Glossary of Terms

You'll hear a lot of jargon in the banking industry. Here are definitions to some of the terms we use often. If you'd like to know more about any item, just ask us.

Automated Clearing House (ACH): A computer-based system for processing deposits and payments electronically.
Annual Percentage Rate (APR): The cost of borrowing money or the interest paid on deposit accounts, expressed as a percentage per year.
Annual Percentage Yield (APY): The amount of interest earned on a deposit account (such as a CD or IRA), including the effect of interest compounding, assuming funds remain in the account for one year.
Average Balance: The average amount in a deposit account that equals the sum of the daily balances during an accounting period, usually a month, divided by the number of days in the period. Maintaining a certain average balance can sometimes be used to avoid service charges or to qualify for special services. See also: Minimum daily balance.
Automatic Payment: An arrangement that authorizes payments to be deducted automatically from a bank account (usually checking or savings) to pay bills (such as insurance payments, rent, mortgage or loan payments). Payments are usually scheduled to be made on a certain day of the month.
Automatic Transfer: An arrangement that moves funds from one account to another automatically on a pre-arranged schedule; for example, every payday or once a month.
Certificate of Deposit (CD): A time deposit with a maturity date that generally pays higher interest rates than other types of deposit accounts. Maturities can range from a few weeks to several years. Insured by the FDIC up to the maximum allowed by law. A penalty may be assessed if funds are withdrawn before the maturity date.
Check Safekeeping: A service that authorizes the bank to keep copies of canceled checks instead of returning them with a statement. Photocopies of checks are available upon request.
Collected Balance: The balance in a deposit account, not including deposited items that have not yet been paid, or collected. This balance may be used to calculate interest payments, avoid monthly maintenance fees, etc. See also: Ledger balance.
Compounding: Interest added to interest previously earned on a principal balance. The more frequently interest is compounded, the higher the effective yield. Credit A financial term that refers to an increase in a deposit account (such as a deposit made to the account). See also: Debit.
Credit Card: A plastic card issued to an individual for the purpose of purchasing goods and services using credit. A credit limit is established for each card holder. Debit A financial term that refers to a decrease in a deposit account, such as writing a check against the account. See also: Credit.
Direct Deposit: Electronic deposit of wages or benefits, such as pension or social security, into a personal bank account. See also: ACH.
Fixed Rate: A rate of interest charged for a loan or paid to an interest-bearing deposit account that does not vary for the term of the loan or deposit. See also: Variable rate.
Home Equity Line of Credit: A line of credit secured by the equity in a home. Can be used for home improvements, debt consolidation and other major purchases and expenses. Interest paid on the loan is generally tax deductible (consult a tax adviser to be sure). Upon approval, a credit line limit is established. In most cases, the borrower can tap into the credit line by writing line of credit checks or getting a cash advance.
Interest Rate: The rate paid on an interest-bearing account, such as savings, ATM, ATM and some checking accounts. Also, the rate charged on a loan or line of credit. Different types of accounts and loans pay or charge different rates of interest. Interest Transfer A process that allows interest earned in one account to be transferred to another account. For example, interest earned on a CD can be automatically transferred to a designated checking account.
Ledger Balance: The balance in an account at the beginning of each day, also known as the current balance. Includes all deposits and withdrawals that were posted from the previous night, whether or not funds have been collected. See also: Collected balance.
Minimum Daily Balance: The minimum amount that may be required to be kept in an account each day to earn interest, avoid a service charge or qualify for special services. See also: Average balance.
Nonsufficient or Insufficient Funds (NSF): A situation in which a check (or other type of withdrawal) may not be paid because the balance in the account is less than the amount of the check. See also: Overdraft.
Online Banking: A service that allows an account holder to obtain account information and manage certain banking transactions through a personal computer.
Overdraft: When the amount of a paid check or other withdrawal exceeds the available balance in a checking account. See also: NSF and overdraft protection.
Overdraft Protection: A service that allows a checking account to be linked to a line of credit to provide protection against returned items or overdrafts.
Transaction Limitations: A Federal Reserve regulation that limits certain types of withdrawals from savings and money market accounts. There can be no more than six automatic, wire or telephone transfers out of the account each month. Of the six, no more than three can be by check, draft, debit card or similar payment order to a third party. Withdrawals at ATM and teller windows are unlimited for these accounts.
Uncollected Funds: Refers to items deposited in an account that have not yet been collected, or paid, by the bank on which they were drawn.
Variable Rate: An interest rate that may fluctuate during the term of a loan, line of credit or deposit account according to changes in an index rate, such as the prime rate. See also: Fixed rate.
Visa Check Card: A plastic card issued by a bank which customers can use to pay for purchases anywhere VISA is accepted. Money is immediately deducted from a designated checking account. Can also be used at ATM. Sometimes referred to as a debit card.
Wire Transfer: An electronic payment service for transferring funds from an account in one bank to an account at another bank.