When you’re buying a car, buying a house, planning for retirement or preparing for other major financial life events, understanding what all of the terms mean can be overwhelming. Most of us weren’t taught financial literacy skills in school, yet are expected to be financially savvy nonetheless. At Savings Institute Bank & Trust we’re here to help. We believe knowledge is power, so we want to help you make sense of common financial terms. This way, the next time you need to make a significant financial decision you have the financial vocabulary to equip you for success.
Bank Account Terms
Most of us have checking and savings accounts to manage our money. These are some terms you may come across while doing your everyday banking.
- ACH/Electronic Debits: You can allow a company or merchant to request electronic payments directly from your bank account. These transactions are called electronic debits or ACH (Automatic Clearing House) transactions and are often managed through online banking. Real life examples might include your monthly gym membership, Netflix, or car insurance.
- Clear: Savings Institute may use the term clear when a transaction (e.g., depositing a check) has been successfully credited or debited to your account.
- Direct Deposit: Direct deposit is a popular service that Savings Institute offers so your money is automatically deposited into your account electronically. You would use direct deposit for your paycheck, pension checks or Social Security benefits so you don’t have to physically deposit a check into your account.
- EMV Chip Enabled Card: A credit card or debit card with a magnetic strip and a microchip is known as an EMV or chip-enabled card. This technology uses encryption and dynamic, card-specific data to protect against credit and debit card fraud. Visit our Chip Card FAQs for more information.
- Hold: When you deposit a check into your account, the funds deposited may be delayed before they are available to you. This is known as a hold. Cash deposits, wire transfers and electronic deposits are generally not subject to a hold.
- Internal Transfer: When you transfer money between your Savings Institute accounts, this is known as an internal transfer. You can transfer money using online banking, an ATM or by visiting a branch.
- Low Balance Alerts: Savings Institute's online banking platform allows you to setup Low Balance Alerts so you can immediately be notified if your account balance has fallen below an amount you specify. This helps prevent overdrawing your account and associated fees.
- Overdraft Protection: If you try to spend or take out more money than you have in your account, your account will be overdrawn. Overdraft protection allows you to link your account to another account at the bank. Your transactions will only be covered up to the amount available in the connected account. Savings Institute also offers an Insti-Reserve line of credit, so you don’t have to have balances in another account for transactions to be paid.
- Routing number: A routing number is a 9-digit string of numbers that is on the bottom of your check, to the left of your account number. Each financial institution has a unique routing number so that money goes to the proper institution. You will need this if you are setting up direct deposit, transferring money between institutions, paying bills by direct debit or for tax return deposits. The routing number at Savings Institute is #211174181.
- APY: APY stands for Annual Percentage Yield and is typically associated with deposits or investments. APY is the annual interest rate earned on qualifying accounts, representing the yearly amount of money returned to the owner. Certificates of deposits as well as special checking and savings are common interest-earning accounts. Learn more about understanding APR and APY here.
- APR: APR stands for Annual Percentage Rate and is a term associated with loans. APR is the annual interest rate charged by a financial institution for lending money, constituting the yearly cost associated with borrowing funds over the loan term. APR includes any fees an institution may charge.
- Interest rate: An interest rate refers to the percent of the principal that’s charged by an institution/lender for using its money. You can also earn interest on deposits because institutions are effectively borrowing money from you.
- Principal: The principal on a loan is the amount you owe, not factoring in interest. So, on a mortgage or auto loan, the amount of money you borrow is considered the principal. But, when you make a monthly payment, you are paying the institution back the principal, plus interest accrued during that time and any related fees.
- Loan term: The term of a loan refers to how long the loan will last until it’s completely paid off through regular payments. For example, mortgage loans are commonly offered in 30-year terms and 15-year terms.
- Trust: A trust is a legal document that certifies ownership of assets. A trust generally has many provisions of how and when the assets can be divided or distributed, and offers tax breaks. For example, a person may setup a trust for a child but not grant access to the money until that person is 21. Or, a trust can be used to provide income for a family member who may need regular financial support because of a disability. There are many different types of trusts available, from a revocable living trust to a charitable trust.
- Beneficiary: A person who is designated to receive distributions from a trust, 401K plan, an IRA, a will or life insurance policy is known as a beneficiary.
- Estate Plan: An estate plan is a document created by an attorney that outlines what happens to a person’s money/assets when they die or become incapacitated. Generally, the goal is to reduce taxes and make it easier for a person’s family to manage financial-related issues. Estate plans include specifics about how assets will be handled with heirs, how estate taxes will be addressed, as well as naming of beneficiaries for things like IRAs, 401K plans and life insurance policies. Estate plans also generally reference a person’s will.
- Power of Attorney: When someone else has the power to act on behalf of another person’s legal matters, this is known as power of attorney. Someone who is overseas on military deployment, undergoing major surgery or even unable make a mortgage closing may grant power of attorney to another person.
Now that you’ve explored the basics, you can feel more comfortable when making your next big financial decision. At Savings Institute Bank & Trust, we’re always here when you need us.