# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Earnings Allowance

Written By
Paul Tracy
Updated January 16, 2021

What is the Earnings Allowance?

The earnings allowance is the minimum amount a bank requires a customer to have available in a checking account in order to avoid monthly service charges.

How Does the Earnings Allowance Work?

Let's say Company XYZ has a cash account with Bank ABC. To calculate the earnings allowance for Company XYZ's account, the bank applies its earnings credit rate. The earnings credit rate takes into account the rate at which Company XYZ uses the bank's various services. Banks usually calculate earnings allowances daily, and the rate for the earnings allowance is traditionally based on a percentage of Treasury bill rates. 

Why Does the Earnings Allowance Matter?

Each bank determines its own earnings allowance, and so the amounts may vary widely. A customer has to decide if they want to keep their cash balances high to avoid fees or whether to keep cash balances low to optimize the efficiency of the business.  

Usually, accounts with high balances have higher earnings allowances, which means that large account holders pay lower fees. However, the best way for a company to lower its banking fees is probably to shop around.

Ask an Expert about Earnings Allowance
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Earnings Allowance.
Be the first to ask a question

If you have a question about Earnings Allowance, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Earnings Allowance, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Earnings Allowance

By submitting this form you agree with our Privacy Policy

Share
close
Don't Know a Financial Term?
Search our library of 4,000+ terms