Bank Jargon 102

by Spencer Tierney 26. June 2014

Banking Terms

Do financial statements baffle you? Do your eyes glaze over when your banker seems to be speaking another language? Chances are you aren’t up to speed on the latest bank jargon. Once you decode these common bank terms, you’ll be in a better position to manage and grow your assets.

Available Balance

You may have noticed that deposited funds aren’t reflected immediately on an online bank statement or paper receipt. That discrepancy occurs because your available balance refers to the total account balance minus any uncollected funds or restrictions. Checks that still have to be cleared won’t show up. Additionally, if your account has any debits pending or other restrictions, your available balance will be less than the full amount deposited to the account.

Understanding an available balance is vital because it reflects the accurate amount of your usable cash. Always refer to this figure when writing checks or paying bills online to avoid overdrafts or bounced checks.

Credit Card Balance Transfer

A balance transfer allows you to move your outstanding balance from one credit card to another, usually to reduce the interest rate or enjoy a period of no interest at all. The promotional rate only applies for a fixed period and you may have to pay a balance transfer fee.

Balance transfers can help you pay off debt faster and with less expense.

Certified Check

When you make a major purchase, you may be asked to pay by certified check. A certified check is a check drawn from your account that’s guaranteed. Your bank will certify a check on your request, with a bank official’s signature. This signature guarantees that your signature is genuine, that you have sufficient funds in your account and that these funds have been earmarked to pay this check. Most banks charge a fee for a certified check. See the 1st Mariner Bank Schedule of Charges for details.

Understanding certified checks ensures that you’ll be able to make purchases that require them without unnecessary delay or complication.

Co-Signer

When a borrower has insufficient credit, he or she may need a co-signer for credit approval. A co-signer promises to pay a loan or satisfy a financial obligation if the primary account holder defaults. A co-signer’s legal responsibilities may include the full amount of the debt as well as interest, late fees and collection costs.

If you don’t have good credit, finding a co-signer may help you borrow money and establish credit. If on the other hand, someone asks you to co-sign a loan or credit card, a clear understanding of what this obligation entails is essential.

Frozen Account

If your account is frozen, this means you won’t have access to that money until the bank unlocks it. Accounts may be frozen due to liens, court orders, legal processes or dispute over account ownership.

Knowing why accounts are frozen may help you avoid this experience. If your paychecks are directly deposited to an account that gets frozen, you’ll need to stop this direct deposit immediately for continued access to your pay.

Traditional Individual Retirement Account (IRA)

Traditional IRAs are retirement savings accounts that are tax-deductible up to certain specified limits. You can’t withdraw these funds without penalty until you reach age 59½. Once you withdraw money from your IRA, it becomes taxable income.

Investing in an IRA may significantly reduce what you owe in income tax today, while helping you save for retirement.

Loan-to-Value Ratio (LTV)

LTV is the ratio of the amount you’re borrowing to the actual value of your purchase. For example, if you need to borrow $450,000 to purchase a $500,000 home, your LTV would be 90%.

The lower your LTV, the more likely you’ll be able to negotiate good interest rates and loan terms.

Payable-on-Death (POD) Account

A POD account allows you to designate a beneficiary who’ll inherit this account after your death. During your lifetime your beneficiary has no access to your account.

Converting your bank accounts to POD status assures that your assets will automatically belong to your loved ones when you pass, with no danger of a probate delay.

Power of Attorney (POA)

A POA is a legal document that authorizes one person to act for another. It may be a general authorization or a specific one defining a time period, act or event.

If a loved one becomes too ill to manage finances, he/she may grant you power of attorney to make important decisions for him/her or make payments from his/her bank accounts. Even a healthy person may use a POA, such as the case when you’d want to grant your accountant power of attorney to obtain certain financial documents on your behalf to resolve a tax dispute.

Spencer Tierney is a staff writer for NerdWallet, where he covers all aspects of personal finance.

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Bank Jargon 101

by Spencer Tierney 15. May 2014

Bank Jargon

Whether you just opened your first checking account or want to know all that’s on offer at your local branch, it’s wise to learn the language spoken by your bank. Consult the following list to upgrade your banking vocabulary.

CD

A certificate of deposit, or CD, is a savings product offered by financial institutions. It earns a higher interest rate (see below) than a regular savings account, but that comes in exchange for locking up your money for a specified period of time, from a few months to a year or more. Withdrawing money before the term is over will result in penalty fees. Be aware that there are fixed CDs and “flex CDs.”

How it is relevant to you: A CD can be a useful mechanism for long-term, recurring savings. One strategy to use when managing CDs is a CD ladder, which involves reinvesting short-term CDs into longer terms.

eStatements

An eStatement is an electronic copy of your account statement, delivered to you via email. Many consumers have switched from the traditional, mailed statements to eStatements for the sake of convenience and security.

