Money that is charged by a bank or another financial organization for borrowing money

Borrowing Money

Borrowing is the transfer of a specified amount of money from a lender to a borrower for a specified length of time. Business people borrow money to begin or expand their busi­ness, and federal, state, and local governments borrow money to finance their programs and operations. Creditis the pur­chase of goods and services without the actual transfer of money on the promise to pay later. Even wealthy consumers consider the use of credit necessary when purchasing expen­sive items such as houses and automobiles.

Consumers borrow money and use credit for two main rea­sons. First, buyers can enjoy the use of an item while paying off the debt. They do not have to postpone purchases until. they have enough money to pay for the items in cash. Second, consumers can extend payments for expensive items over a period of time. Payments for home mortgagestypically run for 20 to 30 years. Houses are made affordable in this man­ner. Credit paymentsfor televisions, major appliances, and other expensive items often run from one to five years.

The money borrowed is called the principal.The amount paid by the borrower for the privilege of using the money iscalled the interest.Both the principal and the interest are included in the loan’srepayment. Most loans are secured loans, which require that borrowers put up collateral. Collateralis something of value offered by the borrower as a guarantee that the loan will be repaid. If the loan is not repaid according to the terms of the loan agreement, the lender may take the borrower’s collateral. Unsecured loans requiring no collateral are rare and usually involve small amounts of money and short periods of time.

A common consumer loan is an installment loan.Repayment of the principal and interest is divided into equal amounts according to the length of the loan period, typically 12,18, 24, or 36 months. The length of repayment of the loan is important in determining the amount of the monthly pay­ment. The longer the loan period is, the smaller the monthly amount the consumer must pay. Buyers who can afford high­er monthly payments prefer the shorter loan period because it

is less expensive.

The most common use of an installment loan is a home mortgage. A mortgage is an installment debt owed on land buildings, or other real property. The mortgagee must repa?

the mortgage in installments for fixed number of years, usu­ally between 15 and 30 years. The loan is secured by the prop­erty, which is forfeitedif the loan terms are not met.

Buying on Credit

In the use of credit, no money changes hands directly. Rather than requiring money for a purchase, businesses allow a customers to charge their purchases and to pay for them over a period of time. Customers who do not pay their charges in full each month pay interest on the unpaid principal until the full amount is repaid. Consumers who want credit must apply for it and must have their credit approved before the credit can be used. The creditor evaluates information about the purchaser and assigns that person a credit rating.A credit rating is an estimation of the probability of repayment.

Words and Expressions

borrow— занимать деньги; заимствовать; брать взаймы; брать в кредит

charge interest— начислять проценты, взыскивать процен­ты

аванс (напр. при покупке в рассрочку)

passbook account — сберегательный счет с выдачей сберегательной книжки

repayment — уплата (процентов), выплата (основной сум­мы)

The Best Ways to Borrow Money

8 Sources for Borrowing the Money You Need

Borrowing money is often a fact of adult life. Almost everyone needs to take out a loan at some point. Maybe it’s for a new home. Maybe it’s for college tuition. Maybe it’s to start a business.

Whatever the reason you have to borrow money, professional financing options are many and varied nowadays. They range from traditional financial institutions, like banks, credit unions, and financing companies, to Internet Age creations, like peer-to-peer lending (P2P); from public agencies to your own personal 401(k) plan. Below, we’ll outline some of the more popular lending sources, explaining how they work and reviewing the pros and cons associated with each.

Key Takeaways

Banks

Banks are a traditional source of funds for individuals looking to borrow. By definition, that’s what they do: They take in money (deposits) and then distribute that money in the form of financing products, like mortgages and consumer loans.

Although banks may pay a little interest on deposited funds they take in, they charge a higher interest rate on the funds they give out, as loans. This spread is essentially how they make their profit.

Banks offer a variety of ways to borrow money: mortgage products, personal loans, auto loans, construction loans, and other financing products. They also offer opportunities for those looking to refinance an existing loan at a more favorable rate.

Advantages and Disadvantages of Borrowing From a Bank

Many people find that doing business with their own bank is easy. After all, they already have a relationship and an account there. In addition, personnel are usually on hand at the local branch to answer questions and help with paperwork. A notary public may also be available to help the customer document certain business or personal transactions. Also, copies of checks the customer has written are made available electronically.

