Banking is described as the commercial activity of receiving, securing, and lending out money that belongs to other people or companies in order to carry out economic activities like creating a profit or merely paying for operating costs. A financial entity with permission to accept deposits and issue loans is known as a bank. Commercial/retail and investment banks are two of the most prevalent categories of banks. A bank may also offer a range of financial services, from safe deposit boxes and currency exchange to retirement and asset management, depending on the kind.
The U.S. government oversees bank regulation in the United States of America. One of the principal central banks in the world is the Federal Reserve Bank. Currency stability is primarily the responsibility of central banks. They oversee money supply and demand in the market, set monetary policies, and manage inflation.
Commercial or retail banks provide a range of services, such as, but not limited to, managing cash deposits and withdrawals, offering fundamental checking and savings accounts, certificates of deposit, issuing debit and credit cards to eligible customers, and providing both short- and long-term loans like auto loans, mortgages, and equity line of credits. Investment banks target corporate clients with their services. Among other investment services, they offer services including merger and acquisition activity and underwriting.
To determine the number of unbanked and underbanked American households, the Federal Deposit Insurance Corporation (FDIC) conducted a countrywide survey in the United States in 2017. According to the survey's executive summary, almost 8.4 million American households, or 20.5 million people, were unbanked, which means that nobody in those households had a savings or checking account. The survey also revealed that almost 64.3 million Americans, or 24.2 million families, were underbanked, meaning they held accounts at institutions that were insured but also used other financial services or products.
Why, therefore, is this significant? because those who are underbanked or unbanked are unable to take use of services that promote financial security. To cash checks or borrow money, many people are forced to use services provided outside of the banking system, which results in greater transaction costs and unnecessary interest. Here are a few explanations for why banking is the most important pillar of financial literacy.
- Safeguard your cash
- Manage your finances – record keeping and budgeting
- Receive your paycheck quickly using direct deposit
- Facilitate financial transactions
- Insure your liquid assets
- Use debit and credit card services
- Earn interest
- Borrow loans
- Invest your money
- Establish a credit history to generate a FICO credit score instrumental in borrowing funds and building wealth
In the realm of business, using the right word may make or break a financial agreement. In order to fully utilize the services offered, it is crucial to grasp the many terminologies used in banking, especially while looking for a bank and wanting to compare options before making financial decisions. For instance, a checking account and an interest-bearing checking account are very different. A home equity line of credit is not the same as a mortgage loan. The following is a list of the key terms and definitions that banks use to conduct financial transactions:
A checking account is a particular type of bank account from which the account depositor may draw checks. Also known as a "transactional" account, this one is used to make debit card purchases, automate transfers, and pay bills. Checking accounts may offer advantages and restrictions depending on the banking institution. Pay attention to the minimum balance needed to start a checking account, the number of transactions that can be made each month, the costs associated with each ATM withdrawal, and the required monthly maintenance fee. Finding a bank or credit union that offers a free checking account, a free ATM withdrawal, and overdraft protection is your objective, and YES, such financial organizations do exist!
A savings account is a fundamental kind of bank account that enables interest-bearing deposits, safekeeping, transfers to checking accounts, and withdrawals of monies. Account holders are unable to make checks or pay invoices using it.
Certificate of Deposit (CD)
A CD is a savings certificate that can be issued in any denomination and has no minimum investment requirements. It has a fixed maturity date and a stated fixed interest rate. A CD limits access to the money until the investment's maturity date.
Money market account
A restricted number of checks may be written on a money market account, which also pays interest. providing the advantages of a combination checking and saving account.
Online banking refers to a type of banking where transactions are carried out online through a computer or a mobile phone. Many banks and credit unions also provide their customers and de facto owners with safe internet banking services.
Payroll direct deposit
Payroll direct deposit enables your employer to instantly transfer your wages into your bank account, allowing you to access your money more quickly than needing to deposit a paper check and wait for it to clear.
For each financial institution, the routing number is used to determine where to route funds to or from. The public can find each financial institution's routing number, which identifies the institution that is receiving funds.
Each customer is given an account number to identify ownership. Employers direct deposit employee paychecks into the appropriate institution and account using routing and account numbers. Protect your account number and use it only for private transactions.
Debit Card/Credit Card
The source from which the cards draw their funding distinguishes a debit card from a credit card account. A debit card deducts funds from your bank account that you already have, whereas a credit card charges funds that are borrowed and must be repaid, plus any applicable interest, to your account.
Automatic bill payment and bill-pay
The way that automatic debit payments operate differs from how your bank's recurring bill-pay service operates. You authorize your bank or credit union to transmit the payments to the business when you set up regular bill-pay. You authorize the business to deduct money from your bank account when you use automatic bill payment or debits. Customers can maintain control over scheduled payments with the bill pay option.
Automated teller machine (ATM)
Customers can do simple financial operations using an ATM without the assistance of a branch professional or teller. Most ATMs allow access to anyone with a credit card or debit card; however, there are frequently daily and transactional limits. Be advised that most institutions charge transaction fees for using an ATM. To save money, always use free services for your banking activities.
Now that you are familiar with the terms that banks and credit unions use the most, consider helping someone else out by talking about other terms you are familiar with!