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.
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.
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 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.
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.
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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