Banking Terms and Definitions
Understanding common bank terms.
Banking has its own vocabulary. Whether you're opening a new account or completing a more complex transaction, you may encounter unfamiliar words or acronyms. Use this glossary as a quick reference whenever you come across a financial term you don't recognize.
An investment account that offers tax-free earnings growth and tax-free withdrawals when funds are used to pay for qualified higher education expenses (or up to $10,000 annually for K – 12). Typically, a parent or grandparent opens the account and names a child as the beneficiary. An individual state sponsors each plan and a financial services company manages it. You don’t have to be a resident of a particular state to invest in its plan.
A free banking service that helps protect your account from fraudulent activity and from potential overdrafts. Banks typically offer different types of alerts. For example, security alerts are general warnings about possible fraudulent activity to watch out for. Balance alerts are email or text messages you choose to receive that notify you if your balance is low or if there’s been suspicious activity on your account.
Annual Percentage Rate (APR)
The yearly cost of borrowing money, shown as a percentage.
Annual Percentage Yield (APY)
A percentage that shows how much interest you can earn on money in a savings account or other deposit account over one year.
A financial product offered by insurance companies that can provide you with a regular income stream during retirement. You can purchase annuities in a lump sum or in a series of payments, and you can decide if you want to receive your payout over a defined number of years or for life.
ATM
An automated teller machine (ATM) is a machine found at bank branches and public places, like airports and malls, that allows you to withdraw cash, check your account balance and perform other banking transactions using a debit card.
Automated Clearing House (ACH)
A network that electronically moves money between financial institutions for transactions like direct deposits, bill payments and bank transfers.
A service that helps you to put money into savings on a regular basis. For example, after depositing your entire paycheck into your checking account, this plan will automatically transfer an amount you choose into your savings account.
Available Balance
The amount of money currently available for you to spend, withdraw or use for transactions. This balance may differ from your current balance if there are pending transactions or deposits that haven't fully processed.
Basis Point
A measure used to express changes in interest rates. One basis point (BPS) equals 1/100th of 1 percent. When the Federal Reserve cuts interest rates by 25 basis points, it means rates go down by .25% or ¼ of 1 percent.
Cashier's Check
A check issued by a bank and guaranteed by the bank's funds. Customers typically use cashier's checks for large purchases when a personal check may not be accepted.
A savings product that holds your money for a fixed term in exchange for a set interest rate. Early withdrawals may result in a penalty.
Check Hold
A temporary delay that limits access to funds from a deposited check until the bank verifies and processes the deposit. During the hold period, some or all of the funds may not be available to use.
Compound Interest
Interest earned on both your original deposit and previously earned interest.
Coverdell Education Savings Account (ESA)
A tax-advantaged way to save for college tuition (or K – 12) and related expenses of a designated beneficiary. Earnings accrue in the account tax-free and can be withdrawn tax-free for a qualified educational purpose.
Credit Bureau
A company that tracks the credit history of individuals and sells the information to banks and other lenders to help them decide whether to extend credit to you. The credit bureau gathers information about you from banks and credit card companies and from your phone companies and utilities. The three major credit bureaus are Equifax, Experian and TransUnion. These are also known as credit reporting agencies (CRA).
Credit Report
Compiled by a credit bureau and used by banks when making a loan decision about you, this report details your credit and payment history, including your past and current loans. It’s a good idea to check your credit report regularly to detect possible fraudulent activity and to correct errors. You’re entitled to a free copy once every 12 months from each of the three major credit bureaus by contacting AnnualCreditReport.com.
Credit Score
A numerical value, based on your payment history, how much you currently owe, how much unused credit you have available and other factors, that represents your creditworthiness. Banks and other lenders buy this score from credit bureaus to help them decide if they should extend you credit. The higher your score the better your credit and the more likely you are to receive credit at a favorable rate
Current Balance
The total amount of money in your account before pending transactions and other account activity are fully processed.
Cut-off Time
The deadline, set by your bank, for crediting deposits to your account on the same day. Deposits received after the cut-off time are considered received on the next business day. There may be different cut-off times for different types of deposits, like mobile deposits and deposits made at an ATM.
A payment card connected to a bank account that allows you to make purchases or withdraw cash using funds available in that account.
A new loan you take out in order to pay off a number of smaller debts. The new loan might have a lower interest rate and/or lower monthly payments. For example, you might take advantage of a good credit card offer to pay off higher rate cards, or you might take out a home equity line of credit to consolidate higher cost debt.
Delinquent
A credit account is delinquent if a payment isn’t made on time. A reported delinquency to the credit bureau will hurt your credit score, so it’s important to bring your payments up to date.
