Banking 101: Main Banking Terms Explained

The banking sector has the use of a large number of terms. Understanding these basic terms of banking and its attributed terminologies can make a big difference in the management of a bank account and its related processes. The following are the most commonly used banking terms in our daily life which are a must to understand.

Routing Number

This is a 9 digits number which is identifying the financial institution. The larger banks might have many routing numbers grounded on the geographical location of the account as they have branches all across the globe.

Saving Account

This is a type of account that encourages consumers to make savings because of a good rate of interest. However, some of the saving accounts have restrictions on withdrawing a specific amount each month.

Checking Account

This is an account allowing consumers to deposit and withdrawing amount as per their requirements on a daily, weekly, and monthly basis.

Withdrawal

The amount taken out from a specific account is known as withdrawal.

Deposit

The amount added to an account is known as a deposit.

Interest

Interest is a specific percentage on certain account balances which is paid to account holder on a periodic basis. The banks offer interest rates to consumers in order to hold their money.

Minimum Deposit

This is the lowest amount that is needed for opening a new bank account.

Minimum Balance

This is a minimal amount that a bank entails consumers to keep in their accounts in order to avoid a maintenance fee.

Overdraft

In case if the consumers attempt to withdraw an amount exceeding their current balance is known as an overdraft.

Bank Statement

A bank statement is also known as an account statement is a monthly, bi-yearly, or yearly account activity sent from the bank to consumers online or through mail service.

Direct Deposit

This is a kind of paycheck that is transferred to the consumer’s bank account electronically.

FDIC

FDIC abbreviated as federal deposit insurance corp. is basically generated by a government organization which is ensuring bank deposits of consumers for more than $0.25 million amount if the bank fails.

Annual Percentage Yield

APY is the interest amount that consumers gain by keeping their money into a bank account for a whole year. This also comprises of the compound interest.

Compound Interest

This is an interest that is applicable to the original deposit along with the newly earned interest. For instance, if $500 are saved in an account and the interest rate is 5% per year, then $25 will be paid to the consumer as interest. Therefore, in next year 5% interest will be earned on $525. This is how compound interest works.

Returned Item Fee

This is the fee that is charged when a person tries a check deposit and it is bounced.

Annuities

The annuities are actually contracted from a banking perspective. Such contracts are guaranteeing returns or income as a result of the exchange of huge amounts. Such amount is either deposited as a lump sum or on periodic installments.

Certificate of Deposit

The certificate of deposit is also referred to as CD. It is a type of document that is given to a depositor who decides to keep a sum of money within a bank account for a time duration. Therefore, the account owner and the bank reach an agreement, which specifies how long the money must be kept within such an account. The type of account that an account owner gets a certificate of deposit is not like a typical checking or savings account. Rather, it is a special type of account that offers elevated interest rates for the duration of time agreed.

Balance Transfer

A balance transfer is a crucial banking process of today’s world. This process is mostly available for owners of credit cards during payments. In most cases, a balance transfer is ideal when an account owner has several types of cards. As a result, an account owner is able to transfer the balance from one card to another when they wish to make payment with a specific card. This process is mostly carried out when the payment of a card is due and its balance is not sufficient to allow for such an action. Therefore, balance transfer helps to reduce the interest on a card and extend the due payment date of the other card.

Credit History

Credit history is a piece of important information that helps money lending institutions decide whether to provide or deny credit to an individual or an organization. It contains the entire history of borrowing. Such information includes the amount of money borrowed, credit card use, payment duration, and amount of money owed if any. Therefore, how an individual manages the money in the past has a direct effect on their ability to borrow in the future. A good credit history helps a person or an institution to access financing with ease.

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