A Complete Glossary Of Banking Terms And Terminologies6 min
Do you ever get confused when it comes to financial terms? This blog provides definitions for commonly used banking terms and phrases.
Banking and its various services play a crucial role in all our lives. However, many of us are still unaware of many banking terms and terminologies. Given below is an entire list of all relevant banking terminologies alphabetically.
ABM (Automated banking machine)
ABMs are one of the most convenient and popular forms for monetary transactions involving withdrawals, transferring, or deposits via standalone machines. You will need a credit or a debit card to avail of the ABM services.
Before the activation process of an account begins, every customer needs to sign an agreement with certain pre-defined conditions. Banks term this contract as an Account Agreement that includes all the necessary and relevant account details.
Account balance is the total amount of money available in the account of the account holder for a specific accounting period.
Account history includes all the various activities carried out by an account holder over a financial period. Banks show all transactions, including debit and credit, in the account history.
An account holder is the designated individual entitled to operate a bank account. An account holder is the owner of the mentioned account.
Accrued interest is the interest being recorded but not yet paid out. Both a borrower and a lender can receive it.
The annual fee is a pre-set amount charged by all banks annually for the credit card service availed by its customers. The bank statement reflects this annual fee deduction amount.
Annual Percentage Yield (APY)
The Annual Percentage Yield or APY is the rate of the total interest paid on a savings deposit account for a particular financial year.
Assets are all the possessions that one individual owns. They can be convertible into cash and can include properties or investments.
Automatic Savings Program (ASP)
An Automatic Savings Program enables account holders to transfer funds electronically across various bank accounts regularly. Depending upon the chosen plan, the account holder can transfer funds every week or month.
Availability policy is a specific time when the amount of funds deposited in an account is available for an account holder to withdrawal as mentioned in the bank policy.
The term Available Credit is the amount of money in an account that the account holder can use. It is the difference between the purchase limit and the balance in your account.
A balance transfer is transferring a specific balance from one bank account to the other.
A bank custodian is eligible to safe keep the security and financial assets of a customer from any illicit activities or loss of possession.
Bank examination is an overall summarized statement of all the operations inside the bank. Its primary aim is to ensure its solvency and how ethically it follows all banking laws and principles.
A bank statement is a financial statement provided by a bank periodically recording all transactions carried out by an account holder.
The billing cycle is the period between the last billing date and the current billing date.
The billing date is when the bank issues the statements to all customers, and the bank debits the due amount from the account.
Canada Education Savings Grant (CESG)
The Canada Education Savings Grant or CESG is a special grant issued by the Canadian government for education. It is a federal government grant that gets automatically deposited into a Registered Education Savings Plan (RESP) and adds 20% to the first $2,500. It can grant an annual maximum contribution of up to $7,200 per child.
A canceled check is a check that has been already paid off, deposited, or cleared by the bank. If you cancel the check, you cannot use it any further.
A cashier’s check is an instrument of guarantee, as the recipient receiving the fund is assured no matter the situation, he/she will be paid.
A certified check is an instrument of assurance where a bank assures sufficient funds which would be needed to clear off any pending amount. The account holder’s signature is necessary in this case.
Cheques are payable instruments that are drafted for paying a certain amount from one bank account to another. Only when it is deposited in the bank, the beneficiary receives the credit of the amount.
A chequing account is a type of bank account where a customer can deposit money and withdraw money whenever the need arises for any daily expense.
A credit bureau is a system where all the vital information about relevant customers is provided to credit grantors for a certain amount of fees. It is a systematic setup where all information is stored and is a crucial resource.
A credit card is the most common instrument for monetary transactions. It works on a credit system where the account holder is entitled to a specific credit limit and can spend more than their cash balance.
Credit limit represents a boundary for an account holder. It is the maximum amount of credit allowed for a single credit card.
Currency is the medium of exchange for any form of goods or services to be exchanged through bank notes/bills and coins issued by the government. Canada accepts the Canadian dollar currency (CAD).
The daily interest is the amount credited to a bank account holder’s account once a month. Bank calculates it from the interest amount on the daily account balance.
Debit is one of the golden rules of accounting where it signifies a transition made and thus a deduction of an equivalent amount from an account.
A debit card is one of the most common instruments for financial transactions. It gives digital access to the account holder for electronically carrying out monetary transactions. It saves you from the need to carry cash. You can use debit cards for payments, making purchases, and can draw money from ATMs/ABMs as well.
Delinquency is a financial situation or a state of your account where you cannot pay your debt by the due date.
A demand deposit is a deposit of funds that you can draw on-demand with no prior notice.
Customers need to fill out the deposit slip before depositing cash into their accounts.
A direct debit is a financial authorization of debiting a particular amount from one account and crediting it to the other respective account. An authorized person can move money from your account into his account.
Direct deposit is a digital means of transferring funds, making it much faster and hassle-free
Disclosures are the relevant information provided to the customers related to the terms of the credit issued by the law creditors.
