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When you understand the terms that are commonly used at a bank, you will be able to grow your balance much more effortlessly. Here are a few keywords you need to know to help you get started in your ventures.
Certificate of Deposit
A certificate of deposit, or CD, is an account where you place a specific sum of money to be kept there for a particular length of time. People tend to use these because they offer higher rates, but the experts, such as Kevin Cohee, remind savers that you can’t touch your money until the period is up.
Banking expert Kevin Cohee notes that an important consideration when choosing an account is the APY or annual percentage yield. That is the total interest you will receive for keeping your funds in one place for one year.
Your routing number will be nine digits long and identify which bank holds your account. Large banks can have multiple routing numbers that signify where you opened the account.
FDIC stands for Federal Deposit Insurance Corp. This government organization provides insurance to banks, covering up to $250,000 of each customer’s deposits if a bank fails. Credit unions also have a similar organization, the National Credit Union Administration.
APR stands for annual percentage rate. That’s the interest you get from keeping your funds in an account for one year, but it does not include compound interest. APR can also be seen when taking out a loan, representing how much it costs to borrow the funds.
Compound interest applies not only to your original deposit amount but any earned interest as well. For instance, if you lock $100 away in a CD that makes 5% interest each year, in the second year, you earn 5% interest on $105. However, if you are looking at a CD that is not compound, you will make $5 every year for as long as the $100 CD lasts.
Savings accounts are used because they provide more interest, and you can use them to hold funds for your goals, emergencies, or other reasons. You can add money to this type of account anytime you want, but some accounts limit the amount you can withdraw monthly. An online savings account might be the best option if you want a place to store your money with a high-interest rate that leaves it accessible.
Financial institutions are full of unique terms. Knowing even half of these key terms should help you understand these confusing terms.