The downside to getting financing from a bank is that bank fees can be hefty. In fact, some banks are notorious for the high cost of their loan application or servicing fees. In addition, banks are usually privately owned or owned by shareholders. As such, they are beholden to those individuals and not necessarily to the individual customer.

Finally, banks may resell your loan to another bank or financing company and this may mean that fees, interest rates, and procedures may change—often with little notice.

Pros and Cons of Borrowing From a Bank

Banks are well-established sources of consumer loans.

You may already have a relationship with a bank, making it somewhat easier to apply.

Banks may resell your loan to another institution.

Fees can be high for loan applications or servicing.

Banks are for-profit institutions, meaning that a portion of your loan payment will go to their shareholders.

Credit Unions

A credit union is a cooperative institution controlled by its members—the people that use its services. Credit unions usually tend to include members of a particular group, organization, or community to which one must belong in order to borrow.

Advantages and Disadvantages of Borrowing From a Credit Union

Credit unions offer many of the same services as banks. But they are typically nonprofit enterprises, which helps enable them to lend money at more favorable rates or on more generous terms than commercial financial institutions. In addition, certain fees (such as transaction or lending application fees) may be cheaper or even nonexistent.

Originally, credit union membership was limited to people who shared a «common bond»: They were employees of the same company or members of a particular community, labor union, or another association. In the 2000s, though, many credit unions have loosened restrictions, opening up membership and their products to the general public.

On the downside, some credit unions only offer plain vanilla loans or do not provide the variety of loan products that some of the bigger banks do. And of course, you have to join a credit union and open an account with it before you can borrow money from it—though often, you can do so with a very nominal amount.

Pros and Cons of Borrowing From Credit Unions

Credit unions are nonprofit institutions, meaning they may charge less than a regular bank.

Fees and interest rates may also be more favorable.

Credit unions may offer fewer loan products than a larger institution might offer.

Credit unions may have membership requirements in order to apply.

Peer-to-Peer Lending (P2P)

Peer-to-peer (P2P) lending—also known as social lending or crowdlending—is a method of financing that enables individuals to borrow from and lend money to each other directly, without an institutional intermediary, like a bank or broker. While it removes the middleman from the process, it also involves more time, effort, and risk than going through an official financial institution.

With peer-to-peer lending, borrowers receive financing from individual investors who are willing to lend their own money for an agreed interest rate. The two link up via a peer-to-peer online platform. Borrowers display their profiles on these sites, where investors can assess them to determine whether they would want to risk extending a loan to that person.

Advantages and Disadvantages of Borrowing Through Peer-to-Peer Lending

A borrower might receive the full amount they’re asking for or only a portion of it. In the case of the latter, the remaining portion of the loan may be funded by one or more investors in the peer lending marketplace. It’s quite typical for a loan to have multiple sources, with monthly repayments being made to each of the individual sources.

For lenders, the loans generate income in the form of interest, which can often exceed the rates that can be earned through other vehicles, such as savings accounts and CDs. In addition, the monthly interest payments a lender receives may even earn a higher return than a stock market investment. For borrowers, P2P loans represent an alternative source of financing—especially useful if they are unable to get approval from standard financial intermediaries. They often receive a more favorable interest rate or terms on the loan than from conventional sources too.

Still, any consumer considering using a peer-to-peer lending site should check the fees on transactions. Like banks, the sites may charge loan origination fees, late fees, and bounced-payment fees.

Pros and Cons of P2P Lending

Borrowers might be able to get a P2P loan even if they do not qualify for other sources of credit.

Loan interest may be lower than traditional lenders.

P2P lending sites may have complex fee structures that borrowers need to read carefully.

Borrowers may end up owing money to multiple lenders rather than a single creditor.

401(k) Plans

If you need a loan, why not borrow money from yourself? Most 401(k) plans—along with comparable workplace-based retirement accounts, such as a 403(b) or 457 plan, allow employees to withdraw funds in the shape of a 401(k) loan.

A permanent withdrawal from a 401(k) incurs taxes and a 10% penalty if you’re under 59.5 years old. But you avoid that with a 401(k) loan since you’re technically taking out the funds temporarily.

Advantages and Disadvantages of Borrowing From a 401(k) Plan

The interest rate on 401(k) loans tends to be relatively low, perhaps one or two points above the prime rate, which is less than many consumers would pay for a personal loan. Also, unlike a traditional loan, the interest doesn’t go to the bank or another commercial lender—it goes to you. Since the interest is returned to your account, some argue, the cost of borrowing from your 401(k) fund is essentially a payment back to yourself for the use of the money.

