Cutting through financial jargon can help you manage your finances better. Here are some essential banking terms you should know:
Compound Interest
Compound interest applies to your original deposit, along with any newly earned interest. For instance, if you deposit $100 in your account that gains compound interest at 5% per annum, you will get 5% on $105 next year. Non-compounding interest would earn you 5% on $100.
Annual Percentage Yield (APY)
APY is the interest you earn by keeping money in an account during a year, including compound interest.
Annual Percentage Rate (APR)
APR, like APY, is the interest you earn by keeping money in your account in a year. However, the primary feature that sets APR apart is that it excludes compound interest.
Certificate Of Deposit (CD)
A CD is an account in which you deposit a certain amount of money and agree not to take it out of there for a specific period. A CD provides higher interest rates than standard checking and savings accounts.
Savings Account
A savings account typically bears interest and can be used to hold funds for short-term or long-term goals, or emergencies. You can add money to this account anytime, but specific types of withdrawals may be restricted to six every month.
Checking Account
A checking account can be used to deposit money and write checks to make purchases. Most people utilize a checking account to pay their bills and receive their salaries.
Returned Item Fee
It’s a fee charged to a person trying to deposit a bounced check. It can be charged if there are insufficient funds in the account of the person who has written the check or if the account is closed.
Federal Deposit Insurance Corp. (FDIC)
It’s an organization run by the government. It provides insurance for customers’ bank deposits up to $250,000 if the bank were to fail. For credit unions, the National Credit Union Administration fulfills this responsibility.
Routing Number
It is a nine-digit number used to identify a financial institution. Larger banks may have several routing numbers that differ based on the geographic location where the account was opened.
Overdraft Fee
If your account doesn’t have sufficient funds to make a requested payment, you may be charged an overdraft fee as a result of your financial institution paying the lacking amount.