How it is relevant to you: You can download and save your statements to view whenever you want. And they’re safe, since they won’t get lost in the mail or stolen from your trash.

Interest

Interest refers to the charge that comes with borrowing money (such as on credit cards and loans), or the profit that is made from loaning or depositing money (such as in saving accounts or CDs). There is no uniform rate across banks. However, the national average rates can give you a sense of the trend.

How it is relevant to you: It’s important to understand interest rates to see if you are taking full advantage of your savings products—or paying too much on your credit cards.

Money Market Account

A money market account is an account that generally offers a higher interest rate than a savings account but also requires a significantly higher balance to maintain. This type of account provides you with limited ability to write checks.

How it is relevant to you: Unlike with a CD, you have the opportunity to make a limited number of withdrawals from your account.

Overdraft

When you try to make a transaction that exceeds your balance—say, you try to use your debit card to buy a $200 smartphone but there’s only $100 in your account—your bank will do one of two things: (1) decline the transaction or (2) let it go through, causing you to “overdraw” on your account. In this second scenario, your account balance is now in negative territory, and your bank will charge you an overdraft fee. An overdraft can also happen when attempting to withdraw money from an ATM or writing a check.

How it is relevant to you: Keep a close eye on your account balances, because overdraft fees are expensive and can add up quickly.

Wire transfer

In much the same way as email moves a letter from one person’s computer to another’s electronically, a wire transfer moves money from one person’s account to another person’s account electronically. This can be done when people have accounts at different banks or at the same bank. Wire transfers are expensive due to typically high fees charged by banks to both parties. If the money is needed right away, consumers should know that banks send out wire transfers at certain times of day, and you could miss a cut-off time.

How it is relevant to you: Wire transfers are often used for large purchases, such as the down payment on a home.

Spencer Tierney is a staff writer for NerdWallet, where he covers all aspects of personal finance.

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April is National Financial Literacy Month

by Spencer Tierney 16. April 2014

Financial Literacy

Every April for the past 10 years, we have celebrated National Financial Literacy Month – and for good reason. A person’s financial literacy level can always be improved. In a study conducted by the FINRA Investor Education Foundation, participants were asked five questions about personal finance, and 61% of them couldn’t answer more than three questions correctly.

1. Why is financial literacy important?

As the financial landscape changes, it is becoming increasingly important for individuals to know how to plan and manage their finances. More companies are moving away from pension plans and toward retirement plans that require employee participation, like 401(k) plans, leaving it up to the employees to determine how much to put into retirement. Additionally, college tuition is steadily increasing, making it even more important for families to save.

Add to that the constantly changing markets and interest rates – and the myriad options for credit cards, bank accounts, mortgages, IRAs, and investment options –and it might start to seem overwhelming.

But the more you know about financial matters, the easier it becomes to navigate through your options, and the better you are able to plan. A 2011 TIAA-CREF study also shows that higher financial literacy leads to higher pension contributions and higher household wealth.

2. How can you improve your financial literacy?

Don't be embarrassed if your financial literacy isn’t stellar. According to the 2013 Consumer Financial Literacy Survey, 41% of U.S. adults give themselves a grade of C, D or F on their knowledge of personal finance. That leaves plenty of room for improvement.

Start by getting to know your finances. Be aware of your household income and your household debt including credit card debt, mortgage, auto loans, student loans, etc. Once you know your finances, you can make yourself a budget. This will serve as the blueprint for your everyday finances to help get them on track.

That's the easy part. Once you have the basics in place, you’ll want to arm yourself with the knowledge to make the best financial decisions moving forward. Some things you’ll want to learn about are:

  • Interest rates. That means on both earned and owed interest. Learn how earned interest will affect the amount in your savings account over time and how the owed interest on your credit card will affect your monthly payments.
  • Investing. Learn what the difference is between a stock and a bond, and how to invest your money to make it work the hardest for you.
  • Retirement. If you don’t have a retirement plan in place, find out what your options are. If you do, make sure you’re contributing enough each month to make your retirement years financially stable.

3. How can your bank help you improve your financial literacy?

Many banks have programs in place to help their customers increase their financial literacy. Some offer seminars, literature in their branch lobbies and/or consumer education modules on their websites, including glossaries of banking terms. In addition, many banks offer online tools for financial planning, like budgeting tools or tools to help diminish debt. Banks may also offer financial education programs for kids and teenagers. Check with your bank to see what resources they can offer you.

There's no better time to start, so take advantage of Financial Literacy Month to get a jump-start on increasing your financial knowledge.

Spencer Tierney is a staff writer for NerdWallet, where he covers all aspects of personal finance.

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