And, since the money that you’ve contributed to the plan is technically yours, there are no underwriting or application fees associated with the loan, either.

Bear in mind that just because you’re your own lender doesn’t mean you can be sloppy or lazy with repayments. If you don’t pay on schedule, and the IRS finds out, you could be considered in default and your loan classified as a distribution (with taxes and penalties due on it).

Another important, long-term consideration: If you remove money from your retirement plan, you lose out on the funds compounding with tax-free interest. Also, most plans have a provision that prohibits you from making additional contributions until the loan balance is repaid. All of these things can have an adverse effect on your nest egg’s growth.

So, borrowing money from your 401(k) is usually seen as a last resort. Certainly, it’s not a loan to be undertaken lightly.

Pros and Cons of Borrowing From a 401(k) Plan

No application or underwriting fees.

Interest goes back to the borrower’s account, effectively making it a loan to themselves.

There may be tax implications for borrowing against your 401(k)

This will also reduce the amount of money you have when you retire.

Credit Cards

Anytime you use a credit card, you are in a sense borrowing money: The credit card company pays the merchant for you—advancing you the money, so to speak—and then you repay the card issuer when your card statement comes. But a credit card can also be used not just to purchase a good or service, but for actual funds. It’s called a cash advance.

Advantages and Disadvantages of Borrowing Through Credit Cards

If an individual needs to borrow a small amount of money for a short period, a cash advance on a credit card may not be a bad idea. After all, there are no application fees (assuming you already have a card). For those who pay off their entire balance at the end of every month, credit cards can be a source of loans at a 0% interest rate.

On the flip side, if a balance is carried over, credit cards can carry exorbitant interest rate charges (often in excess of 20% annually). Also, credit card companies will usually only lend or extend a relatively small amount of money or credit to the individual. That can be a disadvantage for those that need longer-term financing or for those that wish to make an exceptionally large purchase (such as a new car).

Finally, borrowing too much money through credit cards could reduce your chances of getting loans or additional credit from other lending institutions.

If used responsibly, credit cards are a great source of loans but can cause undue hardship to those who are not aware of the costs. They are not considered to be sources of longer-term financing. However, they can be a good source of funds for those who need money quickly and intend to repay the borrowed amount in short order.

Pros and Cons of Borrowing Through Credit Cards

No application fees.

No interest, provided you can pay off your advances every month.

Extremely high interest rates if a balance is allowed to compound.

May reduce your credit score of you borrow too much.

Margin Accounts

Margin accounts allow a brokerage customer to borrow money to invest in securities. The funds or equity in the brokerage account are often used as collateral for this loan.

Margin

Advantages and Disadvantages of Borrowing Through Margin Accounts

The interest rates charged by margin accounts are usually better than or consistent with other sources of funding. In addition, if a margin account is already maintained and the customer has an ample amount of equity in the account, a loan is somewhat easy to come by.

Margin accounts are primarily used to make investments and are not a source of funding for longer-term financing. That said, an individual with enough equity can use margin loans to purchase everything from a car to a home. However, should the value of the securities in the account decline, the brokerage firm may require the individual to put up additional collateral on short notice or risk the investments being sold out from under them.

Finally, in a market downturn, those that have extended themselves on margin tend to experience more severe losses because of the interest charges that accrue as well as the possibility that they may have to meet a margin call.

Pros and Cons of Margin Account Borrowing

Better interest rates than other sources.

Borrower may have to provide additional collateral if the price declines.

Losses may be higher in the event of a downturn.

Public Agencies

The U.S. government or entities sponsored or chartered by the government can be a terrific source of funds. For example, Fannie Mae is a quasi-public agency that has worked to increase the availability and affordability of homeownership over the years.

Advantages and Disadvantages of Borrowing Through Public Agencies

The government or the sponsored entity allows borrowers to repay borrowings over an extended period. In addition, interest rates charged are usually favorable compared to private sources of funding.

On the other hand, the paperwork to obtain a loan from a quasi-public agency can be daunting. Also, not everyone qualifies for government loans. There can be restrictive income and asset requirements. For example, with regard to certain Freddie Mac mortgage offerings, an individual’s income must be equal to or less than the area’s median income.

