36 Banking Terms/Terminologies You Should Know

Banking terms/terminologies can be hard to comprehend. However, understanding them will make it an easy to navigate into the world of banking. Mentioned below are terms you need to know with regard to banking.

NEFT

(National Electronic Funds Transfer) – NEFT is an electronic means to transfer money from one bank to another or within the same branch. Depending on the bank, NEFT charges and the minimum amount that can be transferred may vary.

Linked Account

– An account that is linked to your account for the purpose of fund transfer is called a linked account.

Base Rate

– This is the minimum rate at which a bank can lend to its customers. It cannot lend below the base rate. All interest rates determined for various loans will use the base rate as the benchmark.

Balance Transfer

– This is a credit card payment option for people using more than one credit card. Like the name suggests, balance transfer is when you transfer the balance of one credit card to another. This is useful when a card holder is unable to make full payment on his/her card, or if the second credit card offers a lesser rate of interest.

Cashback

– Cashback is an offer provided primarily by credit card companies where they offer some amount of money back to the cardholder that he/she has spent on the card. Each spend made on the card will be rewarded with points, and the pints can then later be redeemed for money.

Credit History

– Credit history is the past behavioural patterns of a customer with regard to loans. A credit bureau will collect the information of a customer and then translate it to a number between 300 and 900. This is known as your credit score and the higher the credit score, the better your chances are to avail a loan or a credit card.

Collateral

– Any security provided to the bank in exchange for a loan is known as collateral. A collateral can be in the form of land, gold, etc. This is called a secured loan and is less risky than an unsecured loan for the lender. In case of secured loans, the lender may auction off the collateral if the borrower fails to pay off his/her loan.

Documentation Fee

– Before lending money, lenders have to gauge the credit worthiness of a customer. Customers will usually be charged for this service, also known as documentation fee.

Fixed Rate

– A fixed rate is when the rate of interest for a loan remains constant throughout the entire tenure.

Floating Rate

– Opposite of fixed rate, a floating rate of interest are interest rates that change during the tenure of the loan. These interest rates change as per the changes of interest rates in the economy.

MICR Code

– This is a nine digit code found in the bottom right hand corner of a cheque leaf. This code varies from bank to bank and is an acronym for Magnetic Ink Character Recognition.

No-frills Account

– This is a rudimentary savings account that requires no minimum balance to enjoy benefits like net banking, online fund transfer, etc.

Electronic Clearing Service

– This is a technology used by banks wherein a certain amount of money is directly debited from your account on a specified date every month towards the payment of a loan, mutual fund account, etc.

Processing Fee

– In order to process a loan application of a customer, banks usually charge a fee. This fee is known as a processing fee.

RTGS

– RTGS (Real Time gross Settlement) is a fund transfer technology used by banks for same bank or interbank fund transfer. Contrasting NEFT or RTGS, transferring funds with RTGS is instantaneous and more nominal with regard to the costs incurred.

KYC

– KYC (Know Your Customer) is a procedure that all banks undergo in order to establish the correct identity of a customer. This is to ensure that no fraudulent operations are taking place in the bank.

Routing Number

– This is a number that can identify your bank based on the geographical location of the institution. Bigger banks may have several routing numbers while smaller ones have only one.

APR

– Annual Percentage Rate (APR) is the yearly interest you earn by depositing your money your money into an account. This does not take into consideration the compound interest.

Compound Interest

– Simple interest is the interest earned on a deposit. Compound interest is the interest earned on the deposit plus the interest earned on the same deposit previously. For example, if you’ve deposited Rs.1 lakh into a bank, and the bank promises to pay you a 10% interest, you will earn an interest of Rs.10,00. The next year however, you will be receiving an interest on Rs.1, 10, 000, i.e., the initial amount deposited plus the interest earned on that amount.

Returned Item Fee

– In case a cheque has bounced due to insufficient funds or another reason, the account holder will be penalized with a fee. This fee is called returned item fee.

Overdraft Fee

– In the event, that you run out of money in your account, certain banks under certain schemes allow you to withdraw more money than you have in your account. This is a loan, in a sense, and the bank will charge you a fee on repayment. This fee is called overdraft fee.

Liquidity

– The ability to sell an asset in the market without affecting its price is called liquidity.

Monetary Policies

– This refers to the rules and regulations that the Reserve Bank of India have put in place in order to standardize banking procedures in the nation.

Plastic Money

– This is a reference to currency used by individuals other than hard cash. Mostly it is used to refer to debit and credit cards.

Cash Reserve Ratio

(CRR) – RBI has mandated all banks to maintain a certain percentage of the total bank deposits in cash. This percentage with regard to the total deposits is called cash reserve ratio.

Statutory Liquidity Ratio

(SLR) – The minimum reserve required by the bank to maintain in the form of gold is called statutory liquidity ratio.

Bank Rate

– This is the rate of interest that the RBI levies on banks if they wish to borrow money.

Basis Point

– This is one hundredth of a percentage. This is usually used to indicate change in interest rates.

Capital Gain

– This is a profit or gain attained by a bank by sale of investments or properties.

Debtor

– A debtor is an individual or organization that owes money to the bank or any other financial institution.

Joint Account

– A joint account is an account where in two or more people have equal rights and liabilities of a single account.

APY

– Annual percentage yield (APY) is the percentage of interest you gain on interest every year, excluding compound interest. This is the same as Annual Percentage Rate (APR).

Bank Ombudsman

– A bank ombudsman is the authority to look into complaints if in case other modes of complaints haven’t worked out for the customer.

Credit Rating

– This is an assessment of an individual’s past credit history equated into a number between 300 and 900. This is usually the main determinant of whether an individual attains a loan or not. Credit bureaus collect this data on all individuals that have a history of credit.

Micro Finance

– Small loans provided to the poor in urban, rural and sub-urban parts of the country in order to help them raise their income level is known as micro financing.

Mobile Banking

– Availing banking services with the help of a mobile phone is referred to as mobile banking.