Banking jargon: all the key concepts

Unlike what Finance De Demain usually does, namely giving you advice to help you grow your business, this other article rather introduces you to banking jargon. These key banking concepts are in fact the terms that you will more generally hear pronounced if you go to a bank. The objective of this guide is therefore to help you better understand banking jargon. Let's go

Account Agreement

It is a contract governing your open-ended credit account. It provides information on the changes that may occur on the account.

Account history

This is the payment history of an account over a given period, including the number of times the account was past due or over limit.

Account holder

This term refers to any person authorized to transact business on behalf of an account. The signature of each account holder must be recorded with the bank. The signature authorizes that person to transact business on behalf of the account. See questions related to the topic Joint Account Holder Opt-in Overdraft, Joint Account Verification Approval and Liability of a Joint Account.

Increased interests

This is interest that has been earned but not yet paid.

Variable Rate Mortgages

These are loans granted by the bank for the acquisition of real estate. The initial interest rate is generally lower than that of conventional fixed-rate loans. This rate may change during the term of the loan depending on market conditions.

There is usually a maximum (or ceiling) and a minimum (or floor) set out in the loan agreement. If interest rates go up, the loan payment goes up as well. If interest rates go down, the loan payment can go up as well. Check out this guide to learn more about mortgages.

Adverse action

It is the refusal of a creditor to grant credit on the requested terms, termination of an existing account or unfavorable modification of an existing account.

Adverse Action Notice

The notice required by the Equal Credit Opportunity Act informing a credit applicant or existing debtor that his or her credit application has been denied or that there has been a change in conditions deemed unfavorable to the account holder.

Alteration

It is any change involving an erasure or rewriting of the date, amount or payee of a check or other negotiable instrument.

Amortization

It is the process of reducing debt through regular installment payments of principal and interest that will result in the repayment of a loan when it is due.

Annual percentage rate

It is the cost of credit on an annual basis, expressed as a percentage.

Annual percentage return

A percentage rate reflecting the total amount of interest paid on a deposit account based on the interest rate and compounding frequency for a 365-day year.

Evaluation

The action of evaluating and setting the value of a particular asset or real estate.

Authorization

The issuance of an authorization, by an issuer of credit card, a merchant or other affiliate, to complete a credit card transaction.

Automated Clearing House (ACH)

A computerized facility used by member depository institutions to electronically combine, sort and distribute interbank credits and debits.

ACHs process electronic transfers of government securities and provide customer services, such as direct deposit of customer payroll and government benefit payments (i.e., Social Security, Welfare, and Veterans Affairs) and pre-authorized transfers. See related questions about electronic transactions.

Automatic teller machine (ATM)

It is a machine, activated by a magnetically encoded card or other medium, that can process a variety of banking transactions. These include accepting deposits and loan payments, making withdrawals, and transferring funds between accounts.

Automatic bill payment

A control-free system for paying recurring bills with a single authorization statement to a financial institution. For example, the customer would only need to provide an authorization form/letter/document to pay the cable bill each month. The necessary debits and credits are made through an automated clearing house (ACH).

availability date

Bank policy regarding when funds deposited in an account will be available for withdrawal.

Balance available

The balance of an account less holds, uncollected funds, and restrictions on the account.

Credit available

It is the difference between the credit limit assigned to a cardholder account and the current account balance.

Balance transfer

The process of transferring an outstanding balance from one credit card to another. This is usually done to obtain a lower interest rate on the outstanding balance. Transfers are sometimes subject to a balance transfer fee.

depositary bank

A bank custodian is responsible for maintaining the security of customer assets held at one of the custodian's premises, a sub-custodian facility, or an external custodian.

Bank review

Examination of a bank's assets, income and expenses. This operation aims to ensure that the bank is solvent and operating in accordance with banking laws and sound banking principles.

Bank statement

Periodically, the bank provides a statement of a customer's deposit account. This statement shows all deposits made, checks paid, and other charges recorded during the period, as well as the current balance.

banking day

It is a business day on which a bank office is open to the public for substantially all of its banking functions.