Pros and Cons of Borrowing Through Public Agencies

Better interest rates than private lenders.

Borrower may have to meet certain income requirements.

Applications may also be more complicated than a traditional loan application.

Financing Companies

Financing companies, aka finance companies, are outfits dedicated to lending money. Unlike banks or credit unions, finance companies do not accept deposits or provide other financial services or products (safe-deposit boxes, credit, cards, etc.). They just routinely make loans to individuals or businesses needing funds. In the case of consumers, they usually provide loans to purchase big-ticket goods or services, such as a car, major appliances, or furniture. Some specialize in medical or healthcare costs.

While some lenders make longer-term loans, most financing companies specialize in short-term loans. Often they are connected to a manufacturer or larger company, serving as their financing arm, so to speak. Some of the best-known finance companies are associated with particular carmakers, like Toyota or General Motors, and make auto loans or auto leases.

Advantages and Disadvantages of Borrowing Through Financing Companies

Financing companies usually offer competitive rates—though a lot depends on your credit score and financial history—and the overall fees can be low when compared to banks and other lending institutions. In addition, the approval process is usually completed fairly quickly. Plus, there’s the convenience factor, when the finance company is connected to the retailer or manufacturer whose products you’re buying.

However, financing companies may not provide the same level of customer service or offer additional services, such as ATMs. They also tend to have a limited array of loans.

It’s also important to note that finance companies are licensed and regulated by the state in which they operate. They are not subject to federal oversight and rules, the way banks and credit unions are. In short, they are less regulated and have more liberty in adjusting their rates and altering their terms.

Pros and Cons of Borrowing Through Financing Companies

Interest rates are usually competitive.

Fees may be lower than traditional lenders.

Lower level of customer service.

Less regulated than banks and other lenders.

What Is Borrowing in Finance?

Borrowing means to take money from a source, with a formal agreement that the funds will be repaid by a certain date and, usually, in stated regular installments. Most borrowed funds incur interest, meaning that the borrower pays an additional amount—a percentage of the sum they are borrowing—as compensation to the lender for extending the funds.

What Are the Types of Borrowing?

Borrowing exists in many forms and can be classified in different ways. Most loans are either secured, meaning they’re backed by an asset, which is forfeit to the lender if the borrower defaults; or unsecured, meaning they have no collateral.

Common types of borrowing include:

What Are the Advantages of Borrowing Money?

The biggest advantage of borrowing money is, of course, the opportunity it gives you to obtain something you can’t afford to buy outright. It skips the time and the need for saving up. Often people borrow to buy things they could never purchase on their own, such as a six-figure home.

Borrowing can often be a more efficient use of your money, too. Even if you could afford to buy something outright, it might not make sense to tie up all your funds in it. Borrowing allows you to spread funds around in different ways or in a variety of investments—a practice called leveraging, in finance.

Borrowing can also be a way to establish a credit history or improve your credit score. If you handle the debt responsibly, paying your loans back fully and making payments on time can make it easier to borrow money in the future.

What Is the Cheapest Way to Borrow Money?

There’s no one single cheapest way to borrow money—a variety of factors can influence what interest rate you’ll pay—some based on the lender/type of loan, others on your situation. But some of the better borrowing-money methods include:

What Is the Best Place to Borrow Money From?

If you can’t go to a relative or a friend to borrow money, the best places to borrow money include:

The Bottom Line

There are a variety of ways to borrow money. Banks, credit unions, and finance companies are all traditional institutions that offer loans. Government or government-sanctioned agencies and authorities provide financing as well—usually to specific groups (veterans, Native Americans, etc.) or for specific ends (buying a home).

Credit cards and investment accounts can serve as sources for borrowed funds as well.

Finally, you can borrow directly from yourself, temporarily withdrawing the funds in your 401(k) account, or from other individuals, connecting through a peer-to-peer lending platform.

However, not all forms of borrowing are created equal. Whether you are looking to finance your children’s education, a new home, or an engagement ring, it pays to analyze the pros and cons of each potential source of capital available to you.

Financial terms glossary

This glossary contains terms you may find useful when teaching youth financial literacy. These terms are used throughout the classroom activities and can help students better understand financial literacy concepts.

529 plan

A tax-advantaged savings plan designed to help families save money for future educational costs. There are two types of 529 plans: 529 prepaid tuition plans and 529 savings plans.

