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. 

4. Annuities 

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.  

9. Cheque 

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. 

10. Clearing 

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

12. Guarantor 

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

  1. A Balance of Payments
  2. Amortisation
  3. Account agreement 
  4. Acquiring Bank
  5. Arbitrage
  6. Blockchain system
  7. Bankruptcy
  8. Banking Ombudsman
  9. Bancassurance
  10. Bitcoin
  11. Bonds
  12. Bill of Exchange
  13. Balloon mortgage
  14. BASEL Committee
  15. Current Account
  16. CASA Account
  17. Credit Score
  18. Credit Card
  19. Call money
  20. Cash Reserve Ratio
  21. Credit Rating
  22. CAMELS rating system
  23. Cash Credit
  24. Core Banking Solutions
  25. Clean note policy of RBI
  26. Currency Chest
  27. Credit Crunch
  28. Capital market/Money Market
  29. Deposit Insurance and Credit Guarantee Corporation (DICGC)
  30. DEMAT Account
  31. Debentures 
  32. Direct Debit
  33. External Commercial Borrowings
  34. ‘Fit and Proper’ Criteria for Elected Directors of PSB
  35. FDI
  36. Green Banking
  37. General Anti-Avoidance Rules (GAAR)
  38. Inflation
  39. Insolvency
  40. IMPS: Immediate Payment Services
  41. Interest Rate Swap 
  42. Legal Tender
  43. Liquidity
  44. LIBOR
  45. Letter Of Credit 
  46. Mortgage
  47. Marginal standing facility
  48. Minimum Reserve system of RBI
  49. Market Stabilization scheme (MSS)
  50. Money Inflation
  51. Money laundering
  52. Micro ATMs
  53. MIBOR
  54. NEFT – “National Electronic Fund Transfer”
  55. Non Performing Assets
  56. NOSTRO Account
  57. Notice money
  58. Negative interest rate
  59. Net Asset Value (NAV)
  60. Overdraft
  61. Off-Balance Sheet Exposure
  62. Open Market Operations (OMO)
  63. Participatory notes or P-Notes
  64. Prepaid Payment Instrument (PPI)
  65. Plastic Money
  66. Priority Sector Lending
  67. Public Credit Registry (PCR)
  68. RTGS- “Real Time Gross Settlement”
  69. Retail credit operations
  70. Refinance Facilities
  71. Retail banking
  72. RAFA Account
  73. SLR –(Statutory Liquidity Ratio)
  74. Savings Account
  75. Small Finance Banks
  76. Skimming
  77. Green Banking
  78. Scheduled Bank
  79. The Balance of Trade
  80. Teller
  81. Technical Analysis
  82. Time Horizon
  83. Trust Deed
  84. Unified Payment Interface
  85. Universal Banking
  86. Underlying Security
  87. Underwriting
  88. VOSTRO Account
  89. Virtual Banking
  90. Valuation
  91. Window Dressing
  92. Warrant
  93. Yield (Internal rate of Return)
  94. 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.