Bankruptcy

A bankrupt person, business or corporation does not have enough assets to cover their debts. The debtor seeks relief through a legal proceeding to establish a payment plan or to forgive debts.

In some cases, the debtor must cede control of all assets to a court-appointed trustee.

Bankruptcy

A legal proceeding by which the affairs of a bankrupt person are assigned to a trustee or receiver for administration under the bankruptcy laws. There are two types of bankruptcy:

Involuntary bankruptcy - one or more creditors of an insolvent debtor file a petition declaring the debtor bankrupt.
Voluntary bankruptcy - the debtor files a petition asserting his inability to meet his financial obligations and his desire to be declared bankrupt.

Beneficiary

A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract.

Billing Cycle

The time interval between the dates on which regular periodic statements are issued.

Billing date

The month, date, and year a periodic or monthly statement was generated. Calculations were made for the appropriate finance charges, minimum payment due, and new balance.

Billing mistake

It is a charge that appears on a periodic statement associated with an extension of credit (e.g., a credit card) that was not authorized by the cardholder or his or her agent, is not properly identified, and was not accepted by the cardholder or his or her agent.

A billing error can also be caused by a creditor's failure to credit a payment or other credit to an account as well as accounting and clerical errors.

Business day

Any day on which the offices of a bank are open to the public to carry out substantially all of the bank's business.

Canceled check

It is a check that a bank has paid, debited from the account holder's account, and then endorsed. Once canceled, a check is no longer negotiable.

Bank check

It is a check drawn on the bank's funds, not on funds in a depositor's account. However, the depositor paid the cashier's check with funds in his or her account. The main advantage of a cashier's check is that the payee of the check is assured that the funds are available.

Cease and Desist Letter

A letter requesting that a company cease the activity mentioned in the letter.

Certificate of deposit

Negotiable instrument issued by a bank in exchange for funds, usually interest-bearing, deposited with the bank. Check out this guide to learn all about certificates of deposit.

Release certificate

A certificate signed by a lender stating that a mortgage has been fully paid and all debts settled. It is also known as a lien release.

Certified check

A personal check drawn by a person that is certified (guaranteed) as good. The face of the check bears the words "certified" or "accepted" and is signed by an officer of the bank or savings institution issuing the check. The signature signifies that the drawer's signature is genuine, and sufficient funds are deposited and reserved for payment of the check.

Vérifier

A written order directing a financial institution to pay immediately on demand a specified sum of money from the account of the writer of the check to the person named on the check or, if a specific person is not named, to the person who brings the check to the institution for payment.

Check truncation

The conversion of check data into an electronic image after a check is entered into the processing system. Check truncation eliminates the need to return voided checks to customers.

Current account

It is a demand deposit account subject to withdrawal of funds by check. Check out this guide Bank Current Account – Meaning, Advantages and Disadvantages

ChexSystems

The network ChexSystems, Inc. is comprised of member financial institutions that regularly provide information about mismanaged checking and savings accounts to a central location. ChexSystems shares this information among member institutions to help them assess the risk of opening new accounts. It's a kind of risk central.

ChexSystems only shares information with member institutions; it does not decide on the opening of new accounts. Generally, information remains on ChexSystems for five years.

Indefinite term loan

Generally, any loan where the amount advanced, plus finance charges, is expected to be repaid in full by a specified date. Most home and car loans are open-ended contracts.

Closing a Mortgage Loan

The consummation of a contractual real estate transaction in which all appropriate documents are signed and the mortgage proceeds are then paid by the lender.

Closing costs

Expenses incurred by sellers and buyers to transfer ownership of real estate. Closing costs may include origination fees, discount points, attorney fees, loan fees, title search and insurance, survey fees, recording fees, and credit report fees.

Collateral

Assets that are offered to secure a loan or other credit. For example, if you get a home mortgage, the bank's collateral is usually your house. Collateral becomes seized in the event of default.

Recovering agency

A company hired by a creditor to collect a debt owed to them. Creditors typically hire a collection agency only after they have made efforts to collect the debt themselves.