529 prepaid tuition plan

A type of 529 plan that allows families to pay tuition ahead of time for specific colleges or college systems at today’s tuition rates.

529 savings plan

A type of 529 plan that allows you to invest your education savings in various types of investments, including mutual funds. Like a 401(k) or IRA retirement plan, your account could go up or down depending on market performance. This plan, also called an education savings plan, is typically sponsored by a state and may be available from a private investment firm. You also can use this plan to help pay tuition at public, private, or religious schools from kindergarten through 12th grade.

Advertisement

Posters, signs, television commercials, radio spots, and other media that businesses use to promote products or services.

Annual return

The profit or loss on an investment over a one-year period.

APR (Annual Percentage Rate)

The cost of borrowing money on a yearly basis, expressed as a percentage rate.

Asset

An item with economic value, such as stock or real estate.

Associate’s degree

A degree usually awarded for at least two years of full-time academic study beyond high school.

Stands for «automated teller machine,» a machine that lets bank customers perform basic transactions, such as deposits and withdrawals.

ATM balance inquiry fee

A fee you may be charged if you check your prepaid card balance at an ATM or if you call customer service to ask about your balance.

Automatic or direct debit

A bill-paying method you set up with the merchant or service provider. You provide the merchant or service provider (for example, your cell phone provider or utility company) with your checking account information and they take the funds from your account each time the bill is due (for example, every month).

Bachelor’s degree

A degree usually awarded for at least four years of full-time academic study beyond high school.

A financial institution and business that accepts deposits, makes loans, and handles other financial transactions.

Benefit

Something that an employer, the government, or an insurance company provides that’s often used only for a particular purpose, such as food or medical costs. Also: An advantage; something that is good.

Bill-payment service

A service in which you allow a business to use your cash, your bank or credit union account, a prepaid card, or another payment method to pay your utility, mortgage, or other bills in person, by phone, through a website, or through a mobile phone application.

Bloom’s Taxonomy

Named for educational psychologist Dr. Benjamin Bloom who, in 1956, led the creation of a framework for classifying educational goals and promoting higher order thinking skills when designing learning activities. His taxonomy allows educators to categorize activities by their level of challenge and complexity. It was revised in 2011 by a group of practitioners and researchers to promote a more dynamic conception of classification.

Bimonthly (semi-monthly)

A type of debt, similar to an IOU. When you buy a bond, you’re lending to the issuer, which may be a government, municipality, or corporation. The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal — also known as the bond’s face value or par value — when the bond «matures,» or comes due after a set period.

Borrow

To receive something on loan with the understanding that you will return it.

Borrower

A person or organization that borrows something, especially money from a bank or other financial institution.

Budget

A plan that outlines what money you expect to earn or receive (your income) and how you will save it or spend it (your expenses) for a given period of time; also called a spending plan.

Business

The activity of making, buying, or selling goods or providing services in exchange for money.

Business income

The money a business receives for selling its goods and services is its income.

To get something by paying money for it.

Buying plan

A plan people use to identify and consider factors like cost, features, and choices as they prepare to make a purchase.

Buying power

Also called purchasing power, it is the amount of goods and services that can be purchased by a given unit of currency, taking into account the effect of inflation.

Capital gain

The profit that comes from selling an investment for more than you paid for it.

Capital loss

The loss that comes from selling an investment for less than you paid for it.

Card replacement fee

A fee your prepaid card provider may charge to replace your card if it is lost, stolen, or damaged.

Career

A profession that may span your lifetime and includes your education, training, professional memberships, volunteering, and full history of paid work. Can be a synonym for occupation.

Paper or coin money.

Certificate of deposit (CD)

Savings tool with fixed maturity date and fixed interest rate.

Checking account

An account at a bank (sometimes called a share draft account at a credit union) that allows you to make deposits, pay bills, and make withdrawals.

Claim

The insured’s request for payment due to loss incurred and covered under the policy agreement.

Closed-loop prepaid card

This type of card can only be used at certain locations. For example, a closed-loop card might be good only at a specific store or group of stores or on your public transportation system.

A small metal disc that we use as money.

Coinsurance

Coinsurance in insurance, is the splitting or spreading of risk among multiple parties. In the U.S. insurance market, coinsurance is the joint assumption of risk between the insurer and the insured. In health insurance, coinsurance is sometimes used synonymously with copayment, but copayment is really fixed while coinsurance is a percentage that the insurer pays after the insurance policy’s deductible is exceeded up to the policy’s stop loss.

