The prospect of monetary easing across the Atlantic in the coming months makes the adoption of an indexed, transparent mechanism for remunerating dollar deposits look like an attractive option. More generally, it’s a good opportunity for local treasurers to rethink their cash management strategies and how they manage their banking relationships. Take a look at our advice for 2024.

US interest rates are set to fall this year, and that’s undeniably good news for businesses. The Federal Reserve’s willingness to relax monetary policy implies inflation is gradually coming under control, and it will lead to reduced financing costs. It currently anticipates three 25 basis point rate cuts in 2024, which would bring the Federal funds rate down from 5.25%-5.50% today to 4.50%-4.75% by the end of the year.

Nevertheless, US treasurers need to monitor the effects of interest rate cuts on cash deposit yields, and particularly on earnings credits. These earning credits offset some of the cash management fees charged by banks.

Over the past two years, only a tiny fraction of US corporate treasury departments have reaped the benefits of interest rates shooting up. Banks have either refrained from raising their customers’ earning credit rates (ECR), or have done so to a limited extent and with a considerable delay in response to rates rising. But as interest rates start to fall, it’s unlikely that the banks will be so slow to pass on the downwards movements.

A few well-informed treasurers took the opportunity to link the interest rate on their cash deposits to a benchmark rate. This approach enabled them to benefit from all the rate increases without unnecessary delay. Their negotiations with their banks extended beyond merely fixing a spread with a benchmark rate.

Meanwhile, some treasurers established a hybrid yield structure. This meant that if the earning credits were in excess of cash management costs, the bank would reimburse the surplus in the form of financial interest. Others successfully negotiated the extension of the earning credits system to cover additional types of bank charges, accounts held abroad, or even those in another currency.

Given the considerable disparity in earnings credit rates that different banks provide, negotiating with banks to secure a more favourable earnings credit rate could be an excellent way for treasurers to counter the impending decline in US short-term rates. The objective should be to negotiate the highest spread possible and the broadest possible application of the earnings credits mechanism.

The impending fall in interest rates serves as a reminder for all US treasurers to review their cash management strategy and make the most of the banking services available to them. With that in mind, here are our four top tips for 2024.

  • Analyze the cash management fees you pay to each bank and ensure your invoices always align with the prices you’ve negotiated and the services you’ve used.
  • Stop paying for services you don’t use and close any dormant accounts to cut your costs.
  • Focus on the most efficient payment methods and services based on criteria such as speed of execution, security, cost and integration with the company’s other information systems.
  • Consider renegotiating how much you pay for these services to substantially reduce the cost of cash management.
  • Aim to foster a dynamic banking relationship that goes beyond mere negotiations and look to engage in genuine dialogue with your partners on how they help you grow your business.

In short, your goal for 2024 should be to incorporate the decline in interest rates in your US cash management strategy and do everything you can to turn it into an advantage for your company!

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