Fonds of placement collectif

A Mutual Fund is a trust created and administered by a bank or trust company that pools the assets of multiple clients.

Co-signer

A natural person who signs another person's note in support of the credit of the principal signer and who becomes liable for the obligation.

Credit application

A form to be completed by an applicant for a credit account, giving sufficient details (residence, employment, income and existing debts) to enable the seller to establish the applicant's creditworthiness. Sometimes an application fee is charged to cover the cost of processing the loans.

Credit card issuer

Any financial institution that issues bank cards to those who request them.

Disability credit insurance

It is a type of insurance that makes loan repayments if you become sick or injured and cannot work. It is also known as accident insurance and health insurance.

Credit life insurance

A type of life insurance that helps pay off a loan if you die before the loan is fully paid off. This is an optional coverage.

Credit limit

The maximum amount of credit available on a credit card or other line of credit.

Credit report

It is a detailed report of an individual's credit history prepared by a credit bureau and used by a lender to determine the creditworthiness of a loan applicant.

Credit reporting agency

An agency that collects individual credit information and sells it for a fee to creditors so they can make a decision about granting loans. Typical clients include banks, mortgage lenders, credit card companies, and other finance companies.

Limited time

A time of day established by a bank for receiving deposits. After the cut-off time, deposits are considered received the next business day.

Debit

A debit can be an account entry representing money you owe to a lender or money that has been taken from your deposit account.

Debit card

A debit card allows the account holder to access their funds electronically. Debit cards can be used to obtain cash at ATMs or purchase goods or services using point-of-sale systems. Using a debit card involves the immediate debiting and crediting of consumer accounts.

Debtor

Someone who owes money to another party.

Debt-to-income ratio (DTI)

The percentage of a consumer's gross monthly income that goes toward paying debts. Generally, the higher the ratio, the higher the perceived risk. Higher-risk loans are typically priced at a higher interest rate.

Deferred payment

It is a payment postponed to a later date.

Submission of the request

A deposit of funds that can be withdrawn without notice.

Deposit slip

A detailed memorandum of cash and other funds that a customer presents to the bank to credit his account.

Derogatory information

Data received from a creditor indicating that a credit applicant has not settled accounts with other creditors as required.

Direct deposit

Payment deposited electronically into an individual's account at a depository institution.

Direct dispute

A dispute submitted directly to the provider regarding the accuracy of information contained in your consumer report regarding an account or other relationship you have with the provider.

Disorganized

A written and signed order by which one party (the drawer) instructs another party (the drawee) to pay a specified sum to a third party (the payee), at sight or on a specified date. Typical bank drafts are negotiable instruments and are similar in many ways to checks.

Drawn

The person (or bank) who is supposed to pay a check or draft when it is presented for payment.

Drawee's bank

The bank on which a check is drawn.

Electronic banking system

A service that allows an account holder to obtain account information and manage certain banking transactions using a personal computer through the financial institution's website on the Internet. This is also known as online bank.

Conversion of electronic checks

Electronic check conversion is a process in which your check is used as the source of information for the check number, your account number, and the number that identifies your financial institution.

The information is then used to make a one-time electronic payment from your account – an electronic funds transfer.

Electronic Funds Transfer (EFT)

The transfer of money between accounts by electronic consumer systems—such as automated teller machines and electronic bill payments—rather than by check or cash. Wire transfers, checks, drafts, and paper instruments do not fall into this category.

Embezzlement

In most states, embezzlement is defined as the theft/stolen assets (money or property) by a person in a position of trust or responsibility over those assets. Embezzlement typically occurs in the course of employment and business.

Coding

The process used to print or inscribe magnetic characters on cheques, deposits and other financial instruments.

Error resolution

The process required to resolve errors involving electronic transfers to and from deposit accounts.

Escrow

A financial instrument held by a third party on behalf of the other two parties in a transaction. Funds are held by the escrow service until it receives proper written or oral instructions or until obligations have been fulfilled. Securities, funds, and other assets may be placed in escrow.

