Learning all of the terms that are associated with opening a bank account, taking out a loan, or performing a wide range of other tasks having to do with banking can be intimidating and scary. However, you should know that while the terms can be intimidating, the concepts really are not. With this guide on the most common banking terms, you will have all the knowledge you need to approach banking topics from an educated perspective and protect yourself while opening accounts, taking out loans, agreeing to financing, and doing a variety of other things having to do with banking. But first, let’s cover some of the large concepts that you should know beforehand.
The Top Line
- There are thousands of banking terms, but you only need to know a select few of them to ensure you can function when it comes to finances and banking.
- Don’t be intimidated by banking terms. If you have questions about the terms that you are hearing while you are at the bank, don’t be afraid to ask the banker.
- If you ever don’t know what a banking term means, be sure to research the term to make sure that you have a good understanding beforehand.
- It’s very important to have a good grasp of many banking terms so that you can be sure you are not agreeing to anything that you don’t want to and that you can protect yourself.
The Terms to Know
This is a comprehensive list of banking terms that are very important for you to know in your financial life.
ACH stands for automated clearing house and it represents a type of payment. When you transact from your bank account to make a payment or create a transfer, this is known as an ACH payment. This is the term you will hear any time you complete a payment directly from your bank account.
This is a financing term that stands for annual percentage rate. This is the rate that you can expect to pay on an annual basis for the financing that you are receiving. This usually comes into play when taking out a loan such as a car, home, or credit card loan.
As the inverse term to APR, the APY stands for annual percentage yield and it refers to the percentage amount that you can expect to receive in return for an investment, deposit, or other transaction to your bank or investment account. This is a term that earns you money.
An ATM is an automated teller machine that allows you to take money out of your bank account. You will simply enter your bank card and type in your personal identification number (PIN) to access your money easily from thousands of locations worldwide.
Available bank balance
This refers to the amount of money that is available in your bank account currently to transact that is not involved in any pending transactions.
A statement that you will receive on a monthly basis that will summarize your transactions and tell you the available amount of money in your account.
A canceled check is a check that has been used in a transaction. It “canceled” so that it may not be used in another transaction.
This refers to a check that will draw from the funds of the bank and is endorsed by a cashier or teller. A cashier’s check is guaranteed because it is the bank rather than an individual who is guaranteeing to pay the funds.
Certificate of deposit
A certificate of deposit is a savings product offered by banks that typically offers a higher interest rate in exchange for customers leaving the funds in the account for a time period such as one or more years.
Check 21 Act
Refers to a piece of legislation that allows recipients of checks to turn them into digital format in order to complete transactions more quickly. This helps customers by making their deposits available more quickly.
A checking account is a bank account that allows you to write checks and use a debit card, along with storing money securely.
A bank may ask for collateral, such as property or other things of value, to secure a loan that they give you. If the loan isn’t repaid, they will claim the collateral as their own.
Compound interest is interest that continues to accrue and has an increasing, compound effect.
A cosigner is a person that agrees to take on the responsibility of the loan if the original borrower fails to repay.
A debit card is a card issued by a bank that you use to pay for goods and services using the funds in your checking account.
When you make a deposit to your account, you will most likely receive a deposit slip to verify that you have completed the deposit.
Direct deposit is the automatic deposit of your paycheck into a bank account of your choosing.
Electronic funds transfer
When funds are transacted electronically from one account to another, it is referred to as an electronic funds transfer.
The Federal Deposit Insurance Commission is a government agency that insures the deposits made to banks to protect consumers.
Fixed interest rate
A fixed interest rate is one that does not move and is locked in.
An alert may be issued to you if your bank has detected likely fraud. Contact your bank immediately if you receive one.
This is when there is not enough funds in your bank account to complete a transaction. This could mean that your card or check is declined.
Interest is the amount of money earned from a lending activity, whether it is with the bank or banker.
A joint account is one held by two people who have access to its funds.
A minimum balance could be imposed by your bank to unlock all features of your account or avoid fees.
Online banking means that you can access your bank accounts and finances from an online portal.
An overdraft occurs when you write a check for an amount that you do not have in your bank account.
PIN (personal identification number)
A PIN is an access code that you set for your online accounts to ensure you are the only one that has access to those accounts.
Returned item fee
If there isn't enough money in your bank account to process a transaction that you have requested, you may be subject to paying a returned item fee.
The routing number defines the destination bank. You usually provide this when sending or receiving ACH payments.
Safe deposit box
This is a type of deposit box that you can keep at a bank account that can hold valuable physical items.
This is a type of bank account that you use to store money for the long-term. It is not intended for regular use and is limited to six withdrawals per month.
This is a demand given by an account holder as instructions to a bank to cancel a check or payment that is pending.
Variable interest rate
This is a type of interest rate that is subject to change and not locked in.
A wire transfer is a transfer that is conducted between two customers. The sender requests the wire transfer from his or her bank to be sent to the recipient’s bank. It is an immediate electronic transfer of funds so the recipient may start using the funds right away.