Subscribe

Ten essential banking terms you need to know

With banking and finance such an important part of our daily lives, taking the time to learn some new banking phrases  — or understand old ones better — could yield profitable results.

  • close
    US hundred-dollar bills are seen at AYA Bank's money changer in Yangon, Yangon Region, Myanmar (Burma) (July 17, 2015).
    Soe Zeya Tun/Reuters/File
    View Caption
  • About video ads
    View Caption
of

Banking is full of terms and concepts that can be difficult to comprehend. Even common ones have features that may not be obvious. But with banking and finance such an important part of our daily lives, taking the time to learn some new phrases  — or understand old ones better — could yield profitable results.

Here are 10 essential banking terms every consumer should know to get started:

1. Checking account

An account at a financial institution into which you can deposit money and from which you can write checks for purchases. Most people use checking accounts to receive their wages and pay their bills.

Recommended: Six mobile payment systems and how they’re working so far

2. Overdraft fee

A fee incurred when your checking account doesn’t have enough funds to cover a payment that is requested. The financial institution will pay what your account lacks, after which your account may have a negative balance.

3. Returned item fee

A bounced-check fee charged to the person trying to deposit the check. It can be charged if there are insufficient funds in the check writer’s account or if the account is closed.

4. Savings account

Typically, an interest-bearing account used to hold money for short- or long-term goals or emergencies. You can add to this account at any time, but certain types of withdrawals may be limited to six per month.

5. Compound interest

Interest that applies to the original deposit as well as any newly earned interest. For example, if you put $100 in an account that earns compound interest at 5% a year, in the next year you will earn 5% on $105. Noncompounding interest would continue to earn 5% on $100.

6. APR

Annual percentage rate. The amount of interest you gain from keeping money in an account in a year, not including compound interest.

7. APY

Annual percentage yield. The amount of interest you gain from keeping money in an account in a year, including compound interest.

8. Certificate of deposit

Commonly known as a CD, an account into which you deposit a sum of money and agree to keep it there for a specified length of time. The account typically pays higher interest rates than standard savings and checking accounts.

9. FDIC

The Federal Deposit Insurance Corp. A government-run organization that insures customers’ bank deposits up to $250,000 if the bank fails. The National Credit Union Administration is the equivalent for credit unions.

10. Routing number

A nine-digit number that identifies your financial institution. Larger banks may have multiple routing numbers that are based on the geographic location where the account was opened.

Banking may be awash in jargon, but understanding these 10 essential terms should help you navigate through it and steer your finances in the right direction.

Amber Murakami-Fester is a staff writer at NerdWallet, a personal finance website. Email: amufe@nerdwallet.com. Staff writer Steve Nicastro contributed to this article. 

This article originally appeared on NerdWallet.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK