90 Plus Important Banking Terms You Should Know
It’s very important for you to know and understand the different banking terminologies and terms used by banks and other financial institutions so that you can perform them with ease. Here is a list of 92 important banking terms and definitions in alphabetical order for your help:
- Account Statement:
It refers to the document that contains records of all your banking transactions that happened between you and third parties in a given period of time. Banks usually email your account statements to your email id either on a monthly or quarterly basis. You can also request your bank to provide you with an account statement as and when the need arises.
- Account History:
It is the record of your entire credits, debits, and interest payments made, interest accrued by your account over a specific period of time.
- Account Holder:
It refers to the primary account holder or account holders in case of a joint account who are authorized to carry out transactions on behalf of an account.
- Available Balance:
The total balance that remains in your savings bank account after making different transactions.
It refers to the total of the present unused balance in your credit card.
ATM stands for Automated Teller Machine that helps you carry out various banking activities making deposits, loan payments, and fund transfer along with the primary function of cash withdrawals.
Automatic Bill Payment:
It refers to an automatic process of paying recurring bills with one authorization statement to a financial institution. You can pay your electricity bill, water bill, and all other utility bills by using this facility which you can avail of by providing one authorization letter to your bank. You can activate this facility either through your internet banking or manually requesting your bank.
It stands for Annual Percentage Rate that refers to the yearly rate of interest paid by borrowers on various debts or investments, and also earned from deposits.
- Bank Account:
It refers to the facility offered by a bank or other financial institutions or credit unions to their customers to keep their financial assets with them. Banks keep your earnings with them at your discretion and you need to pay a nominal charge for availing of this facility.
- Bank Statement:
It's the same as the account statement. It contains a record of all transactions including debits and credits, interest payment made, interest accrued, other deposits made, monthly average balance maintained in your account, and your current balance, for a given period of time. It is usually issued on a monthly basis. This is one of the important banking terms we should all be familiarized with.
- Balance Transfer:
It refers to the process of transferring your outstanding loan amount from your existing lender to a new loan account opened with a different lender. The balance transfer facility can also be used in credit cards where you transfer an outstanding balance from one credit card to another. This is mainly done for the purpose of receiving lower interest rates on your loan or credit card bills. You may be required to pay a nominal amount as the balance transfer fee.
It refers to that situation when an individual or a business entity doesn't have sufficient funds to pay off debts. It is a situation where a borrower may seek relief through a court proceeding to extend the repayment schedule or legally surrender all assets to a trustee as authorized by the court.
This is the rate of interest charged by the Reserve Bank of India from banks and other financial institutions for offering loans and advances.
He/she is a senior official appointed by the Reserve Bank of India to look into customers’ complaints against deficiency in certain banking services.
It means the person who is entitled to receive the benefits of a fixed deposit, trust, insurance policy, or other financial contracts.
It refers to the period from the end of one billing statement date to the next billing statement date.
It refers to the date, month, and year when a monthly or period statement is generated.
It is the minimum rate set by The Reserve Bank of India. No lender can lend money to customers below the existing base rate. Banks/lenders determine interest rates for various loans based on the existing base rate.
- Capital Gain:
It refers to the net profit earned by an investor by selling capital assets like a house, land, or property at a price that is more than its original purchase price.
- Certificate of Deposit:
It’s a document issued by banks or credit unions against term deposits opened with them for a fixed tenure with fixed interest rates.
- Canceled Cheque:
It’s a cheque that permits a bank to pay a specific amount from the account of the drawer to a specified person or firm. There are three parties involved in a canceled cheque who are – the bank or the drawee of the cheque, the account holder or the drawer, and the payee or the person who is supposed to receive the amount. A cheque is canceled by drawing two crossed lines and writing the word canceled over the cheque.
It’s a benefit provided by banks or credit unions for credit and debit card users by refunding the cardholder’s account with a certain percentage of the total spent made with a particular credit or debit card.
