36 Banking Terms/Terminologies You Should Know

Banking terms/terminologies can be hard to comprehend. However, understanding

them will make it an easy to navigate into the world of banking. Mentioned below are
terms you need to know with regard to banking.
1. NEFT (National Electronic Funds Transfer) – NEFT is an electronic means to
transfer money from one bank to another or within the same branch.
Depending on the bank, NEFT charges and the minimum amount that can be
transferred may vary.
2. Linked Account – An account that is linked to your account for the purpose
of fund transfer is called a linked account.
3. Base Rate – This is the minimum rate at which a bank can lend to its
customers. It cannot lend below the base rate. All interest rates determined
for various loans will use the base rate as the benchmark.
4. Balance Transfer – This is a credit card payment option for people using
more than one credit card. Like the name suggests, balance transfer is when
you transfer the balance of one credit card to another. This is useful when a
card holder is unable to make full payment on his/her card, or if the second
credit card offers a lesser rate of interest.
5. Cashback – Cashback is an offer provided primarily by credit card companies
where they offer some amount of money back to the cardholder that he/she
has spent on the card. Each spend made on the card will be rewarded with
points, and the pints can then later be redeemed for money.
6. Credit History – Credit history is the past behavioural patterns of a
customer with regard to loans. A credit bureau will collect the information of
a customer and then translate it to a number between 300 and 900. This is
known as your credit score and the higher the credit score, the better your
chances are to avail a loan or a credit card.
7. Collateral – Any security provided to the bank in exchange for a loan is
known as collateral. A collateral can be in the form of land, gold, etc. This is
called a secured loan and is less risky than an unsecured loan for the lender.
In case of secured loans, the lender may auction off the collateral if the
borrower fails to pay off his/her loan.
8. Documentation Fee – Before lending money, lenders have to gauge the
credit worthiness of a customer. Customers will usually be charged for this
service, also known as documentation fee.
9. Fixed Rate – A fixed rate is when the rate of interest for a loan remains
constant throughout the entire tenure.
10. Floating Rate – Opposite of fixed rate, a floating rate of interest are interest
rates that change during the tenure of the loan. These interest rates change
as per the changes of interest rates in the economy.
11. MICR Code – This is a nine digit code found in the bottom right hand corner
of a cheque leaf. This code varies from bank to bank and is an acronym for
Magnetic Ink Character Recognition.
12. No-frills Account – This is a rudimentary savings account that requires no
minimum balance to enjoy benefits like net banking, online fund transfer,
etc.
13. Electronic Clearing Service – This is a technology used by banks wherein a
certain amount of money is directly debited from your account on a
specified date every month towards the payment of a loan, mutual fund
account, etc.
14. Processing Fee – In order to process a loan application of a customer, banks
usually charge a fee. This fee is known as a processing fee.
15. RTGS – RTGS (Real Time gross Settlement) is a fund transfer technology
used by banks for same bank or interbank fund transfer. Contrasting NEFT
or RTGS, transferring funds with RTGS is instantaneous and more nominal
with regard to the costs incurred.
16. KYC – KYC (Know Your Customer) is a procedure that all banks undergo in
order to establish the correct identity of a customer. This is to ensure that
no fraudulent operations are taking place in the bank.
17. Routing Number – This is a number that can identify your bank based on the
geographical location of the institution. Bigger banks may have several
routing numbers while smaller ones have only one.
18. APR – Annual Percentage Rate (APR) is the yearly interest you earn by
depositing your money your money into an account. This does not take into
consideration the compound interest.
19. Compound Interest – Simple interest is the interest earned on a deposit.
Compound interest is the interest earned on the deposit plus the interest
earned on the same deposit previously. For example, if you’ve deposited
Rs.1 lakh into a bank, and the bank promises to pay you a 10% interest, you
will earn an interest of Rs.10,00. The next year however, you will be
receiving an interest on Rs.1, 10, 000, i.e., the initial amount deposited plus
the interest earned on that amount.
20. Returned Item Fee – In case a cheque has bounced due to insufficient funds
or another reason, the account holder will be penalized with a fee. This fee is
called returned item fee.
21. Overdraft Fee – In the event, that you run out of money in your account,
certain banks under certain schemes allow you to withdraw more money
than you have in your account. This is a loan, in a sense, and the bank will
charge you a fee on repayment. This fee is called overdraft fee.
22. Liquidity – The ability to sell an asset in the market without affecting its
price is called liquidity.
23. Monetary Policies – This refers to the rules and regulations that the Reserve
Bank of India have put in place in order to standardize banking procedures in
the nation.
24. Plastic Money – This is a reference to currency used by individuals other
than hard cash. Mostly it is used to refer to debit and credit cards.
25. Cash Reserve Ratio (CRR) – RBI has mandated all banks to maintain a certain
percentage of the total bank deposits in cash. This percentage with regard to
the total deposits is called cash reserve ratio.
26. Statutory Liquidity Ratio (SLR) – The minimum reserve required by the bank
to maintain in the form of gold is called statutory liquidity ratio.
27. Bank Rate – This is the rate of interest that the RBI levies on banks if they
wish to borrow money.
28. Basis Point – This is one hundredth of a percentage. This is usually used to
indicate change in interest rates.
29. Capital Gain – This is a profit or gain attained by a bank by sale of
investments or properties.
30. Debtor – A debtor is an individual or organization that owes money to the
bank or any other financial institution.
31. Joint Account – A joint account is an account where in two or more people
have equal rights and liabilities of a single account.
32. APY – Annual percentage yield (APY) is the percentage of interest you gain
on interest every year, excluding compound interest. This is the same as
Annual Percentage Rate (APR).
33. Bank Ombudsman – A bank ombudsman is the authority to look into
complaints if in case other modes of complaints haven’t worked out for the
customer.
34. Credit Rating – This is an assessment of an individual’s past credit history
equated into a number between 300 and 900. This is usually the main
determinant of whether an individual attains a loan or not. Credit bureaus
collect this data on all individuals that have a history of credit.
35. Micro Finance – Small loans provided to the poor in urban, rural and sub-
urban parts of the country in order to help them raise their income level is
known as micro financing.
36. Mobile Banking – Availing banking services with the help of a mobile phone
is referred to as mobile banking.