Collateral

An asset that secures a loan or other debt that a lender can take if you don’t repay the money you borrow. For example, if you get a home loan, the bank’s collateral is typically your house.

Commission

An amount of money someone earns for selling something.

Comparison shopping

The practice of comparing prices, features, benefits, risks, and other characteristics of two or more similar products or services.

Compound interest

When you earn interest on both the money you save and the interest you earn.

Consumer

A person who buys or receives goods or services for personal needs or use and not for resale.

Consumer Price Index (CPI)

A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas.

Copayment (or copay)

A fixed amount ($20, for example) you pay for a covered health care service in addition to the amount your insurer pays.

Cosigner

An individual who signs a loan, credit account, or promissory note of another person as support for the credit of the primary signer and who becomes responsible for the debt obligation.

The amount of money that is needed to pay for or buy something.

Cost-effective

To have good value for the amount of money you paid.

Cost of attendance (COA)

The total amount it will cost you to go to school — usually stated as a yearly figure. COA includes tuition and fees; room and board (or a housing and food allowance); and allowances for books, supplies, transportation, loan fees, and dependent care if applicable. It also includes some miscellaneous and personal expenses.

Credit

Borrowing money, or having the right to borrow money, to buy something. Usually it means you’re using a credit card, but it might also mean that you got a loan.

Credit card

An open-ended loan that allows you to borrow money up to a certain limit and carry over an unpaid balance from month to month. There is no fixed time to repay the loan as long as you make the minimum payment due each month. You pay interest on any outstanding credit card loan balance.

Credit card statement

A summary of how you’ve used your credit card for a billing period.

Credit limit

A limit set by the credit card company on how much you can charge on the card it issued to you. You can use your credit card to make purchases up to your credit limit.

Credit score

Numbers created by mathematical formulas that use key pieces of your credit history to calculate your score at a moment in time.

Credit union

A cooperative financial institution that is chartered by the National Credit Union Administration (a federal independent agency) or a state government and is owned by its individual members.

Credit utilization ratio

The amount of credit a person has compared with the amount they’ve used.

Creditworthy

Financially sound enough to justify the extension of credit.

Cryptocurrency

Also called “crypto,” it’s a type of encrypted digital currency that generally only exists electronically. There is no physical coin or bill unless you use a service that allows you to cash in cryptocurrency for a physical token. You usually exchange cryptocurrency with someone online, with your phone or computer, without using an intermediary like a bank. Cryptocurrency accounts are not backed by a government. Cryptocurrency values change constantly.

Data breach

The unauthorized movement or disclosure of sensitive information to a party, usually outside the organization, that is not authorized to have or see the information. Someone who gets the data might use it for identity theft.

Debit card

A plastic card used to make purchases at businesses (like grocery stores and gas stations) with money in your checking account.

Money you owe another person or a business.

Debt consolidation

Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into a new loan with one monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments. But a debt consolidation loan does not erase your debt. You might also end up paying more by consolidating debt into another type of loan.

Deductible

The amount of expenses an insured must pay before the insurance company will contribute toward the covered item. For example, the amount you pay for covered health care services before your insurance plan starts to pay is your deductible.

Demand

A measure of how popular or necessary an item is and how many consumers want to buy it.

Depository institution

A financial institution like a bank or credit union that is authorized to accept checking and saving deposits.

Direct deposit

Money electronically sent to your bank account, credit union account, or prepaid card.

Dividend

A portion of a company’s profit paid to shareholders.

Doctoral degree

A degree usually awarded for at least three years of full-time academic work beyond a bachelor’s degree.

Donate

To give something (like money, food, or clothes) to help a person or organization.

To receive money in exchange for goods or services.

Earned income

Money made from working for someone who pays you or from running a business or farm. This includes all the income, wages, and tips you get from working.

Elder financial exploitation

The illegal or improper use of an older adult’s funds, property, or assets by family members, caregivers, friends, or strangers who gain their trust.

Emergency fund

A cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

Entrepreneur

Someone who organizes, manages, and assumes the risks of a business or enterprise.

Estate tax

A tax on the value of property you own at your death. It considers everything you own or have certain interests in at the date of death. There is a federal estate tax, and some states have their own estate taxes.

