12 Common Savings Account Terms and Definitions
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It’s no secret that personal finance and all the related jargon that accompanies the various products offered by banks can be confusing.
But knowing the banking jargon — words like APY, ATM networks, due date — can translate into real money savings for your wallet.
Along with savings accounts, there are several types. Physical savings accounts come from banks that have physical branches where you can do your banking in person. Then there are high-yield savings accounts, certificates of deposit (CDs), and money market accounts, which can be found at those same physical banks or through online-only banks.
Online-only bank accounts typically offer higher interest rates and lower fees than physical bank accounts because these banks don’t have to pay overhead to operate branches. (Learn more about the difference between physical savings accounts and online savings accounts.)
But no matter what type of savings account you have, you’ll want to know what terminology means what. Some accounts use the same terms while others use jargon specific to that type of account.
The 12 Savings Account Terms You Need to Know
An ACH transfer is when you want to make small and frequent payments electronically, i.e. direct deposit, automated bill payments, etc. ACH transfers are usually always free but usually take at least one business day to complete the transfer.
Annual percentage return
Your annual percentage yield, also known as APY, is the amount of interest your account earns over the course of a year. When signing up for a new savings account, it is important to know the APY offered as this can have a big impact on the amount of your savings.
ATMs can be in-service or out-of-network, depending on which bank you have. When you transact at an ATM outside of your bank’s network, charges will most likely be applied by both the ATM operator and your bank.
For the best physical savings accounts with extensive networks of free ATMs, see CNBC Select’s ranking here.
Your balance is the amount of money you have in your savings account. It will change depending on whether you withdraw money, make additional contributions, or earn interest on what’s in the account.
CDs often require a minimum opening deposit, which acts as your balance for the duration of the CD without any additional contributions.
Most physical savings accounts require a minimum deposit to open an account. Some high yield savings accounts may require you to make a minimum deposit to open, as well as maintain a minimum balance to earn interest.
For the best high-yield savings accounts with low (or no) minimum balance requirements, check out CNBC Select’s rankings here.
When you put your money in a CD, you earn a fixed interest rate for a specific term on that initial deposit. You cannot withdraw your money or make additional contributions (without penalty) until this time has elapsed, so your money is essentially locked away. There are different types of CDs that can help you get around this problem, which you can read about here.
A CD ladder is a savings strategy that people use to maximize their earning potential. This involves buying different CDs with different durations. With the shorter-term CD maturity, that money is reinvested in the next CD term and you continue the process as each term ends. By combining short-term and long-term CDs, you “stagger” them, giving you regular access to your funds while taking advantage of the CD rates currently on offer.
How long your money stays in a CD account before you can touch it. The duration of the CD varies between three months and five years, and generally the longer the duration, the higher the APY you earn.
For the best CDs with terms of 3 months, 6 months, 1, 3 and 5 years, check out CNBC Select’s ranking here.
Early withdrawal penalty
Typically, you can’t access your money until the end of your CD’s term, or you’ll be hit with an early withdrawal penalty. Penalty charges can vary depending on your bank and the term of your CD, but are generally interest earned, or interest you would have earned, over a number of days or months.
A fixed APY does not change. While physical and high-yield savings offer variable APYs, CDs offer account holders a fixed APY that they are locked into for the term of their CD.
A grace period is the number of days after the end of a CD term that users can either withdraw their funds or deposit more money into their account without penalty.
For example, account holders of BrioDirect broadband CDs Enjoy a 7-day grace period after the due date to withdraw funds or deposit more without penalty.
The expiration date is the date on which the term of your CD ends. At this point, when the term duration is over, savers can withdraw their funds without penalty. The money they get back includes their initial deposit, plus interest earned over time. If you don’t need the money, you can also renew the CD term for the same term or transfer it to a new CD.
Instead of going to the bank to deposit a check, you can use your mobile banking app to scan a photo of the check and have the funds deposited into your account immediately. It can sometimes take a day or two for the funds to be accessed.
A wire transfer involves transferring funds from one bank account to another and having the money available for use on the same business day. Banks generally charge a fee for wire transfers.
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