A payment method that electronically deposits funds into a bank account without the need for a paper check. It’s commonly used for paychecks, government benefits and other recurring payments.
Dormant
An account that has no customer-initiated activity for a long period of time. Dormancy periods vary by state. After several years of dormancy, the bank may be required to turn over the funds in the account to the state.
FDIC Insurance
Protection provided by the Federal Deposit Insurance Corporation (FDIC) for money held in deposit accounts at FDIC-insured banks. If an FDIC-insured bank fails, the FDIC protects insured deposits and makes those funds available to depositors.
FICO Score
A FICO® Score is a three-digit number, ranging from 300 to 850, developed by the Fair Isaac Corporation (FICO). It is calculated using your credit report data. It helps lenders determine how likely you are to repay a loan, which in turn affects how much you can borrow, how many months you have to repay, and how much it will cost (the interest rate).
Fiduciary
A money manager who’s bound to invest your money strictly in your best interests. Registered investment advisors have a fiduciary responsibility to their clients. Other non-fiduciary money managers are legally required to invest your funds ‘suitably,’ but they’re not obliged to put your interests ahead of their own.
The mortgage lender’s legal right to take control of a property and sell it if the homeowner defaults on the mortgage payments. In some cases, the lender may wish to avoid foreclosure and be open to refinancing the mortgage on more affordable terms.
Foreign ATM Fee
A fee charged when you use your debit or credit card to withdraw funds from an ATM outside the United States. The fee is typically a percentage (1% - 3%) of the amount of the ATM withdrawal.
Funds Availability Policy
A bank’s policy that states when funds that have been deposited into your account become available for you to use. You can learn about Key’s Funds Availability Policy by calling 1-800-KEY2YOU® (539-2968) or visiting a branch.
Good Standing
Recognition that you're meeting the requirements of an account or financial obligation. Different institutions have different definitions, but this often means making required payments on time and following the terms of an agreement. If you fail to stay in good standing, it could affect your access to certain products, services, or benefits and make it more difficult to qualify for them in the future.
Grace Period
A period of time after a payment due date or billing cycle during which a customer can make a payment without incurring certain penalties, such as interest charges or late fees. For credit cards, a grace period is typically the time between the end of a billing cycle and the payment due date. For mortgages and other installment loans, a grace period is often a short time after the payment due date when a payment may be made without a late fee.
If you have a high-deductible health plan, this is a tax-advantaged way to save for deductibles, co-pays and other health expenses not covered by your plan. You can withdraw funds from the account for qualified medical expenses and funds roll over from year to year. To view the latest health savings account contribution limits for individuals and families, visit www.irs.gov/publications/p969.
Home Equity Line of Credit (HELOC)
A revolving line of credit that lets you borrow against the equity in your home. As you repay what you borrow, those funds become available to use again.
Interest Rate
A percentage that determines how much interest you earn on a deposit account or pay when borrowing money. Interest rates can vary by account, loan or financial institution.
Interest Tiers
A deposit account with interest tiers may pay a higher rate as your balance grows to the next tier. For example, an account may have two tiers, from $0 - $999.99 and $1,000 and above. Once your account balance reaches $1,000, you’ll begin to earn interest at the rate posted for that tier. A bank may reserve the right to pay the same rate on multiple tiers.
Minimum Balance Requirement
The minimum amount of money you may need to keep in an account to avoid fees, earn certain benefits or maintain the account.
A way to deposit checks into your account using your mobile phone or tablet and your bank’s mobile app.
A money market account is a savings account that may include features like check-writing or debit card access. These accounts often pay higher interest rates than traditional savings accounts and may require a larger minimum balance.
Money Market Fund
A type of mutual fund that invests in cash and low-risk, short-term securities. Money market funds are considered safe and liquid investments, a good place to keep a sum of money that you know you’ll need to use in the near future.
Monthly Maintenance Fee
A recurring charge some financial institutions assess for maintaining an account. Some financial institutions may waive the fee if specific requirements are met.
Overdraft Fee
A fee that may be charged when a bank or credit union pays a transaction that exceeds the available balance in a customer's account, resulting in a negative balance. This isn’t the same as an NSF (non-sufficient funds) fee. An NSF fee may be charged when the bank declines or returns a transaction because there are insufficient funds.
An optional service that helps cover transactions when an account balance is too low, often by transferring funds from another account or using a linked credit source.
Payoff Amount
The amount due to pay off your debt, which includes the principal balance, interest and fees where allowed by law. If you’re paying off your loan early, it might also include an early payment penalty.