Certificate of Release:
It’s a certificate issued by a bank or lender mentioning that a loan has been fully paid and all debts cleared by the borrower.
It refers to an asset that has been used as a security against a debt. For example, when you opt for a home loan to purchase a house or property, the home or property acts as collateral against the borrowed amount.
It refers to the secondary borrower of a loan. A co-applicant or co-borrower is responsible for repaying the debt taken jointly with the primary applicant. Having co-applicant increases the chances of loan approval.
Credit Life Insurance:
It’s a type of life insurance that pays off a loan if the borrower dies during the loan repayment tenure and the loan remains unpaid. This is optional coverage and most people opt for it when they take home loans for longer tenures.
It refers to the maximum amount of credit issued to a credit card holder by a credit card company.
It’s a record of a borrower’s debt repayment history.
It’s a detailed account of your past credit history, current credit situation as in how many loans you have, whether you have made timely repayments or not, have you missed any EMIs, etc. This report is prepared by credit bureaus like CIBIL or Experian which lenders use to determine an applicant’s creditworthiness.
Credit Reporting Agency:
It refers to the agencies that collect an individual credit history and provide it to banks, credit card companies, mortgage lenders, and other creditors so they can make informed decisions regarding granting loans to applicants/borrowers. CIBIL, EQUIFAX, EXPERIAN are some of the major credit reporting agencies in India.
It refers to a number that determines your creditworthiness. It’s a numerical number that remains roughly between 300 to 850. The credit score is calculated based on your credit history that contains a record of your existing debts, repayment history, no of opened accounts, etc. Having a high credit score is always a plus adding to the possibility of receiving credit in the form of loans, credit cards, or other financial assistance.
It refers to the amount that you are liable to pay back to your lender. It’s the state of owing money that has to be repaid within a stipulated time.
It’s one of the basic banking terms used quite frequently. It refers to the amount that has been withdrawn or spent from your savings or current account.
- Debit Card:
It’s a magnetic card that allows the account holder to withdraw money from ATMs and carry out various cashless transactions online and purchase goods and services using point-of-sale systems.
- Debt to Income Ratio:
It refers to the percentage of your gross monthly income that is spent for repaying debts. It is calculated by comparing a customer’s monthly gross income to his/her monthly debt payments. Banks or other lenders evaluate a consumer’s debt to income ratio to measure his/her loan repayment capacity. If the ratio is higher, then the risk level also increases in terms of repayment. A low debt to income ratio is desirable as it indicates having sufficient income compared to debt.
The amount of money that has been added to your savings or current account.
A debater is someone who owes money to banks or credit unions.
It refers to the state of postponing or deferring payment until a future date.
Your bank or lender may charge you a nominal amount for handling and processing your loan application and checking your creditworthiness. These are usually known as documentation fees.
It’s a written document used by an account holder to pay a specified sum to a third party at a specific date through its bank/ lender. A draft has to be signed by the drawee or the account holder.
It refers to the bank or other financial institution s who is expected to pay off a check or draft when it is presented for payment by the drawer or account holder.
It refers to the person who authorizes a bank to pay off a check or draft to a payee or third party at a given time and date.
Electronic Clearing Service:
It’s a technology-enabled service provided by banks to help customers wherein customers can choose to make direct payments for loans, mutual funds, utility bills, etc. from his/ her account on a specified date every month.
It refers to the e-banking or internet banking process where you can carry out select banking transactions with the help of a device like a computer/ laptop or smartphone, and an internet connection. Electronic banking is also known as online banking.
Electronic Funds Transfer (EFT):
It’s the process of transferring funds between different accounts of one’s own and also between account holders’ accounts to various third parties with the help of technology-enabled tools like internet banking/electronic banking, ATM machines, or other third party websites like Google Pay, Paytm, etc
Interest rate is commonly categorized into two categories – fixed rate and floating rate. In a fixed-rate loan, the interest rate charged on the principal amount remains fixed throughout the entire loan tenure. And the borrower pays fixed EMIs throughout the entire loan tenure.
