-face comes as part of the Dodd-Frank Act (Section 627).
You might want to hold off on the celebratory dance just yet. Whether or not you decide to partake, this shift may wind up costing your company more in the end.
They have to make up the money somewhere
For one, make sure your CEO and other execs understand: Banks have only been granted the option of offering interest on biz checking accounts – it’s far from a lock.
It will become a serious competitive edge, though. And that couldn’t come at a better time; banks are hungry for business (see cover story, CFO & Controller Alert, 6/21/11).
However, banks will be looking to make up the money they’ll now be paying out in interest. How will they do that? According to insiders, expect a combination of:
- higher transaction fees
- a tiering of the interest rate based on the size of the account, and
- reduced funds availability on deposits.
Negotiation skills will be critical. After all, transaction fees are negotiable, so the companies who come to the table prepared will take less of a bath.
To factor into your decision
Your company will also be faced with a choice. Does your company want to:
- receive hard interest on your entire account balance (and pay tax on it), or
- continue receiving credits on your deposit balance, and earn hard dollar interest on any excess balances?
Certainly this will largely depend on what specifically your bank is offering, but you’ll have to consider your liquidity requirements, too.
And is it worth increasing your balances to earn more of that possible interest? Half of your peers are sure they won’t increase their bank balances, according to a new benchmark out of the Association for Financial Professionals.
So if your bank offers it, does your company plan to start earning interest on its business checking account? Why or why not?