Pending Transaction
A purchase, withdrawal or deposit that was authorized but hasn’t finalized and posted to your account.
Post-Dated Check
A check with a future date written on it. For example, you're writing a check today, but the date written on the check is a month from now. A post-dated check may be used for a variety of reasons, including scheduling a payment for a future date. Be aware that the payee has the right to present the check for payment early, and most banks will process it unless you issue a stop payment.
Posting Order
The order in which banks make credits and debits to your account at the end of each business day. Daily transactions on your account are processed in a batch in the evening. The order in which they post varies by bank and is typically described in your account disclosure information. If your account overdrafts, the order in which items post may make a difference in the number of overdraft fees you would incur.
Prime Rate
The interest rate banks charge to their most creditworthy clients. The rates of many credit cards and variable rate consumer loans, like home equity lines of credit, are tied to the prime rate, often expressed as Prime + X%. The WSJ Prime Rate is published by the Wall Street Journal, based on its survey of the largest banks. It is widely used by many banks.
Principal Balance
The portion of the original amount you borrowed that you still have left to pay on a loan or mortgage. Note that the principal balance doesn’t include interest or fees.
A bank’s statement of what kind of personal information they gather about you, how they use it and whom they share it with. The bank is required to notify you of their privacy policy, and to a certain extent, you have the right to limit whom they share your information with.
Required Minimum Distribution (RMD)
A Required Minimum Distribution (RMD) is the minimum amount that must be withdrawn each year from certain retirement accounts after reaching the age specified by federal tax law. The RMD is calculated each year by dividing the balance in your account by distribution period or life expectancy. You can find an RMD worksheet at IRS.gov.
A retirement savings account on which you pay taxes on the money you contribute but withdraw funds tax-free, meaning there’s no tax on the earnings. There are limits on the amount of money you can contribute each year and rules for withdrawal. This account is especially attractive if you think you’ll be in a higher tax bracket in later years.
A 9-digit number that identifies your bank. It allows financial institutions to know where the money is coming from and where it’s going, so one bank isn’t confused with another. Along with your bank account number, it is required for financial institutions to process direct deposits, checks, auto payments and wire transfers. You’ll find your bank’s routing number imprinted in the lower left corner of your checks. If you don’t have checks, you can find the routing number on the bank’s website or by calling your bank branch.
A container, typically a metal box, available for rent in many bank branches, to keep your documents and valuables safe. Safe deposit boxes come in different sizes and you can access them during normal banking hours.
Second Mortgage
A mortgage based on your available equity in a house that already has a first mortgage, which is the original mortgage you used to buy the house. A second mortgage can be a home equity loan, where you withdraw the funds at a fixed rate in one lump sum, or a home equity line of credit, which is a variable rate line that replenishes itself as you make your payments.
Statement Cycle
The period of time covered by an account statement. It shows transactions, balances, fees and other account activity for that time frame.
Stop Payment
An order to the bank not to pay a check you have written on your account. You may want to stop payment if you think the check has gotten lost, if it was in the wrong amount or if you canceled the purchase. The bank will try to honor your stop payment unless the check has already processed. There’s typically a fee for this service.
Substitute Check
An electronic copy of a check, produced by your bank to speed up the check payment process. It's considered a legal substitute for the paper check it replaces. If you need proof of payment, the bank may provide a substitute check created from the electronic image of the original check.
Telephone Banking
An automated method of banking by phone. At KeyBank, you can access your accounts using your account number and telephone access code. The number is 1-800-KEY2YOU® (539-2968). You can also speak to a customer service representative 24/7.
Title Insurance
Insurance policies that protect the homebuyer and the mortgage lender in case unexpected claims arise against your property after you closed, for example, from undisclosed heirs or unpaid tax bills. The title company searches available records to establish that the seller has a clear title and then the insurance is issued. You pay for title insurance as part of your closing costs.
An individual retirement account, which allows you to invest your savings using pre-tax dollars. Once you retire, you’ll pay taxes on whatever you withdraw at your then-tax rate. A traditional IRA has limits on the amount of money you can contribute each year and there’re rules for withdrawal.
Uniform Transfers to Minors Act (UTMA) Account
A custodial account that allows an adult to manage money or other assets on behalf of a minor until the child reaches the age specified by state law, at which point ownership and control transfer to the child.
A loan you qualify for based entirely on your creditworthiness. Personal loans are examples of unsecured loans. Rates for unsecured loans may be higher than rates for secured loans, like home equity or auto loans, because they aren’t backed by tangible assets, like a house or a car.
An electronic transfer of money sent directly from one bank or financial institution to another. These are commonly used to send money quickly and securely.