An explainer: essential banking and credit terms in the US
By: Lorien Finance
Tags: Study Abroad, Gmat, Ielts, Toefl, Gre

Everyone must be aware of basic essential banking terms, especially when moving abroad on their own. Knowing these terms will help you become more credit literate and can make a big difference in your bank balance.

Here are a few essential banking terms that everyone should know:

Savings Account: Savings accounts are the accounts where you will not get any checks or debit cards directly tied to your account, so you will be able to resist the temptation of spending the money. They offer higher interest rates. You might also have to pay a penalty fee if you make more than a fixed number of transactions from your account in six months. You can add money to these banks account at any time, they have a wide range of interest rates and online banks provide higher interest rates.

Checking Account: A checking account is where people keep their day-to-day money. They can opt for services like checks (hence the name), debit cards etc to spend the money they have in their account. These do not offer very high-interest rates. It is also necessary to keep a minimum balance in these accounts to keep your account up and running.

FDIC: The Federal Deposit Insurance Corp. It is a corporation that supplies deposit insurance to depositors in American depository institutions. It maintains stability and public confidence in the nation’s financial system.

Routing Number: it is a nine digits code used by financial, to identify other institutions. It’s also known as an RTN (routing transit number) and an ABA (American Bankers Association) routing number. Larger banks may have multiple routing numbers.

Cash Equivalent: Literally Speaking, it means something that can be redeemed as money. Highly liquid accounts hold funds that can be accessed immediately without penalty or risk of loss. There are five types of cash equivalents:

Treasury Bill

Commercial Papers

Marketable Securities

Money Market Funds

Government Bonds

APY: The Annual Percentage Yield. It is the total amount of interest your account earns in a year including compound interest. The APY can differ greatly for different types of bank account, also depending on if your account is in a traditional bank, online bank Or credit union.

APR: The Annual Percentage Rate. It is the interest you earn by keeping your money in an account for a year, this does not include compounding. In the context of a loan, the APR is the amount of interest on your total mortgage loan amount that you’ll pay annually (averaged over the full term of the loan).

Compound Interest: Compound interest is the total of the interest that your bank pays you for the money you deposited in the bank and the money that your interest earns over time.

Credit/ Credit Score/ Credit History: You can borrow a loan from banks or other lenders. The credit score you see in U.S. Bank mobile and online banking is a unique score derived from the VantageScore 3.0 model to help you understand your creditworthiness. The best U.S. Bank credit cards require a 750 credit score or higher for approval of the loan. A minimum of 700 credit scores is a must for taking a loan.

Electronic Funds Transfer: It is a method of transferring funds between banks, individuals and businesses. These are of two types, ACH and Wire Transfer.

ACH: The Automated Clearing House. It is an electronic funds transfer system that operates between businesses, banks and individuals. It processes large volumes of credit and debit transactions in batches, including direct deposit, payroll and vendor payments.

Wire Transfer: It is the second type of EFT. It generally involves paying a fee depending on whether the payment is incoming or outgoing, domestic or international. Once a wire transfer is sent, it cannot be returned.

Endorsement: To cash or credit a check, you sign your name on the back of the check, it is known as Enforcement.

Returned Item Fee: This is the bounced check fee that is deducted from the account of the person who is trying to deposit the check. It generally happens due to insufficient funds in the account. It is also known as non-sufficient funds or insufficient funds fees.

Overtime Draft Fee: When you make a payment online but your account doesn’t have enough money to pay the bank will complete the transaction but your account balance will be negative.

Grace Period: It is the period between the end of your billing cycle and the date when your payment is due. It can vary from 15–20 days.

We hope these terms will keep you informed about your financial life… ;)