Commercial Account: What it Means, How it Works (2024)

What Is a Commercial Account?

A commercial account is any type of bank account that is used by corporations and businesses. A commercial account is usually a checking or other type of demand deposit account, meaning the money can be withdrawn at any time.

Regulation Q of the U.S. Federal Reserve prohibits banks from paying interest on this type of account. Banks instead pay earnings credits, which they base upon the average account balance.

How Commercial Accounts Work

Commercial accounts typically have higher monthly service charges and other related fees than retail accounts. Retail accounts are part of consumer banking or personal banking and are serviced online or at a local branch. Companies that have commercial banking accounts usually have a business representative assigned to them. Some commercial banks have specific relationship managers that service large corporations, midsize businesses, and small businesses separately.

Commercial banks are banks that offer services, such as accounts and credit products, to businesses and consumers. These banks tend to have expanded product and service offerings that cater to small-to-midsize businesses and corporations. Most often commercial banks will have night depositories that allow businesses to deposit funds outside of normal business hours.

Although a commercial account typically refers to a specific bank account, it can also mean a commercial account relationship, which encompasses all of the products and services that a business is involved with at that bank.

Commercial Account Products and Services

Commercial or corporate banking products and services include but are not limited to the following:

• Loans and other credit products, such as business credit cards and working capital lines of credit that allow companies access to funds when needed
• Treasury and cash management services, which include overnight and short-term cash investing, wire transfers, managing working capital, and currency conversions
• Equipment lending and leasing services, which allows companies access to equipment for industries such as manufacturing, transportation, and information technology
• Commercial real estate services such as real asset analysis, portfolio evaluation, and debt and equity structuring
• Trade finance, including letters of credit, bill collection, and factoring
• Employer services such as payroll and group retirement plans

Many commercial banks also have affiliate investment banking arms, which can offer commercial accounts related services, such as asset management and securities underwriters.

Still, commercial banking is distinct from investment banking in that investment banking entails the creation of capital for other companies, governments, and other entities via underwriting new debt and equity securities, aiding in their sales, and helping to facilitate mergers, acquisitions, and reorganizations.

Commercial Accounts and the Earnings Credit Rate (ECR)

As noted above, most commercial accounts pay earnings credits instead of interest. However, in 2010, the Dodd-Frank Act rolled back Regulation Q and allowed for some banks to offer interest on checking accounts for its corporate customers. The goal of this change was to increase banking reserves, ideally militating against credit illiquidity, which is a lack of funds to cover losses and make loans.

The earnings credit rate (or ECR) is a daily calculation of interest, often correlated with the U.S. Treasury bill (T-bill) rate. Banks will pay ECRs on idle funds, which reduce bank service charges overall. Essentially, customers with larger deposits and balances tend to pay lower bank fees. An ECR can be viewed on the analysis and billing statement of the commercial account.