What Are Some Important Banking Terms?

What Are Some Important Banking Terms?

What Are Some Important Banking Terms?

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.

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.