Account Analysis: To Fee or Not to Fee

To fee or not to fee, that is the question. One of the most widely asked questions I get from my fellow coworkers as well as commercial clients is, “Why was there a service charge assessed on my commercial checking account?” Becoming a little more educated on the actual meat and potatoes of what is within the service charges might be a good place to start. Before we talk about service charges or what is more widely known as Account Analysis on a commercial checking account, we must first tackle what Account Analysis is, what the heck that statement actually means, and what it is comprised of.

What is an Account Analysis?

Account Analysis is a monthly statement outlining the banking services provided to your business. The statement is usually comprised of the company’s average daily balance and the charges that the company incurs from the bank. You can think about account analysis statements being similar to an invoice from a company; an invoice lists out the goods or services that you received from that company. Similarly, the bank sends an account analysis statement that lists out activities or services that you have received or utilized on your commercial checking account. Activities or services may include the number of checks paid, number of deposits, number of items deposited, a monthly account maintenance fee, remote deposit capture, ACH origination, wire transfers, etc. It's good news that business accounts that are in an analyzed checking account each receive an “earnings credit,” also known as a monthly credit allowance, to help reduce or eliminate account fees. Banks use the business' average daily balance in the account to help determine how much credit that particular account will receive. The general formula for calculating the earnings credit allowance that your particular account will receive is the following:

How Do You Calculate an Account Analysis?

To explain the formula in a little more detail, the Earnings Credit Rate is established by each bank and is typically always stated on your account analysis statement. The Balance to Support Activity is comprised of the Average Daily Collected Balance in the account (less 10% Legal Reserve Requirements that banks are required by law to keep with the Federal Reserve Bank and also less any uncollected funds: purchases or credits that have not fully processed through the account). Days in month/365 is the number of days in that particular calendar month, divided by 365 (the number of days in a year). All of these multiplied together will equal the earnings credit you will receive on your account to go towards bank services. So, in reality, the higher average collected balances you keep in your account, the higher probability for you to receive little to no fee.

Commercial Analyzed Checking Accounts vs. Set Fee Accounts

Depending on your bank’s earning credit rates and the activity in your account, you and your bank officer can decide whether it will be a better fit for you to utilize a commercial analyzed checking account or a set fee account. Most banks have someone that can analyze your current activity and see what average balances would be necessary in order to not be assessed a fee or to receive a smaller fee than you currently are on your existing account. Don’t assume that because you have a small business that you are better off in a Small Business Checking Account (set fee account). There are very few business clients that I work with that would be better off in a set fee account than an analyzed checking account.

So I’ll end with this: Have you taken the time to ask yourself or your banker, “Fee or not to fee, that is my real question.”

Learn more about Account Analysis with FirstCapital Bank of Texas.