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 Community Credit Union 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.
- 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, when you bank with Rivermark, your routing number will also be the same as it is for other members.
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. You can also find this number on your credit union’s website.
- Account Number
Just like all credit union members have a routing number, they also have an account number. This number is a unique identifier for your bank account. Your account number can be found on your check and is the second set of numbers on the bottom—it comes after the routing number. You can also see your account number by logging into your online portal and viewing your account details.
- 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 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 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.
APY, or annual percentage yield, is a good banking term to know if you’re looking to make money from your savings. 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.
- 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 bank 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 provided by the Securities and Exchange Commission.
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.
- Certificate of Deposit
A certificate of deposit 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.
- Checking Account
A checking account is a bank account you use to have accessible money. If you hold checks, the money from them will be taken out of your checking account. Adults, children, and even businesses can have checking accounts. Most people use this type of account to pay bills and receive money from their employer via direct deposit, but they can also be used through a debit card to make purchases.
- Savings Account
People who have savings accounts typically use them to store money they don’t want to use just yet. Whether it’s to save up to make a bigger purchase down the road or to take advantage of the possibility to grow their money, a savings account makes sense for a lot of people. Savings accounts may have a minimum balance you’re required to maintain, but at Rivermark most accounts don’t require it. With this option, you can earn points toward rewards and have a safe place to put money you don’t wish to spend.