Have you ever read an article, credit card application or a bank statement and noticed that some of the words seem written in a foreign language? Here’s a quick reference to some basic financial terms.
Accrued Interest – Interest owing from the last payment to the present date that hasn’t yet been paid on any balance still owed to the lender. This is the interest (money) paid to the lender for the use of the credit they’ve extended you.
Account Activity – A summary of all the activity going on in your account including, purchases, deposits, withdrawals, starting balances, ATM activity, etc.
Adjusted Gross Income – Your income before taxes.
Annual Percentage Rate (APR) – This is what it costs to use credit at a yearly rate. Credit card companies will list this on your billing statement and application form as APR.
Automated Clearing House – How money is transferred between different accounts in different banks, financial institutions, etc. through a series of networks. In our high speed electronic age, this is usually done within one day.
Balance Sheet – A financial statement for a specific time period showing your most current assets and liabilities.
Collateral – Any asset that could be sold for cash and is now being used to secure a loan.
Compounding – You’ve heard it also called compound interest. It’s adding accumulated interest back to the principal, so that interest is immediately earned on both the principal and the interest. A savings account, for example, may have its interest compounded every month: You have savings of $100 at 1% interest per month. At the end of the first month you would have a balance of $101.
Default – Not making a payment on a debt when it comes due.
Demand Deposit – Your money can be withdrawn at any time without advance notice – most common demand deposit is your regular bank checking account.
Electronic Funds Transfer – Paying bills online or using an ATM machine transaction.
Encryption – Security used to scramble information sent over the Internet.
Line of Credit – The maximum credit a financial institution will extend to a customer.
Maturity – The date on which the principal balance on a loan becomes due and payable.
Payee – Person to whom a check is made out.
Payer – Person writing (signing) the check.
Simple Interest – Interest that is calculated only on the principal balance without compounding. (See compounding)
Uncollected Funds – Items that have not yet cleared for payment by the bank. Examples: Checks written but have not cleared and the money has not yet been withdrawn from the account.
Variable Rate – Interest rate may change or fluctuate during the term of the loan or on the credit card balance that is owed. The interest rates can change according to a set criteria spelled out in your application or loan agreement.
Knowledge is power – the more financial knowledge we have, the more financially competent we become.
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