Unit 3 - Banking - Financial Management

commercial bank

A bank organized chiefly to handle the everyday financial transactions of businesses (as through demand deposit accounts and short-term commercial loans)

debit card

A card that enables the holder to withdraw money or to have the cost of purchases charged directly to the holder's bank account.

money order

A certificate that allows the stated payee to receive cash on-demand, usually issued by governments and banking institutions. They are readily accepted and converted to cash, and are often used by people without access to a standard checking account. They are an acceptable form of payment for small debts, both personal and business, and can be purchased for a small service fee from most institutions. .

cashier's check

A check written by a financial institution on its own funds. It is then signed by a representative of the financial institution and made payable to a third party. A customers who purchases a cashier's check pays for the full face value of the check and usually also pays a small premium for the service. These checks are secured by the funds of the issuer - usually a bank - and include the name of a payee (the entity to which the check is payable), and the name of the remitter (the entity that paid for the check).

savings account

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate. Savings accounts almost always pay lower interest rates than Treasury bills and certificates of deposit. Savings account funds are considered one of the most liquid investments outside of demand accounts and cash. In contrast to savings accounts, checking accounts allow you to write checks and use electronic debit to access your funds inside the account. Savings accounts are generally for money that you don't intend to use for daily expenses.

bank statement

A record, usually sent to the account holder once per month, summarizing all the transactions in an account during the time from the previous statement to the current statement. The opening balance from the prior month combined with the net of all transactions during the period should result in the closing balance for the current statement.

check cashing fee

A fee that the bank will charge you when you deposit a check issued by a customer of another bank into your bank account.

savings bank

A financial institution that accepts deposits of savings from members of the general public who want a safe place for their extra earnings so they will be available when needed. The bank invests the money, paying out interest on the deposits and using the rest to generate profits for the owners. A true savings bank just accepts deposits, while a savings and loan also extends loans, using the loans as investments.

check register

A form that accompanies checks for the purpose of tracking and balancing checking accounts. Normally it comes as a small booklet that can be inserted into a checkbook cover along with checks. There are specific fields included on this form that help account holders track their spending and balance their checkbook.

promissory note

A legal instrument (more particularly, a financial instrument), in which one part promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. If the promissory note is unconditional and readily salable, it is called a negotiable instrument.

overdraft protection

A line of credit that banks offer to their customers to cover their overdrafts. Overdraft protection kicks in when a customer writes a check for more than the amount in their account.

collateralized loan

A loan secured by some asset you own. You promise to hand the asset over to the lender if you cannot repay the loan as agreed.

PIN number

A numeric password shared between a user and a system that can be used to authenticate the user to the system.

check fraud

A paper or electronic check serves as a good faith token between parties, based on the trust that an equivalent amount of cash does exist in a legitimate bank-based account. Whenever that trust is violated, the result is known as check fraud. Check fraud covers a number of illegal and/or deceptive practices, from forgery to check kiting to embezzlement.

car loan

A personal loan that allows the potential buyer to pay the vehicle off in monthly payments instead of having to pay the full price all at once. This means that a lending servicer or bank will pay off the car in full, while in return the borrower pays off the debt in monthly payments with an interest fee included as well. If the borrower fails to pay the monthly payments, their lender will repossess the car to pay off the debt.

ATM card

A plastic card used to withdraw money from a banking institution's automatic teller machine.

deposit

A savings account, current account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder.

Certificate of Depoit (CD)

A savings certificate entitling the bearer to receive interest. It is a time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money, this action will often incur a penalty. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.

cash loan

A short-term loan product that is also commonly referred to as a cash advance loan, or a payday loan. These loan products are typically offered by niche payday loan companies that specialize in short-term loans. They usually require repayment after your next paycheck.

insufficient funds

A situation where an account does not have enough money to cover a payment. When writing a check, you must have enough in the account to pay the check or you've got insufficient funds.

bounced check

A slang word for a check that cannot be processed because the writer has insufficient funds. This check will often be returned to the writer along with a penalty fee for non-sufficient funds. "Passing" bad checks is illegal, and the crime can range from a misdemeanor to a felony, depending on the amounts involved and whether the activity involved crossing state lines. Also known as a rubber check, dishonored check, or bad check.

checking

A transactional deposit account held at a financial institution that allows for withdrawals and deposits. Money held in a checking account is very liquid, and can be withdrawn using checks, automated cash machines and electronic debits, among other methods.

bank

A type of business establishment in which money is kept for saving or commercial purposes or is invested, supplied for loans, or exchanged.

Certified Check

A type of check where the issuing bank guarantees the recipient of the check that there is enough cash available in the holder's account to be transferred when the check is used and also that the account holder's signature on the check is genuine. Certified checks are typically used in situations where the recipient is unsure about the creditworthiness of the account holder and doesn't want to the check to bounce.

ABA number/check routing number

A unique code on a check assigned by the American Bankers Association (ABA) that identifies a particular bank or finance institution issuing the check.

reconcile

An accounting process used to compare two sets of records to ensure the figures are in agreement and are accurate. Reconciliation is the key process used to determine whether the money leaving an account matches the amount spent, ensuring the two values are balanced at the end of the recording period.

