Banking terms and concepts have consistently been a part of our finance books yet, they are difficult to recall and tricky to apply. We all understand that monetary policy spins around bank rates, repo rates and multiple other rates, sometimes this can lead to confusion between the concepts. No only this, whether it’s preparing for a financial or a banking exam, or simply to adding up to your knowledge, learning about any new banking terminology surely helps. Right!
So, here we have an enormous bunch of 100 important banking terms which are defined in a simple language to help you understand them better.
We have already covered a whole lot of useful Financial Terms and Concepts before. This time we bring for you another exclusive set of banking terminologies, some explained in brief along with a glimpse of others.
Important Banking Terms:
Here we have arranged the important banking terms alphabetically for an easy reference. Now, let’s have a quick overview of the massive collection of Banking Terms:
1. Automated Teller Machines (ATMs)
ATM is an electronic device that allows us to draw cash and receive information on account balance through a special type of plastic card that is encoded with our information. We can simply insert the card into the ATMs to process our account transactions and access the account.
2. Account Balance
In banking, it is the amount of money which is available in our bank accounts. The available ‘net amount’ after taking all credits and debits into consideration is called account balance.
3. Accrued Interest
Accrued Interest refers to the amount of interest collected over an investment but has not yet been paid out. In banking terms, it is also called interest receivable. Accrued Interest can either be in the form of accrued interest expense, for the borrower or accrued interest revenue, for the lender.
After making a lump sum investment, an annuity is a plan that helps us to get a guarantee income or return. This money is either deposited with the help of periodic payments or lump sum.
5. Automated Clearing House (ACH)
ACH is a countrywide electronic clearinghouse that manages and monitors the entire process of fund and cheque clearance between the banks without using wire transfer, paper checks, credit cards network, or cash.
6. Bank Account
A bank account allows the account holder to safeguard his money, make cheque payments, earn interest and deposit amounts.
Also have a look at Best Savings Account in India
7. Bank Rate
Bank rate is the rate which is charged on the loans or credits which is offered by the central bank to the commercial banks without keeping any security. Such loans are given out by rediscounting (buying back) or by direct lending the bills of treasury and commercial banks bills. Consequently, the bank rate is also known as the discount rate.
8. Bounced Cheque
A bounced check is a cheque which is not accepted by the bank. The reason for refusing payment could be signature mismatch, insufficient money in the bank account, or some other valid reason.
A cheque is an important negotiable instrument. It is a piece of paper/document which orders the bank to transfer money from the bank account of an organisation or an individual to another bank account. ‘Drawer’ is the person who writes the cheque and ‘Payee’ is the person in whose name the cheque has been issued.
Clearing of the cheque is the process which is done by Clearing House. Additionally, in this process, the amount of the cheque is credited to the beneficiary’s account and debited from the issuer’s account.
11. Debit card
With the help of a debit card, we can access the funds which are available in our bank account either from an ATM or a (PoS) point of sale. The amount used by us is immediately debited from our account and also, there is no credit available on a debit card.
Also know the difference between a Debit card and Credit card
A guarantor is a person who takes the responsibility of repayment of the loan amount. Normally, he is not liable for the repayment of the loan. Although, in a few cases, the responsibility and liability of repaying the loan lies with the guarantor.
13. Internet Banking
By using the internet banking service we can access our bank account and similarly, we can perform certain online transactions. Internet banking is also called e-banking or online banking.
14. Letter of Credit (LOC)
On behalf of an importer or buyer of the goods, a bank issues a letter of credit. The letter of credit states the commitment of the bank to pay the exporter or seller a precise amount for the purchase of goods by the buyer. In the case of receiving the payment, the seller needs to fulfil the conditions which are mentioned in the LOC and submit the required documents. Normally, LOC is used while doing a huge amount of international trade transactions.
15. Repo Rate
It is a rate at which a bank borrows money from the RBI. The banks sell government securities or pledge to the RBI for the same. It is a short term loan, usually for a period of up to two weeks. Repo Rate is completely different from the Bank Rate with respect to the tenure of the loan.
You may also like: What is Bank rate in India? Bank Rate vs Repo Rate
16. Reverse Repo Rate
When banks have surplus funds with them and they deposit them with the RBI for a short period, the RBI offers banks a Reverse Repo Rate.
17. Time Deposit
It is a type of bank deposit. In time deposit, the customer cannot withdraw his funds before a fixed time elapses. The money in a time deposit must be kept for the fixed term to receive the full interest.
18. Wholesale Banking
There are many banks which offer banking services to the large institutions, corporate entities, government agencies, real estate developers and even other financial institutes. Wholesale banking also refers to lending and borrowing between institutional banks.
19. Zero-Balance Account
Normally, bank account holders are required to maintain a certain average or minimum balance in their accounts. Although, sometimes banks offer accounts which do not have this average and minimum balance requirement. This is referred as a Zero-Balance account.
Are you preparing for a banking interview? Not to miss out Common Banking Interview Questions and Answers
Basic Banking Terms: List to Add On
- A Balance of Payments
- Account agreement
- Acquiring Bank
- Blockchain system
- Banking Ombudsman
- Bill of Exchange
- Balloon mortgage
- BASEL Committee
- Current Account
- CASA Account
- Credit Score
- Credit Card
- Call money
- Cash Reserve Ratio
- Credit Rating
- CAMELS rating system
- Cash Credit
- Core Banking Solutions
- Clean note policy of RBI
- Currency Chest
- Credit Crunch
- Capital market/Money Market
- Deposit Insurance and Credit Guarantee Corporation (DICGC)
- DEMAT Account
- Direct Debit
- External Commercial Borrowings
- ‘Fit and Proper’ Criteria for Elected Directors of PSB
- Green Banking
- General Anti-Avoidance Rules (GAAR)
- IMPS: Immediate Payment Services
- Interest Rate Swap
- Legal Tender
- Letter Of Credit
- Marginal standing facility
- Minimum Reserve system of RBI
- Market Stabilization scheme (MSS)
- Money Inflation
- Money laundering
- Micro ATMs
- NEFT – “National Electronic Fund Transfer”
- Non Performing Assets
- NOSTRO Account
- Notice money
- Negative interest rate
- Net Asset Value (NAV)
- Off-Balance Sheet Exposure
- Open Market Operations (OMO)
- Participatory notes or P-Notes
- Prepaid Payment Instrument (PPI)
- Plastic Money
- Priority Sector Lending
- Public Credit Registry (PCR)
- RTGS- “Real Time Gross Settlement”
- Retail credit operations
- Refinance Facilities
- Retail banking
- RAFA Account
- SLR –(Statutory Liquidity Ratio)
- Savings Account
- Small Finance Banks
- Green Banking
- Scheduled Bank
- The Balance of Trade
- Technical Analysis
- Time Horizon
- Trust Deed
- Unified Payment Interface
- Universal Banking
- Underlying Security
- VOSTRO Account
- Virtual Banking
- Window Dressing
- Yield (Internal rate of Return)
- Zero-Coupon Bond
After going through this interesting Banking Glossary, you may also enjoy gathering in-depth Stock Market Basics.
So, this was our list of essential and commonly-used banking terms and definitions of some of them. There might be a number of other important banking terminologies to learn, we have covered the most-common ones here. Do you wish to discuss about any of the top banking terminology in detail? Feel free to share your queries in the comment section below.