- Floating Rate:
In floating or adjustable-rate loans, the interest rate charged on the principal loan amount changes during the loan tenure depending on the rise and fall of the financial market. Here, if the interest rate floats or comes down, it may reduce the borrower’s monthly repayments. Similarly, when the interest rates go up, the browser’s monthly repayment may go up.
It refers to a legal process by which your lender or bank repossesses your home or property that has been used as collateral against a loan or borrowed amount. It happens when a borrower fails to repay the borrowed amount within a given tenure.
- Foreign Transaction Fees:
It’s the fee charged by your bank or credit card company for making overseas transactions or transactions with a foreign merchant.
It’s a cheque on which the drawer or account holder’s signature is fake.
It is a term that refers to the illegal transactions done by someone to obtain money from actual depositors fraudulently. These are basically unauthorized transactions done by fraudsters to obtain someone else’s assets.
A guarantor is someone who takes responsibility for the repayment of another party's debts if he/she fails to repay the loan amount.
Home Equity Loan:
It is a type of debt where a homeowner borrows against the built-up equity in his/her home. The loan amount for such a loan is determined based on the difference between a home's current value and outstanding mortgage balance. The amount received as a home equity loan can be used for multiple purposes like buying a new car, fund children’s education, home renovation, and many such things. In case you fail to repay your home equity loan, your lender may foreclose your loan and take possession of your property.
A home loan is a type of secured debt where the borrower borrows money from banks or other financial organizations to either buy or construct a property. Usually, home loans are availed for longer tenures ranging between 10 to 30 years, and the borrower needs to repay the loan amount including both principal and interest amount within the stipulated tenure. A home loan can be availed by choosing either a floating or fixed rate of interest.
In the case of a loan or any borrowed amount, interest rate refers to the amount paid by a borrower to a lender for using the lender’s money for a certain period of time. Interest is paid either at regular intervals or as a lump sum payment. Interest rates can be further divided into two categories – floating and fixed interest rates. On the other hand, in the case of savings accounts, fixed deposits, or any other savings instruments, the term interest rates refers to the earnings a depositor receives by investing the money for a particular period.
It stands for immediate payment service that enables you to transfer funds immediately from one bank account to another bank account opened with a different bank. It’s an immediate interbank electronic fund transfer facility by using which you can do immediate third-party fund transfers.
It’s an account owned by two or more persons in a bank. Here either parties or individuals can conduct transactions together or separately.
KYC stands for ‘Know Your Customer’. It refers to the process of identifying and verifying your customers for ensuring enhanced and better safety for the customers/ account holders. The KYC process can also be completed either manually or online by submitting copies of your identity proof and address proof to your bank/lender.
It’s an individual or financial institution that lends a particular amount of money to a borrower with the condition that the amount shall be returned with interest within a given tenure.
- Loan-to-Value Ratio (LTV):
It is the ratio of a borrowed amount to the appraised value of a property. Having a lower LTV increases your eligibility for securing a loan.
It’s a contract between two parties where one party allows the other to use a particular property or land or space or equipment for a given period of time by accepting payments.
- Loan Contract:
It refers to the agreement between a borrower and a lender where all the terms and conditions pertaining to a particular loan is documented.
It means the ability of an individual or firm to buy or sell an asset quickly in the market without affecting its price.
Line of Credit:
It’s a type of pre-approved loan facility using which a borrower can access funds when the need arises and repay the same as per his/her convenience within particular tenure. Lines of credits are approved by banks based on the creditworthiness of a borrower.
It stands for Magnetic Ink Character Recognition. It’s a nine-digit code found in the bottom right-hand corner of a cheque. The MICR code varies from bank to bank.
The minimum amount of money required to be kept in a deposit account for the account to be operative. An account holder may be charged a penalty for not maintaining a minimum balance in a deposit account.
The minimum amount required to be paid monthly on your loan or credit card bills or other debts.
It is a type of secured loan where a borrower borrows a particular amount of money by mortgaging property. Here, the property against which the loan amount is approved serves as collateral or security.
