Are you baffled and confused by banking terms and financial terminology? We’ve all been there. It can be horrifying to have all of these terms thrown at us that we don’t fully understand. We might feel frightened of not understanding our own financial situation.
The education system is lacking when it comes to teaching kids about finance or how to get more out of their money. As an adult, there is also not a lot of information available to teach yourself.
Thankfully banking terms are not that hard to understand. Here’s some banking terminology and what it all means.
1. FinTech or NeoBank
FinTech stands for Financial Technology and refers to banks set up within the past five years that operate online only. They have no branches and they aim to make it easier for their customers to budget and access money whilst abroad.
Many of these banks started life as merely top-up cards but many have now secured a banking license and can offer all the same protections and features a traditional banking service can with extra ones thrown in.
A Great Alternative to Traditional Banks
Transferwise is a FinTech Bank that focuses on enabling users to spend in multiple currencies. You can open an account which gives you local details in U.S Dollars, Great British Pounds, Australian Dollars, Euros, and even Singaporian Dollars. This means you can receive payments in these currencies and spend them using the dedicated debit card.
Monzo offers users the ability to budget with their budgeting tools so you can see where you spend your money each week and the ability to set up a shared tab with your friends.
Remember there are some big differences between commercial banks and investment banks. Most commercial banks are the ones that offer services to the public whilst investment banks are banks not interested in consumers but just in investing heavily in different companies and stocks and shares. The great thing about FinTech Banks is they are just consumer banks, not investment banks.
2. Checking Account
A checking account is the name Americans give to their standard account. Employees will usually pay money into this account and you can write checks issued from this account. It’s reported that even Google will soon offer its users a checking account.
This account is not supposed to be used as a savings account and you are unlikely to receive a high level of interest on here. These accounts usually issue a debit card so you can pull money from your account at local ATMs.
If you want to send money to someone you will have the option of selecting a checking account or a savings account: always go for the checking account unless the person you are sending money to has instructed you otherwise.
3. Routing Number
If you are sending money then you will need this number. This nine-digit number tells the computer what bank and branch to send your money to.
Along with the other details you provide such as wire number, name, and address any funds you send should reach the right person without relay.
Don’t give this out to everyone you meet as it could lead to your account being compromised.
4. Sort Code
If you’re sending money abroad to Britain then you’ll need to know the recipient’s sort code. This is six digits separated by hyphens that represent the branch and bank name of the bank.
As the routing number, keep this confidential to ensure no one hacks into your account and you don’t raise the suspicions of the bank.
You will need the sort code even when you use services like Transferwise, Western Union, or Paypal’s money transfer service Xoom.
5. Credit Limit
This is the maximum amount you can spend on your credit card before you have to start paying it back. The longer you have a credit card and the more spending you do on it, the more likely you are to have your credit card increased.
If you have a credit limit of $3,000 and you spend all of that but then pay back $50, you would then have a further $50 to spend that month. The credit limit isn’t a limit for the entire month or credit card statement period.
The limit reflects how much you can spend on one purchase. Further payments can be made on the credit card if you pay back all or some of your credit card.
This is handy if you want to do all of your usual day-to-day spending on your credit card to take advantage of perks such as Airmiles or Amazon gift cards.
6. Certificate of Deposit (CD)
One of the key things you can do with your bank is to use a certificate of deposit to submit money into your account. When you do this you have to agree to hold the money in the account for a certain period and not access it. This can be irritating if you have an emergency or need access to the funds.
One of the positives is that you receive a higher rate of interest on your money than you would in an ordinary account. Given the low rates of interest at the moment this is a great idea as the longer you agree to leave the money in the account, the higher rate of interest you get.
Banking Terms: Know Your Lingo
Knowing the banking terms that are used by the mainstream press and by your bank is so important. Don’t allow yourself to become bamboozled. Instead, educate yourself and make sure you always get the best deal.
Be sure to know your FinTechs from your credit limits and whether you need a certificate of deposit or a routing number.
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