The purpose of the Earnings Credit Rate is to reduce a depositor’s overall cost of service from the depositor’s view. The credit decreases the income received from the depositor to the bank and is applied when Activity Based Other products are paired with an eligible Deposit account when pricing an Opportunity.
In This Article
- Product Configuration
- Adding Activities to an Opportunity
- Applied Earnings Credit on the Financial Statements
To see Earnings Credits applied to Opportunities in PrecisionLender, first make sure your products are set up correctly. Let's take a look at the setup required for both Deposit products and Other products.
Our recommendation is to create a separate Deposit product for accounts with an Earnings Credit Rate. You can name the product ECR Deposit or something similar to distinguish from other Deposit products.
The Earnings Credit Rate setting is found in the Policies section when editing a Deposit product. Select Add Earnings Credit to get started.
When adding Earnings Credit Rates, be sure to include a rate for all possible balances, ranging from $0 to "And over." In the above example, a 25 bps Earnings Credit is applied to balances up to $100,000 and a 50 bps Earnings Credit is applied to balances above $100,000.
Only Other products with an Activity Based Fee Type are considered for Earnings Credits. Making this selection will then populate the Activity Types section within the product setup.
When adding Activity Types, be sure to give a Name, Default Unit Price, and Cost. Note that the Default Unit Price is the initial price when adding the activity to an Opportunity in PrecisionLender, however users can change this price. On the other hand, the Cost (the per-unit cost to the bank for providing the transaction to the account holder) cannot be changed by the end user.
Adding Activities to an Opportunity
The available activity types are controlled by your bank's administrator. When pricing an Opportunity, select Add to add an activity and input the estimated monthly volume. Note: The volume fields must be completed to generate Eligible Revenue for the Earnings Credit calculation.
Applied Earnings Credit on the Financial Statements
Earnings Credits are applied when adding an eligible Deposit account and Activity Based Other product to an Opportunity. To understand the full picture on the Financial Statements within the Opportunity, pay close attention to the Other column.
Expand the Other column to reveal a white column displaying financials for the Activity Based account. Using the "i" icon next to the Other Income field in the white column, you can see the Revenue generated by the Activity Based account, as well as the Servicing Expense (this expense comes from the Cost settings within the product configuration).
In the gray column (the Other column) you’ll find the total Revenue and Expenses associated with the Activity Based accounts along with the Applied Earnings Credit, which is the cost associated with the Deposit based on its balance and its Earnings Credit Rate. You can see the line items by selecting the "i" icon next to the Other Income field.
In the example above, there is an eligible $1,000,000 deposit account added to the Opportunity, with an assigned Earnings Credit Rate of 0.5%. This means this deposit is eligible for up to $5,000 in Earnings Credit of the revenue generated by the Other activities. Since the revenue generated by the Activity Based accounts is only $1,020, the Applied Earnings Credit is equal to the total Eligible Revenue. This leaves the Servicing Expense as the remaining line item, which is reported as a negative value in Other Income.