[Updated 2023-2024]Must know Banking terms – 36 terms you should know for sure

Banking terms can be hard to understand. However, understanding them will make it easy to guide the banking world. Mentioned below are terms you need to know about banking.

1. NEFT (National Electronic Funds Transfer) – NEFT is an electronic means to share money from one bank to another or within the same branch. Depending on the bank, NEFT charges and the lowest amount that can be transferred may vary.
2. Linked Account – An account linked to your fund transfer account is named a linked account.
3. The base Rate is the lowest rate a bank can loan its customers. It cannot lend below the base rate. All interest rates specified for different loans will use the base rate as the norm.
4. Balance Transfer – This is a credit card payment alternative for individuals using multiple credit cards. As the title implies, a balance transfer is when you move the balance of one credit card to another. This is helpful when a cardholder cannot make full payment on their card or if the second credit card presents a lesser interest rate.
5. Cashback – Cashback is an offer provided mainly by credit card businesses that offer some money back to the cardholder they have expended on the card. Each spending on the card will be rewarded with points, which can later be redeemed for cash.
6. Credit History – Credit history is the past behavioral habits of a customer concerning loans. A credit bureau will manage customers’ details and translate them into 300 and 900. This is your credit score, and the higher the credit score, the more suitable your possibilities are to avail of a loan or a credit card.
7. Collateral – Any security supplied to the bank in dealings for a loan is known as collateral. Collateral can be in the state of land, gold, etc. This is an ensured loan less risky than an unsecured loan for the lender. In secured loans, the lender may auction off the collateral if the borrower fails to settle off their loan.
8. Documentation Fee – Lenders must gauge a customer’s creditworthiness before loaning money. Clients will usually be charged for this assistance, a documentation fee.
9. Fixed Rate – A fixed rate is when a loan’s interest rate stays consistent throughout the tenure.
10. Floating Rate – Contrasting of fixed rate, a floating rate of interest is the interest rate that changes during the loan term. These interest rates alter as per the modifications in interest rates in the economy.

11. MICR Code – This is a nine-digit code in the bottom right-hand corner of a cheque leaf. This code differs from bank to bank and is an acronym for Magnetic Ink Character Recognition.
12. No-frills Account – This is an actual savings account with no minimum balance to enjoy advantages like net banking, online fund transfer, etc.
13. Electronic Clearing Service – This is a technology used by banks wherein a specific amount of money is directly debited from your account on a specified date every month towards the expense of a loan, mutual fund account, etc.
14. Processing Fee – Banks usually levy a fee to process a customer’s loan application. This fee is known as a processing fee.
15. RTGS – RTGS (Real Time Gross Settlement) is a fund transfer technology banks utilize for the same bank or interbank fund transfer. Opposing NEFT or RTGS, transferring funds with RTGS is quick and more nominal about the costs incurred.
16. KYC – KYC (Know Your Customer) is a procedure that all banks undergo to establish the proper identity of a customer. This is to guarantee that no defrauding operations arise in the bank.
17. Routing Number – This number can recognize your bank based on the geographical area of the establishment. More significant banks may have several routing numbers, while smaller ones have only one.
18. APR – Annual Percentage Rate (APR) is the annual interest you make by depositing your money into an account. This does not take into regard the compound interest.
19. Compound Interest – Simple interest is the interest gained on a deposit. Compound interest is the interest acquired and earned on the same previous deposit. For example, assume you’ve deposited Rs.1 lakh into a bank, and the bank vows to pay you 10% interest. In that case, you will make an interest of Rs.1000. The following year, regardless, you will receive interest on Rs.110000, i.e., the initial amount deposited plus the interest earned.

20. Returned Item Fee – If a cheque is discharged due to low funds or another cause, the account holder will be penalized with a fee. This fee is named returned item fee.
21. Overdraft Fee – If you run out of money in your account, specific banks under specific schemes permit you to draw more money than you have in your account. This loan is for a reason, and the bank will allocate you a repayment fee. This fee is called an overdraft fee.
22. Liquidity – The ability to sell an asset in the market without impacting its price is called liquidity.
23. Monetary Policies – This refers to the rules and regulations the Reserve Bank of India has set to normalize the nation’s banking systems.
24. Plastic Money – This refers to currency people use other than hard cash. Mainly it is used to refer to debit and credit cards.
25. Cash Reserve Ratio (CRR) – RBI has instructed all banks to maintain a specific percentage of the bank deposits in cash. This percentage of the total deposits is called the cash reserve ratio.
26. Statutory Liquidity Ratio (SLR) – The lowest reserve the bank requires to hold in gold is named the statutory liquidity ratio.
27. Bank Rate is the RBI’s interest rate on banks if they expect to borrow money.
28. Basis Point – This is one-hundredth of a percentage. This is usually used to display a shift in interest rates.
29. Capital Gain – A profit or gain acquired by a bank via selling investments or properties.
30. Debtor – A debtor is a person or institution that owes money to the bank or any other economical institution.
31. Joint Account – A joint account is where two or more individuals have equal rights and liabilities of a single account.
32. APY – Annual percentage yield (APY) is the percentage of interest you earn on interest every year, except compound interest. This is the exact Annual Percentage Rate (APR).
33. Bank Ombudsman – A bank ombudsman is the administration that looks into complaints if other objections haven’t worked out for the consumer.
34. Credit Rating – This inspection of an individual’s credit record correlates to a number between 300 and 900. Credit bureaus collect this data on all individuals with a credit history. This is usually the immediate determinant of whether a person achieves a loan.
35. Mobile Banking – Availing banking services with mobile phone support is referred to as mobile banking.
36. Micro Finance – Small loans provided to the impoverished in urban, rural, and sub-urban parts of the nation to help them grow their income are known as microfinancing.