A credit memo in banking is an entry your bank posts to your account to increase your balance through an internal adjustment rather than an incoming payment from someone else. Banks use them to reverse fees, correct posting errors, pay interest, and issue provisional credits while they investigate a disputed transaction. If one shows up on your statement, it means the bank itself put money into your account, not an outside depositor.
Why Banks Post Credit Memos
A handful of situations account for almost every credit memo you’ll see.
Fee Reversals
When a bank waives an overdraft charge or a non-sufficient funds fee, whether you called to ask or the fee was assessed in error, the refund posts as a credit memo. Overdraft fees averaged roughly $27 per transaction as of 2025, though some banks still charge as much as $37 each.1Consumer Financial Protection Bureau. Overdraft/NSF Revenue in 2023 Down More Than 50% Versus Pre-Pandemic Levels
Posting Errors
If the bank credited the wrong account, deducted the wrong amount, or made a bookkeeping mistake, a credit memo restores your balance to what it should have been.
Interest
Interest on savings accounts, CDs, and interest-bearing checking accounts posts through credit memos, usually monthly or quarterly. The dollar amount may be small, but the entry looks the same as any other credit memo on your statement.
Disputed Transactions
When you report an unauthorized or incorrect electronic transaction, the bank may issue a provisional credit while it investigates. Those provisional credits are credit memos, and they come with specific rules.
Credit Memos From a Regulation E Dispute
Regulation E, the federal rule implementing the Electronic Fund Transfer Act, covers errors involving electronic fund transfers: unauthorized charges, incorrect amounts, missing transactions, and computational mistakes. Once you file a dispute, the bank has 10 business days to investigate. If it needs longer, it can extend the investigation to 45 days, but only if it provisionally credits your account within those first 10 business days for the amount in question.2Consumer Financial Protection Bureau. 12 CFR Part 1005 (Regulation E) – Section 1005.11 Procedures for Resolving Errors That provisional credit is the credit memo you see on your account.
The investigation window extends to 90 days rather than 45 in three situations: the transfer was international, it was a point-of-sale debit card transaction, or it occurred within 30 days of your first deposit to a new account.3eCFR. 12 CFR 1005.11 – Procedures for Resolving Errors
If the investigation resolves in your favor, the provisional credit becomes permanent and you don’t need to do anything else. If the bank concludes no error occurred, or that the error differed from what you described, it can reverse the provisional credit and debit the amount back out. Before doing so, it must send you a written explanation and tell you the date and amount of the reversal. For five business days after that notice, the bank must honor checks and preauthorized payments from your account without charging you overdraft fees, giving you time to adjust.2Consumer Financial Protection Bureau. 12 CFR Part 1005 (Regulation E) – Section 1005.11 Procedures for Resolving Errors
When a Credit Memo Can Be Taken Back
A credit memo is not always permanent. Beyond a Regulation E reversal, the Uniform Commercial Code lets a collecting bank charge back a provisional credit it gave you for a deposited item, such as a check, if the bank never receives final payment on that item. This right exists even if you have already spent the money.4Cornell Law School – Legal Information Institute (LII). UCC 4-214 Right of Charge-Back or Refund; Liability of Collecting Bank; Return of Item
If the bank accidentally credits your account, for example by posting someone else’s deposit to you, it can reverse the entry once it discovers the mistake. Spending money credited in error doesn’t give you the right to keep it. If a credit memo appears that you can’t explain and it noticeably increases your balance, call the bank before relying on the funds.
How Credit Memos Look on Your Statement
Credit memos appear in the deposits or adjustments section of your statement. Common labels include CM, CR MEMO, MEMO CR, and ADJ. Instead of a payer name, the description usually shows a brief reason code or an internal case number.
In online and mobile banking, the initial label may be vague, sometimes just “Memo Credit” or “Credit Adjustment,” with a fuller description posting overnight after batch processing. Give a new entry a business day to update before calling. Once a descriptive label appears, match it against any dispute you filed, fee reversal you requested, or interest payment you expected. A short log of pending adjustments makes it easy to confirm each one arrived.
Credit Memo vs. Debit Memo
A credit memo increases your balance. A debit memo decreases it. Banks use debit memos for the opposite situations: monthly maintenance fees, overdraft charges, correcting a deposit credited for too much, or recovering a provisional credit after a dispute is decided against you. A “DM” or “DB MEMO” next to a reduction in your balance is the mirror image of a credit memo.
Are Credit Memos Taxable?
It depends on what the credit memo represents. Interest posted through a credit memo is taxable income, and you owe federal income tax on bank interest regardless of the amount. Your bank is only required to send a Form 1099-INT if it paid you $10 or more in interest during the year, but you’re still required to report interest below that threshold on your return.5Internal Revenue Service. About Form 1099-INT, Interest Income
Credit memos that reverse fees or correct errors aren’t taxable. A refunded overdraft fee is a return of your own money, not new income.