Banking 101: Glossary of Banking Terms
Banking terminology can sometimes feel confusing. Here are some of the most common terms used in banking.
ACH – stands for Automated Clearing House, a network run by Nacha (National Automated Clearing House Association). Since the 1970s, the ACH network has electronically moved money between bank accounts across the United States.
ACH Credit – funds moving through the ACH system that are electronically pushed into an account.
ACH Debit – funds moving through the ACH system that are electronically pulled out of an account.
Account Balance – amount in an account after all debit and credit transactions are posted, and before pending transactions and charges are posted. Sometimes referred to as Ledger Balance.
APR (Annual Percentage Rate) – total annualized cost of a loan, credit card, or other borrowed money, expressed as a percentage. In savings accounts, APR is the amount of interest gained from keeping money in an account for a year, not including compound interest.
APY (Annual Percentage Yield) – total amount of interest earned from keeping money in an account for a year, including compound interest.
ATM (Automated Teller Machine) – a machine activated by a magnetically encoded card that can process banking transactions such as balance inquiries, transfers between accounts, cash withdrawals, account deposits, and loan payments.
Available Balance – the amount of money in a bank account that is available to spend or withdraw. It is made up of the Account Balance (aka Ledger Balance) minus pending debit card authorizations and holds on funds.
Availability Date – a bank’s policy as to when funds deposited into an account with be available for withdrawal.
Bank Statement – a bank-provided listing of the account balance as of a specified date and all activity into and out of the account for a specified time period, usually monthly. It is important to review the bank statement to check for errors and signs fraudulent activity.
CD (Certificate of Deposit) – time deposit account with a minimum deposit, specified maturity date, and guaranteed interest rate for the full term of the instrument. Funds can be subject to penalty for early withdrawal.
Check – written order that instructs the account holder’s bank to pay immediately on demand a specified amount of money from the account to the person or business named on the check. Payment can be initiated using a paper check, online bill payment to issue an electronic check, or a debit card linked to the checking account.
Checking Account – account at a financial institution into which money can be deposited and from which purchases and bills can be paid. Funds can be deposited into the account via cash, check, or direct deposit such as payroll or social security, and paid out or withdrawn using a check, debit card, or online bill payment.
Compound Interest – interest that applies to the original deposit plus any newly earned interest.
Demand Deposit Account (DDA) – account where the funds can be withdrawn without advance notice (on demand) such as a checking account or savings account.
Debit Card – a payment method connected to a checking account that allows the account owner to access funds electronically at points of sale and ATMs. The money is immediately deducted or held as pending from the balance in the account.
Direct Deposit – deposit payments from a business or government to a consumer. Direct Deposits move through the ACH network and include payroll, employee expense reimbursements, government benefits, tax refunds, and interest payments.
Endorsement – signature on the back of a paper check.
FDIC (Federal Deposit Insurance Corporation) – independent agency created by Congress to maintain stability and public confidence in the nation's financial system. To accomplish this mission, the FDIC insures deposits; examines and supervises financial institutions for safety, soundness, and consumer protection; makes large and complex financial institutions resolvable; and manages receiverships.
FDIC Insurance – protects bank depositors against the loss of their insured deposits in the event an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government. FDIC deposit insurance only covers certain deposit products, such as checking and savings accounts, money market deposit accounts (MMDAs), and certificates of deposit (CDs).
Insufficient Funds – situation when a depositor’s checking account balance is too low to pay a check or point-of-sale transaction presented for payment. The bank may assess a non-sufficient funds (NSF) charge.
Joint Account – account held by two or more persons. Either party can conduct transactions separately or together according to the terms in the deposit account contract.
Money Market Deposit Account – type of FDIC-insured savings account that usually pays a higher rate of interest and may have a higher minimum balance requirement than a typical savings account. There are usually limits on the number of transactions allowed on the account in a specified time period.
Money Market Checking Account – hybrid account with features of both a checking account and a savings account. A limited number of checks may be written each month, and deposited funds usually earn a higher interest rate than the rates available on a checking account or savings account. There may be monthly minimum balance requirements and maintenance fees.
Outstanding Check – a check written by a depositor that hasn’t yet been presented for payment or paid by the depositor’s bank. When the payment is presented and paid from the account, the status is considered cleared.
Overdraft – a negative balance in an account that could happen if one makes a purchase with a debit card or writes a check for an amount that exceeds the account’s available balance.
PIN (Personal Identification Number) – a secret number or word given to account cardholders to enable access to the account and prevent unauthorized access to use of the account card at a financial service terminal. The PIN can be randomly assigned by the bank or chosen by the customer.
Routing Number – ten-digit number used to identify a financial institution. The routing number is used to set up direct deposit and automatic payments that will transfer directly into or out of your bank account. The routing number appears on the bottom of printed checks.
Savings Account – typically an interest-bearing account used to hold money for short- or long-term goals or emergencies. Money can be added at any time, but certain types of withdrawals may be limited to six per month.
Wire Transfer – a quick, effective way to move money electronically between individuals or businesses within or outside the US, in US dollars or foreign currencies. When a wire transfer is ordered, the money is withdrawn from the sender’s account immediately and generally cannot be cancelled once initiated. For this reason, it’s important to make sure the sender has validated both the party and the account instructions to which the funds are being sent.
To learn about products and services offered by Enterprise Bank, please visit https://www.enterprisebanking.com. If you would like to speak to an Enterprise Banker about opening an account, we invite you to call us at 877-671-2265 or visit one of our convenient branch locations.