Glossary of Banking and Credit Terms
Compound Interest - Interest which is calculated not only on the initial principal but also the accumulated interest of prior periods. Compound interest differs from simple interest in that simple interest is calculated solely as a percentage of the principal sum.
Credit Card - Any card that may be used repeatedly to borrow money or buy products and services on credit. They are issued by banks, savings and loans, retail stores, and other businesses.
Demand Deposit - An account balance which can be drawn upon on demand, i.e. without prior notice. Checking and savings accounts are examples of demand deposit accounts.
Direct Deposit - The deposit of funds directly into a bank account as a form of payment. Common uses for direct deposit include paychecks and tax refunds.
Electronic funds Transfer (EFT) - Any transfer of funds that are initiated by electronic means, such as an electronic terminal, telephone, computer, ATM or magnetic tape.
Federal Deposit Insurance Corporation (FDIC) - A federal agency that insures deposits in member banks and thrifts up to $100,000.
Overdraft protection - A checking account feature in which a person has a line of credit to write checks for more than the actual account balance. Instead of charging the non-sufficient fund fee for bouncing a check, overdraft protection will in effect provide the account holder with an instant loan. The interest rate will be extremely high, but if it is paid off quickly it is usually much less expensive than the bounced check fee. Some banks do charge a fee when an account balance falls below zero even if the account holder has overdraft protection, but it's still significantly less than the bounced check fee.
Passbook - A book issued by a bank or savings institution to record deposits, withdrawals, and interest earned in a savings account.
Savings Account - A deposit account at a bank or savings and loan which pays interest, but cannot be withdrawn from by check-writing.
Simple Interest - The interest calculated on a principal sum, not compounded on earned interest.
Stop Payment - An order to a bank not to honor the payment of a check after it has been delivered but before it has been cashed.
Wire Transfer - An electronic transfer of funds, such as one that is made over the Federal Reserve Wire Network.
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