New to Banking? Here's Some Common Bank Jargon

When it comes to banking and finance, many terms and phrases can be confusing if you’re not familiar with them. From acronyms like APR and IRA to complex financial concepts like collateral and liquidity, understanding these terms is essential to making informed financial decisions. In this blog, we’ll learn some common finance jargon and explain what they mean.

Annual Percentage Rate (APR)

APR is the interest rate charged on loans or credit cards over a year. It can include the interest rate and any associated fees, making it an important figure to consider when comparing different borrowing options.

Annual Percentage Yield (APY)

APY is the annual rate of return on a savings, checking, CD, or money market account with compounding interest. Compounding interest is talked about below.

Automated Clearing House (ACH)

The electronic network is used to transfer money between accounts at different institutions. An ACH transfer is a common form of money transfer and usually takes about 2-3 business days to finalize.

Certificate of Deposit (CD)

A CD is a type of savings account that pays a fixed interest rate for a set period. You’ll deposit a set amount into the account and leave it to sit for the designated term. Usually, the interest rate is higher when you open a longer-term account.

Collateral

Collateral is any assets used as security for a loan. If the borrower defaults on their loan (doesn’t make their payments), the lender can acquire the collateral to recoup their losses.

Credit Score

A credit score is a numerical rating that reflects an individual’s creditworthiness. It considers factors like payment history, credit utilization, and length of credit history. Are you interested in your credit score? Read how you can obtain a free report here: Free Credit Report.

Current Balance vs. Available Balance

Your current balance is the total sum of all funds in your account, including pending activity. While the amount of funds in your account ready for immediate withdrawal is your available balance.

Equity

Equity is the value of an asset minus any outstanding debts or liabilities. When talking about real estate, your home’s equity is the difference between the outstanding mortgage balance and the current market value of a property.

Home Equity Line of Credit (HELOC)

A HELOC is where homeowners can apply for a loan and borrow against the equity in their home. The interest rate is typically variable, and the borrower can withdraw funds on the line of credit when needed.

Interest Rate

An interest rate is based on the percentage of a loan charged or earned in a given period.

Compound Interest

Compound interest is calculated using the original balance in your account plus any interest it has earned over time. To know when earned interest is compounded, it’s best to check with your bank. Interest could be compounded daily, monthly, quarterly, or annually.

Simple Interest

Simple interest is money earned solely on the original amount of money deposited in your account. It doesn’t account for the effects of compounding or interest earned over time.

Individual Retirement Account (IRA)

An IRA is an investment account designed for retirement savings. There are a few types of IRAs, including Traditional IRAs and Roth IRAs.

Liquidity

Liquidity refers to how easily an asset can be converted into cash. Assets like cash and stocks are considered highly liquid, while real estate and collectibles are considered less liquid.

Micro-Deposit

Micro-deposits are small amounts of money transferred into and out of your account – generally a pair of transactions under $1. When transferred into and out of your account, the micro-deposits purpose is to verify that it is an account that can accept deposits and withdrawals. Read more about micro-deposits here: What is a Micro-Deposit, and How Can it be a Scam?

Non-sufficient funds (NSF)

NSF happens when an account balance is too low to cover a payment. To learn if any NSF fees are associated with your account, be sure to check with your bank.

Pending Transactions vs. Posted Transactions

A pending transaction is any transaction that has been authorized but has yet to be posted to your account. Pending transactions can impact your available balance (the amount of money you have available). A posted transaction is a completed transaction that has been fully processed and appears on your account statement. Read our blog to learn more: Pending Transactions vs Posted Transactions.

Principal

Principal is the amount of money that is borrowed or invested. It does not include any interest or fees associated with the transaction.

Wire Transfer

A wire transfer is another method to complete an electronic payment. Wire transfers are guaranteed funds for the recipient, meaning the payment cannot be canceled by the sender after the transfer, and the money is transferred faster than an ACH transfer.

Now that you’ve familiarized yourself with some jargon, you’ll be better equipped to navigate the complex world of personal finance and make informed decisions about your money.