Chapter 1. Key terms you need to know

Using the appropriate terminology in the business world can make or break a financial deal. Hence, it is critical to understand the various terms used in banking to take full advantage of the provided services, especially when shopping for a bank and needing to compare before making financial decisions. 

How to

Here is a summary listing of basic terminology and definition used by banks to conduct financial transactions:

Checking account

• • Checking account is a specific bank account against which checks can be drawn by the account depositor
    • Also called a "transactional" account
  • Used to pay bills, set up an automatic transfer, or use a debit card
  • Depending on each financial institution, checking accounts can provide features and restrictions
    • Be wary of minimum balance required to open a checking account, the limited number of transactions allowed each month, fees attached to each ATM withdrawal transactions, and monthly maintenance fee required
  • Your goal is to find a bank or a credit union that provide a free checking account, free ATM withdrawal transaction, and overdraft protection, and YES, such financial institutions do exist!

Saving account

• • A saving account is a basic type of bank account that allows you to deposit money, keep it safe, transfer money to checking account, and/or withdraw funds, all while earning interest
    • It does not allow account holders to write checks or pay bills

Certificate of Deposit (CD)

• • CD is a saving certificate with a fixed maturity date and specified fixed interest rate that can be issued in any denomination aside from minimum investment requirements
  • A CD restricts access to the funds until the maturity date of the investment

Money market account

• • Money market account is an interest-bearing account, provides the account holder with limited check writing ability
  • Thus, offering benefits of a combined saving and checking account

Online banking

• • Online banking is a method of banking in which transactions are conducted electronically using a device such as a computer or a cell phone
  • Many banks and credit unions also offer secure online banking services to their customers/ de facto owners

Payroll direct deposit

• • Payroll direct deposit allows your employer to deposit your earnings electronically into your bank account which allows you to get to your money faster than having to deposit a paper check and wait for it to clear before you can access available funds

Routing number 

• • Routing number is used to determine where to route funds to or from for each financial institution
  • Routing numbers of each financial institution are available to public and point to the institution receiving funds

Account number

• • Account number is the assigned number to each customer to indicate ownership
    • Employers use both routing and account numbers to direct deposit payroll earnings in the correct institution and employee's account
  • Safeguard your account number and use privately to conduct financial transactions

Debit Card/Credit Card

• • The difference between a debit card and a credit card account is from which source the cards pull the money
  • A debit card takes money from your bank account (money that you have) while a credit card is borrowed money charged to your account (money you must pay back plus applicable interest)

Automatic bill payment and bill-pay

• • Automatic debit payments work differently than the recurring bill-pay feature offered by your bank
    • In recurring bill-pay:
      • You give permission to your bank or credit union to send the payments to the company
    • With automatic bill payment or debits:
      • You give your permission to the company to take the payments from your bank account
  • Bill pay feature allows customers to remain in control of scheduled payments

Automated teller machine (ATM)

• • ATM is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller
    • Anyone with a credit card or debit card can access most ATM machines, the amount is usually limited by day and transaction
    • Be aware of transaction fees attached to using ATM by most institutions
  • Always seek free services for your financial transactions to save money

Practice

Now that you know most used terminology by banks and credit unions, think of paying it forward and discuss other terms you know with a friend or a family member!

Congratulations! You can move on to Chapter 2. What is a bank? What is a credit union?

To review the full module on Banking, click here.