Glossary of Terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

ACH - Automated Clearing House
A computer-based interchange for clearing deposits and payments electronically.

Annual Percentage Rate
The cost of credit for personal loans, expressed as a percentage per year.

Annual Percentage Yield
The amount of interest earned on a deposit account (checking, savings, CDs, IRAs), 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. Can sometimes be used to avoid service charges or to qualify for special services. See also, minimum daily balance.

Automatic Deposit
An arrangement that authorizes an employer to deposit paychecks automatically to the employee's bank account (usually checking or savings).

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.

CD - Certificate of Deposit
A time deposit with a maturity date that generally pays higher interest rates than other types of deposit accounts. Maturities can range from seven days to 10 years. Insured by the NCUA up to the maximum allowed by law. A penalty may be assessed if funds are withdrawn before the maturity date.

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 ATMs. Sometimes referred to as a debit card.

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.

Credit Limit
The maximum amount that can be spent on a line of credit or a revolving charge account.

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; deposits are handled through the ACH. See also automatic deposit.

Fixed Expenses
Expenses that must be paid every month or at other regular time periods. They include such things as rent, mortgage, car loans and insurance premiums.

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 about interest deductibility). 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 an advance. See also, home equity loan.

Home Equity Loan
A loan secured by the equity in a home. Can be used for home improvements, debt consolidation and other major purchases or expenses. Interest paid on the loan is generally tax deductible (consult a tax adviser about interest deductibility). Upon approval, money is paid in a lump sum. See also, home equity line of credit.

Interest Rate
The rate paid on an interest-bearing account, such as savings, CDs 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 at maturity 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.

Line of Credit
A fixed amount of money that can be drawn against from a lender. A line of credit is applied for with a lending institution just like applying for a loan. However, unlike a loan, the borrower only pays interest on the amount actually used. A line of credit is usually for an unlimited period of time. Periodic payments are made against what has been borrowed, generally at least equal to the interest on the loan.

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.

NCUA - National Credit Union Administration
Independent federal agency that charters and supervises federal credit unions and insuring the savings of 80 million account holders in all federal credit unions and many state-chartered credit unions up to $100,000.

NSF - Nonsufficient or Insufficient Funds
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.

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 or money market savings account to be linked to another account that provides protection against returned items or overdrafts. Choices can include using a savings account or a line of credit account to provide protection.

PC Banking
A service that allows an account holder to obtain account information and manage certain banking transactions through a personal computer.

Revolving Charge Account
A credit account for which the user has the option to pay the bill in full or to spread repayment over several months.

Transaction Limitations
Refers to a Federal Reserve regulation that limits certain types of withdrawals from savings and money market savings accounts. There can be no more than six automatic, wire or telephone transfers out of the account each month; of the six, if applicable, no more than three can be by check, draft, debit card or similar payment order to a third party. Withdrawals at ATMs and teller windows from these accounts are unlimited.

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 Expenses
Expenses which may vary month-to-month and over which you may have considerable control. These expenses include food, clothing, entertainment and transportation.

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 or other prescribed criteria. See also fixed rate.

Wire Transfer
An electronic payment service for transferring funds by wire (for example, through the Federal Reserve Wire Network or the Clearing House Interbank Payments System).

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