How Can LLC Earn Interest in a Checking Account?

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Question:

I have a new "LLC" customer who is transferring over from another bank, and at this time, is earning interest in a checking account. This account is an IOLTA account. How can a LLC earn interest in a checking account? Is it because the account is an "IOLTA" account? To my understanding NO Corporation, Partnership, or LLC can earn interest in a checking account.

Answer:

And, of course, now you are staring in the face of what looks like an exception to the rule. If the LLC is a law firm, it has to keep certain pooled client funds in an IOLTA (interest on lawyer's trust account). IOLTAs, as their name implies, earn interest, but the interest isn't paid to the law firm; it goes to the state agency or non-profit designated to manage the state's IOLTA program, which usually funds legal representation for indigent persons. So IOLTAs are usually set up as NOW accounts under the exception for fiduciary accounts in Regulation D Section 204.130(e).

First published on BankersOnline.com 6/13/11