Escrow Analysis

The periodic review of escrow accounts by a mortgage company to verify that monthly deposits are sufficient to pay taxes, insurance, and other escrow-related items when due.

Escrow Funds

Funds held in reserve by a mortgage company to pay taxes, insurance, and other mortgage-related items when they are due.

Estate account

Held in the name of a deceased person and administered by an executor or administrator of the estate.

Trustee

Commitment to act as executor, administrator, guardian, conservator or trustee of a family trust, licensed trust or testamentary trust, or as a receiver or trustee in bankruptcy.

Financial charge

The total cost of credit that a customer must pay on a consumer loan, including interest.

Financial Regulatory Agency

An organization authorized by law to ensure the safe and sound operation of licensed financial institutions.

Fixed rate loan

The interest rate and payment remains the same throughout the term of the loan. The consumer makes equal monthly payments of principal and interest until the debt is paid in full. Let's learn more about loans.

Fixed rate mortgage

A mortgage where the payments remain the same throughout the term of the loan because the interest rate and other terms are fixed and do not change.

Foreign transaction fees

Fees assessed by your bank for making a transaction at another bank's ATM.

Forged check

It's a check on which the drawer's signature has been forged. See related questions on counterfeiting.

Falsification

The fraudulent signature or alteration of another's name on an instrument such as a deed, mortgage, or check. The intent of forgery is to deceive or defraud.

Account frozen

It is an account from which funds cannot be withdrawn until a lien is satisfied and a court order or other legal process makes the account available for withdrawal. For example, A deceased person's account is frozen pending a court order distributing the funds to the new owners.

An account may also be frozen if there is a dispute over the true ownership of an account. The bank will freeze the account to preserve existing funds until legal action can determine the rightful owner.

Searing/Topping

A legal procedure that allows a creditor to withdraw funds from your bank account to settle a debt you have not paid. If you owe money to a person or business, they can get a court order directing your bank to withdraw money from your account to pay off your debt.

Guarantor

A party who agrees to be liable for the payment of another party's debts in the event of that party's default.

Home equity line of credit

A line of credit secured by the equity in a consumer's home. It can be used for home renovations, debt consolidation, and other major purchases. Interest paid on the loan is usually tax deductible. Funds can be accessed by writing checks against the line of credit or by obtaining a cash advance.

Home Equity Loan

A home equity loan allows you to tap into the accumulated equity in your home. It's the difference between how much your home could sell for and how much you still owe. Homeowners often use a home equity loan to renovate their home, pay for a new car, or finance their child's college education. Interest paid is generally tax deductible.

Since the loan is secured by the equity in your home, if you default, the bank can foreclose on your home and take ownership of it. This type of loan is sometimes called second mortgage or borrow against your house.

Inactive account

This is an account that has little or no activity; neither deposits nor withdrawals have been recorded on the account for a significant period of time.

Indexed certificate of deposit

An indexed CD is a deposit obligation of the issuing bank and is often sold through bank branches and affiliated and unaffiliated brokers. Indexed CDs offer the investor the opportunity to participate in the appreciation, if any, of a particular index, during the term of the CD.

Indexed CDs may have complex payment structures and may not be suitable or appropriate for all investors. Investors should carefully consider the investment risk considerations detailed in the relevant offering documents and disclosure statements.

Indexed CDs are not securities and are not registered under securities laws.

Individual account

An account in the name of a person.

Individual retirement account

A retirement savings program for individuals to which annual tax-deductible contributions up to a certain limit may be made. The amount contributed is not taxed until it is withdrawn. Withdrawal is not permitted without penalty until the individual reaches the specified age.

Insufficient funds

When the balance in a depositor's checking account is insufficient to pay a check presented for payment.

Insurance (Hazard)

Insurance to protect the owner and lender against physical damage to a property from sources such as fire, wind or vandalism.

Joint account

An account held by two or more persons. Either party may transact separately or together, in accordance with the deposit account agreement.

