Reading through the features of banking products can feel like sloshing through an alphabet soup of acronyms and abbreviations. To make it easier, we’ve compiled a quick list of the most common banking industry acronyms so you can feel confident in banking like a pro.
ACH: Automated Clearing House.
ACH is the network that allows you to move money digitally from one bank to another without paper checks, cash, credit cards, or wire transfers. Even if you’re not aware of what ACH is or how it works, you have most likely used ACH for transactions if you receive wages from your employer through direct deposit, or if you pay bills electronically. The ACH Network is one of the largest and safest payment systems in the world.
APR: Annual Percentage Rate.
When you take out a mortgage or car loan, or you open a credit card, you are charged annualized interest by the bank that provides the loan or line of credit. Slightly different than an interest rate, APR gives you an accurate picture of what it costs to borrow money or make credit card transactions. Banks generally calculate APR based on daily or monthly variable rates (defined by an index such as the U.S. Prime Rate) with an added margin. The important thing to know about APRs is that in addition to paying an interest rate on the principal of the amount you borrow, they also include fees that you need to pay back on the loan.
APY: Annual Percentage Yield.
When you deposit money in the bank – in either a checking or savings account – it earns interest. APY is the amount of money that you earn in one year on that money. Unlike a simple interest rate, which is the amount you earn on your principal, APY pays compound interest, or interest on the principal plus on the interest it earns. The higher the APY, the more return you get on your money.
ATM: Automated Teller Machine.
ATMs allow you to withdraw cash and make deposits with the use of an ATM or debit card and a Personal Identification Number (PIN). Many banks participate in a network that allows consumers to use their ATMs for withdrawals and deposits for free even if they belong to a different bank, although non-members typically charge a fee for that service.
CD: Certificate of Deposit.
CDs are a type of savings account, federally insured and sold by banks that come with a fixed date of withdrawal. Characterized as low-risk, relatively low-return, CDs come with penalties for withdrawing money before the maturity date, and generally don’t incur monthly fees. Because they are federally insured and offer fixed interest rates, they are a safe investment for people who know they won’t need to access their money until the term length has been met. Generally, the longer the term length, the higher the APY.
FDIC: Federal Deposit Insurance Corporation.
Created in 1933 in response to the thousands of bank failures of the 1920s, the FDIC insures deposits in banks and thrift institutions of up to $250,000 per depositor, per insured bank. Why is it important? Banks earn revenue by investing their customers’ deposits into a variety of investments. If those investments fail and the bank loses too much money, it may not be able to return the money a customer has deposited. As an independent U.S. government agency, the FDIC protects consumers by insuring bank deposits and promoting public confidence in the U.S. financial system. It’s important to note that FDIC insurance only covers deposit products like checking and savings accounts, CDs and money market accounts; it doesn’t cover stocks and bonds, mutual funds, or the contents of security deposit boxes. Most states require banks to be federally insured, but there are some exceptions. To make sure your bank is covered by FDIC insurance, go here.
IRA: Individual Retirement Account.
An IRA is a retirement account that grows tax-free, or on a tax-deferred basis.
NCUA: National Credit Union Administration.
Credit unions are similar to traditional banks except they operate as not-for-profit institutions. They are cooperatives, owned by their members and chartered under the NCUA.
NCUSIF: National Credit Union Share Insurance Fund.
Much like FDIC insurance, NCUSIF is government-backed insurance for deposits in credit unions. And, like FDIC insurance, it also insures deposits up to $250,00 per depositor, per credit union. The insurance fund is administered through the NCUA.
NSF: Nonsufficient Funds.
When someone writes a check for an amount that isn’t covered by their account funds when the check is processed, they will be charged a fee for the bounced check. NSF fees are charged to both the issuer of the check and the recipient of the bounced check.
NYCE: New York Currency Exchange.
NYCE is a banking network that connects ATMs across the U.S. and Canada. The NYCE Shared Deposit Program allows cardholders of one bank to make deposits at ATMs of other banks in the network.
Now that you know the important banking terminology acronyms, you can bank with confidence and choose the right account for you.