These ten terms can help you greatly with your savings and bank account if you really want to handle your finances the right way. Keep reading to find out more.
If you have a bank account and you think it’s time to know more about finances and how everything functions, here are some basic terms, you should know before diving deeper into the finance world. Consider this as a number one lesson, which is the basis of everything you should learn further so you can better manage your finances. Keep in mind that these terms can have a much broader meaning, and sometimes you can be taken advantage of if you don’t know them well. That’s why we’re here to guide you through.
- Routing number
This is a nine-digit number that can locate your bank of choice. More giant bank corporations have more than one routing number. These are created based on the physical location where the primary account was open. It is very convenient and essential, especially if you are trying to make a foreign transaction. This number is usually asked from you to give.
The term is standing for The Federal Deposit Insurance Corp. This is extremely important for your finances, and that’s why you should do a background check before opening an account at a specific bank. The insurance is an organization that gives deposits up to quarter a million dollars, should the bank collapse.
- Certificate of deposit
This is widely known as a CD. What is it exactly? An account that serves you to deposit an amount of money you choose and decide to keep it safe and untouched for a specific period. This type of account is useful because it typically has higher interest rates than other accounts, so you should check it out.
APY is the Annual percentage yield. In simple English, it means the amount of money you will get (interest), from keeping your money in an account for a certain amount of time (usually a year). It matters because banks use your money as well to profit, and that’s why your “savings account” basically benefits them, so it’s only natural for you to benefit as well, as much as you can (with compound interest).
This is the annual percentage rate. It’s the same as APY, except it doesn’t include compound interest (we will get to that in a minute), so pay attention to APR when you sign a bank contract.
- Compound interest
Finally, you will learn about this! Compound Interest is a part of the original deposit and also every newly earned interest. What does it mean? If you put $1000 in an account that makes compound interest at 5% a year, in the next year, you will earn 5% on $1050, and on that amount next year, you will get even more. Without Compound interest, the percentage would stay the same.
- Savings account
We are all familiar with savings accounts or already have one. Can we learn more? Absolutely yes, and you should! Typically, this type of account is for emergencies. You can put more money into this account at any time, but withdrawals are usually minimal, so think whether you want to have your rainy-day fund in your home or your bank.
- Returned item fee
A returned item fee is most commonly known as NSF (non-sufficient/insufficient funds fee). This can happen if you try to pay something, and it fails. Your bank can charge you and refuse the payment if something is not right during the transaction. Then the bank can cost the owner of the account the amount of the returned item fee.
- Overdraft fee
This happens when you have to pay for something but don’t have enough money in your bank account. If your type of card allows you to go overdraft, that means that your bank will pay for the amount you lack, but be aware of the fact that you will go into a negative balance and you’ll probably have to pay some fee (but try not to get into that habit, if you can).
- Checking account
This type of account is usually for companies and businesses. With a checking account, you can issue checks, and people are using them mostly to receive their paycheck and pay their bills. If you have a company or a stable job, you probably have this type of account already.
Now that you know the most common terms, we hope you get some insight into how the banks function, and how you should navigate them according to your needs and financial situation. Keep in mind that some are entirely normal and unharmful, while others you should investigate a bit more, or ask your bank for a detailed explanation. Do your research and stay up to date. You will manage your finances better and feel more independent when you know where you stand and how you manage your life.