Courtney Rubin

Banks Can Now Pay Interest on Business Checking Accounts

But not all banks will offer them, and if you choose one, watch for hidden fees.

 

Starting today, your bank will be able to pay you interest on your corporate checking account for the first time since the Great Depression.

That’s thanks to a provision in Dodd-Frank that repealed Regulation Q.

Among the banks that say they’ll offer interest-bearing accounts: BBVA Compass, Wells Fargo, BB&T, and Regions, according to the Birmingham Business Journal. But ServisFirst CEO Tom Broughton said interest rates are so low that offering interest doesn’t make sense.

Bankers fear the move could drive up interest rates and reduce credit available to small businesses.

Scott Latham, president and CEO of the Community Bankers Association of Alabama, said the about-face after 80 years will increase the cost of credit.

"Such interest bearing accounts would be subject to a 10 percent reserve requirement by all institutions, freezing important capital that might otherwise be available for lending," he told the Business Journal. "As interest rates begin to rise over time, financial institutions will find it necessary to pass along their increased costs in the overall cost of credit to small business and commercial customers."

CFO Daily News suggests businesses watch for hidden costs of the new accounts before making a switch—or doing a celebratory dance. 

Among the possible negatives: 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.

Observes CFO Daily: "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."

 

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.