Understanding the basics of finance and banking can surprisingly make a world of your difference to your bank balance. Here are a few terms you need to know in order to manage your money a lot better.
Routing number: This is a nine-digit number that essentially identifies your bank or credit union. Larger financial institutions usually have many routing numbers that are based on the geographic location in which the account was opened.
FDIC: The Federal Deposit Insurance Corp. (FDIC) is a government-run organization that insures bank deposits of customers up to the equivalent of $250,000. This is extremely useful if the bank fails. For credit unions, the National Credit Union Administration is the equivalent.
Certificate of Deposit: Also known as CD, this is an account in which you deposit a lump sum of money and agree to park it there for a certain length of time. The account usually pays you higher rates in comparison to checking accounts and standard savings accounts.
APY: The Annual Percentage Yield (APY) is the amount of interest you will gain from keeping your money in your bank account for a year, including compound interest.
APR: The Annual Percentage Rate or APR is the amount of money that you get from keeping your money in a bank account for a year, not including the compound interest. In the context of loans, the APR indicates the cost of borrowing money and includes the interest and any other charges payable toward the loan.
Compound Interest: This applies to the original deposit and any other newly-earned interest as well. For instance, say you’ve put $100 in your account, which has earned a compound interest of 5%. The next year you will then have $105, and you will earn a 5% interest on the new sum, which, in this case, is $105. In comparison, if you were earning a non-compounding interest, you would continue to earn only 5% on the initial $100 every year.
Savings Account: This is an interest-bearing account that is used to hold money for a certain period of time either to pay for emergency expenses or to meet long-term savings goals.
