Financial Terms

*Definitions provided by http://www.fdic.gov/consumers/consumer/moneysmart

 Automated Teller Machine (ATM)

An ATM is a computer terminal that can give you money from your account. You may also be able to deposit money into your account at an ATM. You can make deposits and withdrawals 24 hours a day, 7 days a week.

Annual Percentage Yield (APY)

APY is the amount of interest you will earn on a yearly basis expressed as a percentage. The APY includes the effect of compounding. When comparing different accounts, you should compare the APYs of the savings products, not the interest rates. The higher the APY, the higher the interest you will receive.

Certificates of Deposit (CDs)

CDs are accounts where you leave your money for a set period of time called a term, such as six months or one, two, or five years. You usually earn a higher rate of interest than in a regular savings account. The longer you promise to keep your money in a CD, the higher the interest rate. Be sure to think about your cash needs before opening a CD because you will pay a penalty if you withdraw your money early.

 

Check

A check is a written contract between you and your bank. When you write a check, you are asking the bank to take money from your account and give it to someone else.

 

Check Register

A booklet that comes with your checkbook when you open a checking account in which you write all of the deposits to and withdrawals from your account.

 

Checking Account

A checking account allows you to write checks to pay bills and buy goods. The financial institution takes the money from your account and pays it to the person or company named on the check. You can also buy goods with the money in your checking account by using a check card. You can deposit money into and withdraw money from your checking account in a number of ways. The financial institution will send you a monthly statement that lists the deposits and withdrawals you made, the checks you wrote, and the purchases you made with your check card.

 

Debit Card

A debit card is similar to an ATM card, but it has more functions. In addition to allowing you to deposit cash into and withdraw money from your checking account at many ATMs, debit cards allow you to make purchases at retail locations that accept credit cards, such as department stores or gas stations. They generally feature either a Visa or MasterCard logo.

 

Deposit

A deposit is money you add to your account. When you add money to your account, you must fill out a deposit slip. A deposit slip tells the bank how much money you are adding to your account. Depending on what you deposit – cash, a payroll check, or a check drawn on an out-of-state bank – you may not have immediate use of the funds. The bank must first make sure there are funds at the originating bank to cover your check. You can ask the bank when you can use the money you deposited.

 

Deposit Slip

When making a deposit, you fill out a deposit slip to let the teller know how much you are depositing. Deposit slips are included in your checkbook and have your account number printed on them.

 

Direct Deposit

Direct deposit is a method your employer or a government agency might choose to give you your paycheck or benefits check. Your paycheck or benefits check is electronically transferred and directly deposited into your account. You will not receive the check in the mail. Your payroll or benefits check statement is mailed to your home address. The money is immediately available. Some banks will not charge monthly fees if direct deposit is used.

 

Endorsement

When you sign the back of a check, you are “endorsing” it. This means that the check can be cashed.

 

Electronic Banking

Using your ATM card to deposit money into and withdraw money from your account is known as electronic banking. Electronic banking uses computers to move money to and from your account instead of using checks and other paper transactions. Electronic banking includes debit card transactions, electronic bill pay, and ATM transactions.

 

Electronic Bill Pay

Electronic bill pay is a service that automatically takes money from your account each month to pay your bills. For example, if you have a monthly car insurance payment, you can sign up to have it deducted each month.

 Equity

When referring to a home, equity is the difference between how much the house is worth and how much you owe on the house.

Fees

Financial institutions charge different fees for different services. For example, you might be charged a monthly maintenance fee for keeping your account open. In addition, you might also be charged a penalty fee if you misuse your account, for example, by bouncing a check.

 

Fee Schedule

A bank document that lists the fees you might be charged for certain activities related to a checking account. Some of the most common fees include a monthly service fee, an ATM user fee, an overdraft fee, and a stop-payment fee. You can use the fee schedule to compare the costs of checking accounts at different banks.

 

Interest

Interest is the extra money in your account that the bank pays you for keeping your money. One of the main advantages of having a deposit account is the interest you earn.

 Investment

A savings option purchased for future income or financial benefit.

Money Market Accounts

A money market account is one that usually pays a higher rate of interest than a regular savings account. Money market accounts usually require a higher minimum balance to earn interest, but they also pay higher rates for higher balances.

Reconciliation

When you get your monthly checking account statement, there will usually be a difference between the statement balance and your check register balance. These differences occur because:

• There may be some transactions on the bank statement that you missed.

• There may be some transactions in your check register that were made too late to be recorded on the bank statement.

Reconciling your checking account helps you find the reasons for the differences.

 Retirement Plans 401(k) and 403(b)

401(k) plans are retirement plans that some private corporations offer their employees. A 403(b) plan is similar to a 401(k), but is offered to employees of some non-profit organizations. In both types of plans, you choose to deduct part of your paycheck and place it into the investment strategy you design. The plans allow you to choose different types of investments, depending on how much risk you want to take. The money you place into the account lowers your taxable income. The employer usually matches a portion of your contribution, sometimes up to 50 percent. The funds grow tax-free until the money is withdrawn during retirement.

Substitute Check

This is an electronic image of your check that has the same standing as the actual check. Banks now use electronic checks instead of waiting to receive the paper check.

 

Signature Card

A signature card is a form you complete and sign when you open an account. This is the contract that identifies you as the owner of the account. Your signature is used to verify your signature on checks and withdrawals. Signing the signature card also means that you accept the fees, terms, and conditions of the account.

 

Transaction

When you write a check, deposit or withdraw money, use your check card, or have checks direct-deposited into your account, the bank calls this a “transaction.”

 

Withdrawal

A withdrawal is the process of taking money from your bank account. You do this by writing a check, using an ATM, or giving a teller a withdrawal slip. A withdrawal slip looks similar to a deposit slip, except you are taking money out rather than adding money to your account. You need to be sure you do not withdraw more money than you have in your account. If you do, you will be overdrawn – or “bounce” a check – and be charged a fee.