ATM

An electronic banking outlet, which allows customers to complete basic transactions without the aid of a branch representative or teller. ATMs are scattered throughout cities, allowing customers easier access to their accounts. Anyone with a debit or credit card will be able to access most ATMs. Using a machine operated by your bank is usually free, but accessing funds through a unit owned by a competing bank will usually incur a small fee.

financial intermediaries

An entity that acts as the middleman between two parties in a financial transaction. While a commercial bank is a typical financial intermediary, this category also includes other financial institutions such as investment banks, insurance companies, broker-dealers, mutual funds and pension funds. Financial intermediaries offer a number of benefits to the average consumer including safety, liquidity and economies of scale.

finance companies

An establishment that focuses on dealing with financial transactions, such as investments, loans and deposits. Conventionally, financial institutions are composed of organizations such as banks, trust companies, insurance companies and investment dealers. Almost everyone has deal with a financial institution on a regular basis. Everything from depositing money to taking out loans and exchange currencies must be done through financial institutions.

pawn shops

An individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. If an item is pawned for a loan, within a certain contractual period of time the pawner may redeem it for the amount of the loan plus some agreed-upon amount for interest. The amount of time, and rate of interest, is governed by law or by the pawnbroker's policies. If the loan is not paid (or extended, if applicable) within the time period, the pawned item will be offered for sale by the pawnbroker. Unlike other lenders, the pawnbroker does not report the defaulted loan on the customer's credit report, since the pawnbroker has physical possession of the item and may recoup the loan value through outright sale of the item.

securities investor protection

An insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by the firm (although coverage of cash is limited to $250,000). A nonprofit corporation created by an act of Congress to protect the clients of brokerage firms that are forced into bankruptcy.

money market account

An interest-bearing account that typically pays a higher interest rate than a savings account, and which provides the account holder with limited check-writing ability. This account thus offers the account holder benefits typical of both savings and checking accounts. This type of account is likely to require a higher balance than a savings account, and is FDIC insured.

credit union

An organization that gives small loans to its members at low interest rates and that offers savings and checking accounts

line of credit

An unsecured loan whereby a bank agrees to give a borrower access to a set amount of money that he can tap as needed. This can be a good option for both businesses and individuals who need access to extra cash periodically.

reconciliation of check register

At the end of every month, it is a good idea to reconcile your checkbook and credit card accounts by comparing your check copies, debit card receipts and credit card receipts with your bank and credit card statements. This type of account reconciliation makes it possible to determine whether money is being fraudulently withdrawn from an account, ensures that financial institutions have not made any errors impacting your accounts, gives you an overall picture of your spending, helps you assess whether you're overspending and shows whether you're spending too much on banking and credit card fees. When an account is reconciled, the statement's transactions and ending balance should match the account holder's records. For a checking account, it is also important to know how any pending deposits or checks outstanding affect the statement balance—that is, how much money you really have available to spend.

automatic bill payment services

Automated payments made from a banking, brokerage or mutual fund account to vendors. The automated function can be initiated either with the source of funds or the vendor to whom payment is owed.

free checking

Checking accounts with no monthly maintenance fees

FDIC

Federal Deposit Insurance Corporation - a federally sponsored corporation that insures accounts in national banks and other qualified institutions.

check cashing centers

For the millions of Americans who either don't have a bank account or simply cannot qualify for one, these centers provide a place for them to pay their bills, cash their checks, get a payday loan and more. Although these services may not exactly be the most economical option for people without checking accounts, when compared to prepaid cards, they do offer a useful service for those who need it.

safe deposit box

Individually secure container that is usually located in a safe or bank vault with important documents and possessions in it

US Savings Bond

It offers a fixed rate of interest over a fixed period of time. Many people find these bonds attractive because they are not subject to state or local income taxes. These bonds cannot be easily transferred and are non-negotiable.

online access

The ability to access something via the World Wide Web

liquidity

The ability to convert an asset to cash quickly. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment. Most listed securities traded at major exchanges, such as stocks, funds, bonds and commodities are very liquid, and can be sold instantaneously during regular market hours at fair market price.

checking account number

The account number is located on the bottom of your check. There should be three sets of numbers in a funny computer-like font at the bottom, and your account number is typically the second set of numbers from the left (this applies to most personal checks, but sometimes checks have a different format).

penalty

The bank expects you to keep your money invested for a minimum period (like 6 months, a year, or 5 years). In return, the bank is willing to offer you a higher interest rate. Banks will typically charge you a penalty that amounts to some of the interest you would have earned if you held the CD to maturity. You might see it quoted as "90 days of interest" for early withdrawal. There is no maximum penalty amount, so make sure you read the fine print.

minimum balance required

The minimum dollar amount that a customer must have in an account in order to receive some sort of service, such as keeping the account open or receive interest.

check stub

The part of a paycheck that an employee keeps after depositing his or her check. This stub will usually have information regarding the amount that was paid, personal employee information used by the company, and a running tally of income throughout the year.

check number

The sequential number for your checks appears in both the MICR line at the bottom of your checks and the upper right corner of your checks. This number allows you to keep track of the checks you write.

endorsement

The stamp that is placed by the receiving bank on the back of the check. The stamp indicates that the receiving bank has accepted and processed the check for payment by the issuing bank. This action creates a document trail between the time the check is deposited into a bank account and when that check clears the issuer's bank account that can be followed should any issue regarding payment and proper posting of check amount occur at a later time.

illiquidity

The state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value. Some examples of inherently illiquid assets include houses, cars, antiques, private company interests and some types of debt instruments.

redlining

The unethical practice whereby financial institutions make it extremely difficult or impossible for residents of poor inner-city neighborhoods to borrow money, gain approval for a mortgage, take out insurance or gain access to other financial services because of a history of high default rates. In this case, the rejection does not take the individual's qualifications and creditworthiness into account.

endorse

To designate oneself as payee of (a check) by signing, usually on the reverse side of the instrument.

predatory lending

Unscrupulous actions carried out by a lender to entice, induce and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender. As with most things of a dishonest nature, new and different predatory lending schemes frequently arise.