Sometimes, it may seem like banks speak a foreign language. Between specific terms and unknown acronyms, navigating your banking needs may be confusing, but it doesn’t have to be. With an understanding of common banking terminology, you can confidently navigate your finances. Here’s a rundown of common banking terms everyone should know.
Short for Automated Clearing House, ACH is a system used to process digital transfers between bank accounts. ACH transactions are often free to send and receive. Transfers generally show up in one to three business days.
Annual Percentage Rate (APR) measures interest rates, most commonly used for debt and loan accounts. If you have a credit card, car loan, student loan, mortgage, or any other type of debt, you should pay close attention to APR. A higher interest rate means you pay more for every dollar borrowed. You can compare the APR of different loans to figure out which is a better deal.
ATMs and ATM fees
An automated teller machine (ATM) is a computer that allows users to complete banking transactions without waiting in line and talking to a human bank teller. You can deposit checks or cash depending on your bank and the ATM. Regardless of your bank, you can use nearly any bank ATM to withdraw money. However, the bank or ATM owner may charge fees when you use out-of-network ATMs.
Chime tip: Members can access more than 60,000 fee-free ATMs, with locations at popular stores like Walgreens, 7-Eleven, Target, Circle K, and CVS Pharmacy.1
Cash equivalents are investments that can be quickly converted into cash. Examples include U.S. Treasury bills and certificates of deposit. Most cash equivalents have a short investment horizon before maturity (when the investment ends).
Certificate of deposit
A certificate of deposit (CD) is a time-bound savings account. With a CD, bank customers earn a fixed interest rate until maturity. If you want to withdraw funds before the time limit, you may be required to pay a penalty, usually a number of months of interest.
Checks are a form of payment or money transfer where funds are withdrawn from the indicated account, such as a checking account or money market savings account. Checks are useful for paying other people and some businesses.
A checking account is a bank account typically used for daily spending needs. Many banking customers receive a direct deposit from their employer into their checking account and use it to pay bills or make purchases with a linked debit card.
ChexSystems is a consumer credit reporting agency focused on bank accounts. ChexSystems reports might include details on when you opened or closed a bank account, your history of overdrafts, and any information if you had problems with your bank accounts.
Compound interest is a term used to describe interest earned on top of other interest. For example, if you earn $10 in interest in your account, that $10 would be considered when calculating future interest payments.
Credit cards are a type of short-term loan enabling you to make payments directly with a linked line of credit. A type of revolving credit, you can repay your balance and make new purchases repeatedly as long as the account is open and in good standing.
Check out some of the best credit cards to build credit.
Credit utilization is an industry term for the percentage of your available credit that is in use. For example, if you have a $5,000 credit limit and a $2,500 balance, your credit utilization is 50%. High credit utilization can harm your credit score, while maintaining low balances can help your credit score.
A debit card is a financial tool used to make purchases with funds from your checking account. When you use a debit card for a purchase, the funds are immediately deducted from your linked bank account and transferred to the seller.
Delinquency is a term for a debt payment that’s past due. Your account is considered delinquent if you miss a due date for a credit card or other loan. Delinquencies lead to lower credit scores and could require additional fees or a higher penalty interest rate.
Direct deposit is a form of payment from an employer to an employee where funds are sent to the employee’s bank account. Unlike a paper paycheck, direct deposited funds don’t require a trip to the bank or a deposit using your bank’s mobile app. Funds are made available when received from the employer on payday.
EFT is an acronym for electronic funds transfer, and it refers to the digital movement of money from one account to another. In the U.S., most EFTs take place using the Automated Clearing House (ACH) system.
The Federal Deposit Insurance Corporation (FDIC) is a government entity offering deposit insurance for bank customers. If your bank goes out of business, you are guaranteed to get your money back by the FDIC up to applicable limits. The current limit is $250,000 per depositor per financial institution. That means you are insured up to $250,000 as an individual or $500,000 for joint accounts.
A FICO score is a popular credit score model many lenders use when approving new loan applications. FICO is short for Fair Issac Corporation, the company responsible for developing and maintaining the FICO credit rating model.
Foreign transaction fee
Foreign transaction fees are bank fees charged when making a purchase outside of the U.S. or in a foreign currency. While some cards come with no foreign transaction fees, many debit and credit cards require an additional fee when using your card abroad.
Fraud is an all-encompassing term for unauthorized activity in a financial account. If someone’s account information is stolen and used for unauthorized purchases, those transactions are considered fraudulent.
Credit cards from all major issuers in the U.S. come with $0 fraud liability if someone uses your card number and you have not lost your card.2 If your physical card is ever lost or stolen, report it to the issuer immediately to prevent unauthorized purchases.
An interest rate is a method used to determine how much an account holder will pay or earn based on the account’s balance. Interest rates are published as a percentage, where you must pay or can earn interest at that specific annual rate.
A joint account is a bank account that two individuals share. With a joint account, both account holders have full control over the account, including the ability to withdraw funds or close the account.
In banking, maturity is a term for the date an account or investment becomes due or payable. For example, a certificate of deposit’s maturity date is the date the account’s term comes to an end, and interest is paid. For loan accounts, maturity is the date of the final payment when the entire balance is scheduled to be paid off.
Money market account
A money market account, or money market savings account, is a type of bank account that typically combines features from a checking and savings account in one. Most money market accounts are interest-earning accounts that also have check-writing abilities.
Mortgages are a type of loan tied to a home or other property. As a secured loan, the borrower may get more favorable interest rates than they would with unsecured debt. However, if payments are not made, the lender can seize and sell the property to recoup the outstanding loan balance.
Online banking is a method of managing your bank accounts with Internet-based tools like a smartphone or laptop. With online banking, you can log into your account to view balances, enter transfers, and handle other self-service banking needs. Most modern banks offer web-based and mobile banking options.
A savings account is an interest-earning bank account. With a savings account, you can earn interest annually based on your account balance. Interest is usually paid monthly. Savings accounts typically have a limit of six monthly withdrawals, though you can withdraw any amount you want in each withdrawal.
High-yield savings accounts come with an APY higher than the industry average.
Wire transfers are a type of funds transfer used to send funds between accounts on the same business day. Wire transfers typically require a fee from the sending bank and often require a fee from the receiving bank. Wire transfers can be used in transactions in real estate and business.
Growing your financial IQ with common banking terms
Being a savvy banking customer means understanding how your accounts work so you can easily manage your daily banking needs. When you know these common banking terms, you can enjoy a banking experience where you feel in control of your money.
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