The Gold Book

The General Obligations Law, the Banking Law and New York State Banking Board General Regulation Part 10 specifically requires a lender to pay 2% on mortgage loan escrow accounts.  Institutions are expected to pay 2% on these accounts even if they offer other interest bearing accounts at 2% or less. It is important to remember that for mortgage loan escrow accounts, the customer is not a depositor but a borrower.

Banks require an escrow balance for the payment of taxes and insurance and to protect the lien against a tax foreclosure.  The bank requires the deposit as an incident to the loan and the bank must pay the statutory rate (not the prevailing rate).

Read original blog post