Letter Of Credit Margin Calculator

Work out letter of credit margin instantly with clear inputs, formula shown and shareable results.

About Letter Of Credit Margin Calculator

Banks require a cash margin against a letter of credit, blocking working capital for the LC's life. The real cost is the gap between your cost of capital and the deposit rate earned on that blocked cash — an expense usually missing from the fee schedule.

Formula

Margin carry cost

Margin = LC value × margin %; net cost = margin × (cost of capital - deposit rate)

Worked example

With the default values below, Letter Of Credit Margin Calculator returns Cash Margin To Be Deposited of $3,000,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Letter Of Credit Valueminimum 0: 20,000,000
Cash Margin Requiredaccepts 0–100 %: 15 %
Interest Earned On Marginaccepts 0–15 %: 4 %
Your Cost Of Capitalaccepts 0–30 %: 11 %

Results

Cash Margin To Be Deposited: $3,000,000.00
Annual Net Cost Of The Blocked Margin: $210,000.00
Interest Earned On The Margin: $120,000.00
Net Margin Cost As Share Of LC Value: 1.0500%

Step by step

1Values used
2Margin carry cost
3Cash Margin To Be Deposited= 3,000,000.00
4Annual Net Cost Of The Blocked Margin= 210,000.00
5Interest Earned On The Margin= 120,000.00
6Net Margin Cost As Share Of LC Value= 1.0500

Assumptions and limits

The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take inflation, tax or compounding frequency into account.
Figures are rounded for display to 4 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Figures are estimates based on the inputs given. Bank charges, regulatory minima and market rates change and differ between institutions and jurisdictions. This is not financial advice — confirm with your bank or treasury policy.

Frequently Asked Questions

Can the margin be reduced?

Yes, with a stronger credit assessment, collateral or a track record of clean LC performance.

Is the margin refunded?

It is released once the LC is settled or expires and the liability is extinguished.