10 Banking Terms You Should Know
When it comes to banking, it’s important to understand what’s going on. You’ll want to know all the information available concerning your money in order to make the most well-informed decisions. There are many ways that you can become better educated on the banking process, and perhaps one of the best ways to keep yourself informed is to understand the many terms that are used in the banking world.
There are a lot of banking terms that you may not have heard before. For example, many people don’t know what a routing number is before they’re being asked to provide it, or they don’t know the difference between an APY and an APR. With a little bit of education, you can easily understand these terms and use them to your advantage.
Rivermark makes every effort to educate our members, which is why we offer a variety of learning tools, such as webinars, financial calculators, video tutorials, and articles like this.
Here are a few banking terms that everyone should know about.
1. Routing Number
When you’re setting up a direct deposit, you’ll be asked for your routing number. Everyone who has a banking account also has a routing number, and it’s the same number for everyone banking at a specific financial institution. For instance, at Rivermark, your routing number will also be the same as it is for other members. Rivermark’s routing number is 323076012.
This nine-digit number was created to identify who you’re banking with, and it’s easier to find than people might think. If you have checks from your financial institution, your routing number will be the nine digits on the bottom left-hand side.
2. ACH Account Number
ACH stands for Automated Clearing House. This number is a unique identifier for your checking account, used in electronic transactions. This is the number you would use combined with your financial institution’s routing number to set up Direct Deposit of your paycheck. At Rivermark you can find your ACH account number on the bottom of your checks or within online banking.
3. Direct Deposit
Direct deposit is one of the easiest ways for you to receive money your “paycheck.” It allows your money to be deposited into your account directly so that you can avoid the use of paper checks. When setting up direct deposit, you’re typically be asked for both your routing and ACH account numbers. After that, your payments will be deposited into your account and available to you right away.
An overdraft is the term used when you make a transaction but don’t have enough money in your account to cover the entire amount. When this happens, you’re typically charged an overdraft fee, as the bank or credit union will allow the transaction to go through. This fee can be avoided if you’re enrolled in an overdraft protection program, which will approve the transfer of funds from a savings account to your checking account if you ever charge more than the account’s current balance.
5. APY (Annual Percentage Yield)
APY, or annual percentage yield, is a good banking term to know if you’re looking to earn money from your deposits. It refers to the amount of interest you’ll receive by having money in your account throughout the year. Unlike APR, APY includes your interest rate as well as any compounding interest. The higher your APY is, the faster your money will grow.
6. Compounding Interest
Did you know that when you have a savings account, you actually want your interest to increase? This means more money going into your account because you’re not withdrawing anything from it.
When you have compounding interest, you earn interest on both your initial deposit and the interest gained from the account each year. This is a great way to grow your money if you intend to leave it in the credit union for a long period of time. If you’d like to see how your money might grow with compounding interest, try a compound interest calculator, such as this one from Investor.gov.
7. APR (Annual Percentage Rate)
APR, or annual percentage rate, is an important term to know, especially if you’re applying for a loan from a financial institution. This number determines the annual rate of interest that will be charged to borrowers when they borrow money. You’re likely to see an APR when you apply to borrow money with a loan or credit card. A lower APR will mean that you won’t have to pay as much extra money back over a long period of time.
8. Certificate of Deposit
A certificate of deposit, also known as a CD, is a special kind of savings account with stricter rules and higher interest rates. With this account, a credit union member agrees to deposit a certain amount into the account with the understanding that it cannot be taken out without penalties for a set period of time. Members can benefit from this account by receiving a higher interest rate than a typical savings account while ensuring that they don’t use that money until the agreed-upon period of time is up.
9. IRA (Individual Retirement Account)
An IRA (Individual Retirement Account) is a retirement savings program for individuals, which can offer significant tax advantages. Annual contributions to an IRA cannot exceed specific amounts without penalties. Withdrawal is not permitted without penalty until the individual reaches age 59 1/2.
10. Share Insurance
Your money is safe at Rivermark, which is a federally insured credit union. Your deposits are insured up to at least $250,000 per individual, backed by the National Credit Union Administration (NCUA, which administers the National Credit Union Share Insurance Fund (NCUSIF). There are lots of scenarios where more than $250,000 would be insured.