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What are some important banking terms?

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Quick Answer

Important banking terms include compound interest, prime rate, escrow, co-signer and annual percentage rate. Other important banking terms include cash advance, overdraft, returned item and collateral.

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What are some important banking terms?
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Full Answer

Compound interest is an important banking term that refers to the returns that invested money earn, leading to a faster growth of the principal amount. Compounding is an essential concept to comprehend when aiming long-term financial goals.

Co-signer is a term referring to someone who undertakes to take responsibility for another person���s debt in the event that the borrower fails to pay. Banks and other financial institutions lending money may require a co-signer when giving credit facilities to high-risk borrowers.

Overdraft is an important banking concept that refers to a situation when an account holder is allowed to withdraw an amount of money from a bank account that exceeds the amount in the account. Banks and other financial institutions charge an overdraft fee to cover the difference.

Collateral is a banking term that refers to an asset used by a borrower to secure a loan. Lenders require that the borrower makes payments toward financing the loan; failure to do so results in the bank seizing the asset used as collateral. A car purchased with a loan or a property financed with a mortgage can serve as collateral.

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