Down payment is the initial amount paid during an expensive monetary transaction. It represents a part of the paying cycle for the transaction.
A draft is a monetary slip written specifically to pay an agreed amount on a particular date and time.
A drawee is the entity entitled to receive the payment when a check is drawn out for payment.
The bank the check belongs to and is issued by is the Drawee bank.
The person who makes a cheque and writes it is a drawer.
Electronic Funds Transfer (EFT)
Electronic Fund Transfer or EFT is the digital money transfer between the bank accounts leveraging electronic systems such as automated teller machines (ATMs) and online/internet banking rather than by check or cash.
Floating interest rate
A floating interest rate is a type of interest that varies according to the market scenarios. It may rise or fall depending on the market.
Fair and Accurate Credit Transactions Act of 2003 (FACT Act or FACTA)
The FACTA act aims at securing and protecting customers from any theft or deceit. It also helps in the recovery of any losses incurred.
A frozen account is an account with no transaction, be it a deposit or withdrawal.
The process of Garnishment is a legal activity where a specific amount of money is withdrawn to pay off debt. It is a legal way of obtaining money from someone who is refraining from payment.
A Hold is a condition in banking when experts suggest no activity for a specific period.
An inactive account has no regular activity of any transactions for an extended period.
Index-linked Certificate of Deposit
An index-linked CD relies on either the market index or the relevant equities. Driven by performance in the market, one can redeem even before the maturity date.
Insufficient funds describe a situation where the funds do not meet the expenditure incurred because of insufficient funds in the account.
A bank account that operates under the entitle ship of two or more persons is a joint account.
Kiting is an illicit method of acquiring unowned credits from other accounts using fraudulent financial instruments. It involves writing a higher value of checks where there is already a shortage of funds.
The fees a customer pays as a penalty for past due payments
Line of credit
A line of credit is a loan in which the borrower draws funds and pays back as needed, up to a specified duration of time.
Maturity is the last date on which any type of the loan becomes entirely payable.
The minimum balance is the least required amount in the account to avail of services. Minimum balance helps avoid the charges from being levied by the bank.
When the assigned credit limit of a card is exceeded, it is termed as an over limit.
Past Due Item
Past due item is any note or time instrument of indebtedness that has not been paid on the due date.
A payday loan is a small-dollar, short-term loan a borrower promises to repay out of their next paycheck or deposit of funds.
A payee is the person or organization to whom a check, draft, or note is made payable.
A payer is the one who pays, an individual or an organization.
Paying (Payer) Bank
The concerned bank which pays clears the due of an issued cheque is a paying bank.
Payment Due Date
The payment due date is the last date on which the payment is to be paid. A payment beyond this date invites a late fee charge.
Personal Identification Number (PIN)
A written agreement under which a financial institution is allowed by the customer to debit the customer’s account to pay bills or make loan payments.
Phishing is an illegal activity of defrauding an online account holder by obtaining private and confidential data and then using them for fraudulent practices.
Power of Attorney
A power of attorney is a legally drafted instrument that gives an individual the power to act on somebody’s behalf. It can be a specific or a generic draft.
Pre-authorized payment system is established by a written agreement under which a financial institution is authorized by the customer to debit the customer’s account to pay bills or make loan payments.
As the name suggests, prepayment is to pay a debt before its due date arrives.
The previous balance is the statement of an account holder’s balance, which is not included in the current statement of balance.
The prime rate is a special rate of interest which the banks charge to their best corporate customers.
A principal amount is invested or given out as a loan.
A refund is an amount paid back. It is reimbursement of any failed transaction.
The amount of interest that continues to accumulate on the credit card balance from the statement cycle date until the bank receives the payment made against it.
RRSP (Registered Retirement Savings Plan)
An RRSP is a Canadian government-supported program in which contributions are made to defer the payment of income taxes and thus build up savings for retirement.
Safe (or Safety) Deposit Box
A safety box is a type of safe deposit that ensures security for the possessions of an account holder, usually in groups inside a bank vault and rented out to customers for storing valuable items.
A savings account is the most common type of bank account that pays interest on the funds deposited and provides easy access to the money deposited.
A service charge is a fee charged against services provided by a banking institution.
A stale-dated check is a check which has not been encashed for 6 months straight and thus becomes stale-dated.
A statement summarizes all the bank transactions that have occurred over a specific period.
Stop payment is an order by a customer to not pay a check that has been issued but not yet encashed. If requested soon enough, the check will not be debited from the payer’s account. Mostly, banks charge a fee for this service to be availed of.
A time deposit is a money deposit at a bank that cannot be withdrawn for a certain “term” or period. When the specified period is over, it can be withdrawn, or it can be held for another term.
To sum up, the above glossary covers all-important banking terms and terminologies, which can be useful for everyone. Banking and its services, be it digitally or manually, play a vital role in all our lives and are well-versed in them, give us an added advantage.