Kite

Writing a check for an amount that will overdraw the account but cover the deficit by depositing another check at another bank. For example, writing a check for the mortgage when your checking account does not have enough funds to cover the check, but counting on receiving and depositing your paycheck before the mortgage company presents the check for payment.

Late fees

A fee charged for a late payment on an installment loan, usually expressed as a percentage of the loan balance or payment. Also, a penalty imposed by a card issuer on a cardholder's account for failing to make minimum payments.

Lender

An individual or financial institution that lends money with the expectation that the money will be repaid with interest.

Privilege

Legal action against a property. Once the property is sold, the lien holder is then paid the amount that is owed.

Credit line

A pre-approved loan authorization with a specific borrowing limit based on creditworthiness. A line of credit allows borrowers to obtain a certain number of loans without reapplying each time as long as the total funds borrowed do not exceed the credit limit.

Loan agreement

The written agreement between a borrower and a lender in which the terms and conditions of the loan are set out.

Loan fees

A fee charged by a lender for making a loan (in addition to the interest charged to the borrower).

Loan modification provision

A contractual agreement in a loan that allows the borrower or lender to permanently change one or more of the terms of the original contract. See related question on Mortgage Assistance.

Loan proceeds

The net amount of funds that a lending institution disburses under a loan and that the borrower then owes.

Maturity

The date on which the principal balance of a loan, bond or other financial instrument becomes due and payable.

The minimum balance

The amount of money that must be deposited into an account to qualify the depositor for special services or to waive service charges.

Minimum payout

The minimum amount that must be paid each month on a loan, line of credit or other debt.

Missing payment

A payment that has been made but not credited to the correct account.

Money Market Deposit Account

A savings account that offers a higher interest rate in exchange for larger than normal deposits.

Money market funds

An open-end mutual fund that invests in short-term debt and monetary instruments such as Treasury bills and pays money market interest rates. Money market funds typically offer check-writing privileges.

Mortgage

A debt instrument used in a real estate transaction where the property is the security for the loan. A mortgage gives the lender the right to take possession of the property if the borrower defaults on the loan.

Mortgage

Loan granted by a lender to a borrower for the financing of real estate. Mortgages: what to know about these methods of financing?

Mortgage creditor

The lender in a mortgage relationship.

Mortgagor

The borrower in a mortgage loan relationship. The property is used as collateral to make the payment.

Mutual fund

A fund managed by an investment company that collects money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities.

These funds offer investors the benefits of diversification and professional management.

Official Check

A check drawn on a bank and signed by an authorized banking officer. (Also known as a cashier's check.)

Online banking

A service that allows an account holder to obtain account information and manage certain banking transactions via a personal computer through the financial institution's website on the Internet. This is also known as Internet or electronic banking.

Indefinite loan

A credit agreement (usually a credit card) that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. The borrower is billed only for the amount actually borrowed plus interest due. Also called a charge account or revolving credit.

Overdue check

A check issued by a depositor that has not yet been presented for payment or paid by the depositor's bank.

Overdraft

When the amount of money withdrawn from a bank account is greater than the amount actually available in the account, the excess is called an overdraft and the account is said to be overdrawn. See our guide to bank overdrafts.

Exceeding

Write a check for an amount greater than the amount deposited into the account.

Limit exceeded

An open credit account in which the assigned dollar limit has been exceeded.

Booklet

A book in the form of a ledger in which all deposits, withdrawals and earnings from a customer's savings account are recorded.

Overdue item

Any note or other time-based debt instrument that has not been paid when due.

Payday loans

A short-term loan of a small amount that a borrower agrees to repay from his or her next paycheck or deposit.

Payment deadline

The date a loan or installment payment is due. It is set by a financial institution. Any payment received after this date is considered late; fees and penalties may be assessed.

Declaration of payment

A formal statement prepared when a loan repayment is contemplated. It states the current status of the loan account, all amounts owed and the daily interest rate.

Periodic rate

The interest rate described in relation to a specific term. For example, the monthly periodic rate is the cost of credit per month; the daily periodic rate is the cost of credit per day.