It’s a basic savings account that requires zero balance or no minimum balance to carry out your banking activities like ATM withdrawals, net banking, fund transfer, etc.
It means National Electronic Fund Transfer used by banks to facilitate funds transfer by using internet banking from one bank account to another. An individual can transfer funds from any account to other accounts opened in different banks at different locations, and also do interpersonal funds transfers. Banks perform NEFT fund transfers in batches and hence it may take an hour or so to credit the funds in the beneficiary’s account. The NEFT service is availed 24/7 on all days.
It is a provision offered by banks and private lenders to withdraw funds as per your needs. It allows you to withdraw funds up to an approved limit against your existing savings account or any pre-approved loan amount. By using this facility, you can do multiple withdrawals and repay the amount at your convenience. A lender determines the overdraft limit approved to a customer based on his/her relationship with it. Basically, an overdraft is an additional amount that you borrow over and above your existing home loan or personal loan.
It’s a written document that contains the records of your all deposits, withdrawals, and earnings in your savings account.
It's a type of short term loan which the borrower needs to pay back with interest as soon as his/her salary is credited to a bank account.
- Personal Loan:
It’s a type of unsecured loan that can be availed for both short and longer tenures. The amount received as a personal loan can be utilized for multiple purposes such as funding your vacation, buying a gadget, paying off medical bills, etc.
It refers to the person who receives payment, to whom a cheque or draft is payable.
- Payment Due Date:
It’s the date on which a payment is due. Any payment received after the due date is considered a late payment for which the borrower needs to pay some penalty fee.
- Personal Identification Number (PIN):
It’s a four-digit number given to a credit or debit card user to access his/her account. It’s a secret code that should not be shared with anyone. An account holder can change the original PIN issued by a bank or lender for better safety.
It is a term used for all types of credit cards, debit cards, and other smart cards that are used to carry out cashless transactions
It refers to the process of repaying debt before the due date.
It’s the penalty imposed on a borrower for repaying a debt or loan before its due date.
It means the total outstanding balance in a loan account, excluding interest payments and other applicable fees.
- Processing Fee:
Your bank or lender may charge you a nominal amount to process your loan application which is known as a processing fee. Processing may vary from lender to lender.
It’s the process of replacing your old debt with a new loan where the new lender pays off your existing debt. Basically, you opt for a second loan with a new lender to obtain a lower interest rate and monthly payments.
It refers to the acting sending money back to your account by your bank or credit card issuer. It happens when you make overpayments or return an item purchased by you.
It’s one of the terminologies used in banking that means extending a financial agreement with your bank or lender for additional terms. It could be the renewal of an unpaid loan or fixed deposit or other financial dealings.
It is a type of home loan where the borrower borrows against the value of his/her home and receives a lump sum amount either as fixed credit or line of credit. A reverse mortgage is ideal for senior citizens who have a self-acquired or self-occupied home in India. Here, the homeowner does not have to make any loan payments and the home itself will serve as the source of repayment.
It stands for Real-Time Gross Settlement which is a fund transfer technology used by banks for third-party fund transfer – which could be between the same banks or interbank fund transfer. This is a faster way of transferring funds where the funds get credited to the beneficiary account within 30 minutes.
It’s a fee charged by banks or other financial institutions for maintaining your account and processing various transactions in your account.
It’s a type of loan taken either by parents or students to fund their higher education.
It’s the period for which a particular loan is sanctioned or a deposit has been fixed
It’s a deposit done in your bank which cannot be withdrawn for a certain "term" or period of time. You should be able to withdraw the amount once the term is over. If you withdraw the amount before the scheduled term, your bank will charge you a penalty for early withdrawal.
It’s a type of interest rate on loans or other debt instruments which fluctuates during the tenure based on market condition. A variable rate is the opposite of a fixed rate. It is also known as an adjustable or floating rate.
A basic understanding of the above-mentioned banking terms shall definitely help carry out your banking transactions smoothly.