Glossary of Personal Banking Terms

January 9, 2017

Banking terminology is not always the easiest to follow. Learn these definitions of common personal banking terms to navigate the banking world like a pro.

Annual Percentage Rate (APR)
The yearly rate that is charged for borrowing, which represents the annual cost of funds over the term of the loan.

Annual Percentage Yield (APY)
The amount of interest earned on a deposit account (like a savings account) during a one-year period. This includes interest earned on the amount in the account and compounded interest for the year.

Automated Clearing House (ACH)
An electronic network in the United States that allows financial institutions to transfer funds. ACH is used for credit transfers like direct deposit, payroll for businesses and vendor payments. It makes transferring money simple and efficient, saving business owners and individuals time.

Cashier’s Check
A check that is guaranteed by the bank and drawn from the bank’s own funds. It is signed by an individual authorized by the bank and is often used for real estate or automobile transactions because the seller knows the funds are backed by the bank.

Certificate of Deposit (CD)
A bank-issued certificate for a deposit that earns interest at a certain rate for a specified amount of time. CDs are generally considered safe investments (FDIC-insured) and usually have higher interest rates than other types of savings accounts—money market accounts, for example.

Checking Account
A bank account from which you can easily access your funds to make withdrawals or deposits.

Compound Interest
Interest paid on the principal account balance and on the interest it has already earned within a given time period.

Credit Score
A number that indicates to an individual’s ability to repay a loan. Credit scores can affect a borrower’s credit approval for credit cards, loans and mortgages. They can also affect loan interest rates, approval for renting property and insurance costs. Credit scores range from about 300 (very poor credit) and 800 (excellent credit). Individuals are entitled to a free copy of your credit report once a year from the following three agencies: Equifax, Experian or TransUnion. Go to AnnualCreditReport.com or call 1-877-322-8228 for more information.

EMV/Chip Card
A debit or credit card with an embedded microchip that encrypts information for extra security during transactions. Read our Mobile Payments Guide for more information here.

Direct Debit
A system that allows creditors to automatically withdraw payments from a customer’s bank account at regular intervals. This allows customers to automatically make regular payments for recurring bills.

Electronic Funds Transfer (EFT)
An electronic-based system that transfers funds between financial accounts. This includes Automated Clearing House (ACH) and wire transfers.

Federal Deposit Insurance Corporation (FDIC)
An independent government agency that insures the deposits of all national and state banks that are members of the Federal Reserve. This promotes public confidence in the U.S. financial system because the agency insures banks’ deposits up to $250,000 per depositor (meaning that if the bank were to conduct fraudulent activity or otherwise lose depositors’ money, the agency would replenish the funds). The agency monitors and addresses risk of each member bank. For more information, visit www.fdic.gov.

Interest Rate
The percentage of interest paid to the account holder on an interest-bearing account (like a savings account) or the percentage charged on a loan to the borrower.

Individual Retirement Account (IRA)
An account that is tax-free or tax-deferred for individuals saving for retirement. There are multiple types of IRAs, including Traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP IRAs.

  • Traditional and Roth IRAs: Established by taxpayers who are allowed to contribute all of their compensation up to a certain amount. Traditional IRAs may be tax-deductible, depending on income, filing status and coverage. Roth IRAs are not tax deductible, but are not taxed at withdrawal upon retirement.
  • SEP and SIMPLE IRAs: Retirement plans established by employers, often as part of a 401(k) plan.

Line of Credit
A loan arrangement between a bank and a customer allowing the customer to borrow funds up to a pre-approved limit at any time during the life of the loan. The customer is not obligated to borrow at any particular time, and interest is not usually charged on the part of the line that is unused.

Maturity Date
The date the principal amount of a debt instrument is due and repaid to the investor and is also the date interest payments stop (if the loan is paid in full). In addition, this can be the date that a Certificate of Deposit (CD) matures or that the CD can be renegotiated or withdrawn.

Minimum Daily Balance
The minimum dollar amount required by a bank in a particular account to waive any accountholder maintenance fees.

Money Market Account
An interest-bearing account that usually has higher interest rates than savings accounts and offers limited check-writing ability, but requires a higher minimum balance and restricts the number of transactions that may take place each month.

Pre-Authorized Debits
An arrangement between a customer and a bank that authorizes the bank to withdraw from the customer’s account. These can be set up to conveniently make recurring payments or transfer funds.

Positive Pay
A service implemented to prevent check fraud. Positive Pay verifies that checks presented for payment match company-issued checks and alerts check issuers of all mismatches.

Remote or Mobile Deposit
A service that allows customers to deposit checks at their convenience using a scanner or smartphone and software provided by the bank. This tool allows people to make deposits without having to make a trip to the bank.

Savings Account
A bank account, typically paying a modest amount of interest, that allows the customer to set aside funds for future purchases.

Sweep Account
An account that automatically “sweeps” funds exceeding a predetermined balance into an investment account (usually with a higher interest rate), then automatically “sweeps” them back into checking when balances drop below a predetermined minimum. This provides account holders with the highest amount of interest without having to frequently move funds between accounts manually.

Standby Letter of Credit
A letter issued by a bank upon contract initialization on behalf of its client that guarantees payment to fulfill a contract should the client fail to meet its contractual obligations with the third party.

Wire Transfers
Wire transfers allow individuals and companies to efficiently and securely transfer funds electronically to other individuals or entities.

Zero Balance Account (ZBA)
A zero balance account receives only enough funds from the concentration account to cover checks presented each day in order to maintain a balance of zero. These accounts are used to eliminate excess balances and increase investment opportunities.

 

Don’t let banking terminology overwhelm you. Talk to a Revere Bank representative today to get answers to your questions. For more information, contact us online, call or email a Revere Bank relationship manager at 866-950-5784 or customerservice@reverebank.com.

 

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