Periodic declaration

The billing summary is produced and sent at specified intervals, usually monthly.

Personal Identification Number (PIN)

Typically a four-character number or word, a PIN is the secret code given to credit or debit cardholders to access their account. The code is either randomly assigned by the bank or selected by the customer. It is intended to prevent unauthorized use of the card when accessing a financial service terminal.

Phishing

The activity of defrauding an online account holder of financial information by impersonating a legitimate entity.

Proxy

A written instrument that authorizes one person to act as agent for another. The power of attorney may be for a specific, specific act, or it may be general in nature. The terms of the written power of attorney may specify an expiration date. Otherwise, the power of attorney generally expires upon the death of the person giving it.

Some institutions require you to use the bank's power of attorney forms. The bank may call this a durable power of attorney: the principal grants specific rights to the agent.

Pre-authorized payment

A system established by a written agreement under which a financial institution is authorized by the customer to debit the customer's account in order to pay bills or make loan payments.

Prepayment

The payment of a debt before it actually becomes due.

prepayment clause

A clause in a mortgage that allows the mortgagor to repay some or all of the outstanding debt before it becomes due.

Penalty for prepayment

A penalty imposed on a borrower for paying off the loan before its due date. In the case of a mortgage, this applies when there is no prepayment clause in the mortgage note to offset the penalty.

Previous balance

The cardholder's account balance as of the previous billing statement.

Principal balance

The outstanding balance of a loan, excluding interest and fees.

Release of privilege

Release real estate from a mortgage. See the related question on releasing the lien.

Renewal

A form of loan extension in which the borrower's outstanding loan balance is rolled over (renewed) to a new loan at the beginning of the next financing period.

Residual interest

Interest that continues to accrue on your credit card balance from the statement cycle date until the bank receives your payment.

For example, if your statement cycle date was January 10 and the bank received your payment on January 20, there were ten days for which interest accrued. This amount will appear on your next statement.

Return the item

A negotiable instrument—primarily a check—that has been sent to a bank for collection and payment and is returned unpaid by the issuing bank.

Reverse Mortgage

A reverse mortgage is a special home loan product that allows a homeowner aged 62 or older to access the equity built up in their home. The home itself will be the source of repayment.

The loan is taken out based on the value of the collateral (home) and the borrower's life expectancy. The loan must be repaid when you die, sell your home, or no longer live in it as your primary residence. See related questions about reverse mortgages.

Revolving credit

Right of set-off

It is the legal right of banks to seize funds that a guarantor or debtor may have on deposit to cover a defaulted loan.

Right of withdrawal

This is the right to terminate, within three working days, a contract that uses a person's home as collateral, except in the case of a first mortgage loan. There is no cost to the borrower, who receives a full refund of all fees paid. Safe

Mortgage satisfaction

A document issued by a mortgagee (the lender) when a mortgage is paid in full.

Service charge

Fees assessed by a deposit-taking institution for processing transactions and maintaining accounts.

signature card

A card signed by every depositor and customer of a bank that can be used as a means of identification. The signature card represents a contract between the bank and the depositor.

Student loan

Loans made, insured or guaranteed under any program authorized by the Higher Education Act. The loan funds are used by the borrower for educational purposes.

Replacement control

A replacement check is a paper copy of the front and back of the original check. A replacement check is slightly larger than a standard personal check so that it can hold a photo of your original check.

It is legally the same as the original check if it accurately represents the information on the original check and includes the following statement. The substitute check must also have been processed by a bank.

Terms

The period and interest rate agreed between the creditor and the debtor to repay a loan.

Time Certificate of Deposit

A term deposit materialized by a negotiable or non-negotiable instrument specifying an amount and a maturity.

A term deposit

A term deposit (also known as a fixed deposit) is a deposit of money in a bank that cannot be withdrawn for a certain "term" or period of time.

When the term is over, it can be withdrawn or continued for another term. The longer the term, the better the return on the money. Early withdrawals generally result in significant penalties.