Banking is packed with words and definitions that can be difficult to apprehend. Yet taking the time to learn some new terms - or better understand old ones - could produce valuable benefits with banking and finance being such an integral part of our everyday activities. Knowing basic banking and finance - and people's terms for thinking about it - will make a big difference in your bank balance. Here are 10 terms of banking which you should know to better manage your money.
1. Certificate of Deposit
Also known as CD, an account that you deposit a sum of money into and agree to hold for a specified length of time there. Usually, the plan charges higher interest rates than usual savings and checking accounts.
2. Routing Number
A number with nine digits defining the financial institution. Larger banks may have several routing numbers based on the location where you opened the account.
Annual Percentage Yield is the sum of interest you gain, including compound interest, by holding money in an account in one year.
4. Compound Interest
Compound interest is the extension of debt to the principal amount of the loan or savings or, in other terms, return on interest It is the outcome of reinvesting the money, rather than taking it out, so that the profit in the next cycle is paid on the principal amount.
APY implies Annual Percentage Rate. Banks are allowed to display this rate prominently with their deposit accounts, such as saving accounts and deposit certificates (CDs). APY offers you the most precise idea of what your investment could gain in one year.
6. Overdraft Fee
A charge received anytime the checking account doesn't have ample funds to cover a necessary bill. The bank must reimburse what your account needs, which may result in your account having a negative balance afterwards.
7. Returned Item Fee
The person trying to deposit the check is paid a bounced-check fee. It may be paid if the check writer's account includes insufficient funds or if the account is locked.
8. Cost of Funds
The cost of the funds applies to the interest rate charged for the assets used in the business by financial institutions. As the lower costs can produce better returns when the funds are allocated to lenders in the form of short-term and long-term loans. One of the main sources of income for most financial institutions is the difference between the cost of funding and the interest rate paid to lenders.
9. Money Laundering
The money from a conviction is put in a bank, or in all legitimate operations so that criminals and terrorists can easily access it. It simplifies access to the profits of illegal activity.
10. Working Capital
Working capital is a financial term reflecting the operational assets accessible to a corporation, company, or other agency, including government bodies. Working capital is supposed to be a part of operating capital, along with fixed assets such as capital assets.