Exchange rate

A number that is used to compare the value of money in two different countries. For example, you would use an exchange rate to figure out how many pesos or euros you could get for one U.S. dollar.

Expected family contribution

The index number schools use to determine your eligibility for federal financial aid. This number results from the financial information you provide in your Free Application for Federal Student Aid (FAFSA) form. Your EFC index number is reported to you on your Student Aid Report. It is not the amount of money your family will have to pay for college nor is it the amount of federal student aid you will receive. It is a number your school uses to calculate the amount of federal student aid you are eligible to receive.

FAFSA – Free Application for Federal Student Aid

The Free Application for Federal Student Aid form is used to determine how much a student and his or her family are eligible to receive in federal financial aid. The FAFSA may also be used to determine a student’s eligibility for state and school-based aid and also may influence how much private aid a student receives.

Federal income tax

The federal government collects taxes based on the earnings of individuals and businesses, called an income tax. The federal income tax pays for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.

Federal minimum wage

The lowest national wage as established by law in the Fair Labor Standards Act (FLSA).

Federal student loans

These loans are funded by the federal government and have terms and conditions that are set by law. Federal loans also include benefits that private student loans don’t usually offer. These benefits could include lower interest rates, repayment plans based on income, and possible loan forgiveness for people who choose to work for a certain amount of time in government or for certain not-for-profit organizations or teach in a low-income school.

Federal Work-Study

A program that provides part-time jobs to help you earn money to pay for college expenses.

FICA – Federal Insurance Contributions Act

A tax deducted from your pay to contribute to Social Security and Medicare; your employer contributes the same amount on your behalf.

Financial aid

Money given in the form of grants, work-study, loans, and scholarships to help pay for post-secondary tuition and fees, as well as related expenses such as room and board, books, supplies, and transportation.

Financial capability

The ability to manage financial resources effectively, understand and apply financial knowledge, demonstrate healthy money habits, and successfully complete financial tasks as planned.

Financial emergencies

Expenses that come up unexpectedly, are very important, and need attention right away.

Financial well-being

The ability to meet all financial needs, today and over time; feel secure in the financial future; absorb a financial shock; and have the financial freedom to make choices to enjoy life.

Fixed expenses

Expenses, like bills, that must be paid each month and generally cost the same amount. Some fixed expenses, like a utility bill, may also be variable because the amount changes each month depending on usage.

Foreclosure relief scam

Scheme to take your money or your house often by making a false promise of saving you from foreclosure; includes mortgage loan modification scams.

Foreign transaction fee

A fee your card provider charges when you use your prepaid card in a foreign country or to pay in a foreign currency. This fee is usually a percentage of your purchase, withdrawal, or other transaction, rather than a flat fee. This fee is also called a currency conversion fee. Not all cards can be used outside the United States, so check your cardholder agreement before you travel.

Form W-4: Employee’s Withholding Allowance Certificate

A form that the employee completes and the employer uses to determine the amount of income tax to withhold.

Fraud

An illegal act that occurs when people try to trick you out of your personal information and your money.

A single project or task for which a worker is hired to work on demand. Some gigs are a type of short-term job, and some workers pursue gigs as a self-employment option.

Gig economy

Generally, an informal term for situations where people are hired for single projects or tasks or for short-term jobs, often through a digital marketplace.

Something, such as an outcome, you wish to achieve or accomplish in a specific amount of time.

Goods

Objects people want that they can touch or hold, such as toys, clothes, and food.

Government benefits card

Prepaid cards used by a government agency to pay certain government benefits, such as unemployment insurance.

Grace period

The number of days you have to pay your bill in full before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.

Grant

A type of financial aid that does not have to be repaid, unless, for example, you withdraw from school and you need to pay back some of the grant money; often need-based.

Gross income

Total pay before taxes and other deductions are taken out.

Health savings account

An account at a bank, insurance company, or other financial institution that lets you set aside pre-tax money, sometimes directly from your paycheck, to pay for eligible medical expenses.

Homeowner’s insurance

Covers a home’s structure and the personal belongings inside in the event of loss or theft; helps pay for repairs and replacement.

Identity theft

Using your personal information — such as your name, Social Security number, or credit card number — without your permission.

Imposter scam

An attempt to get you to send money by pretending to be someone you know or trust, like a sheriff; local, state, or federal government employee; a family member; or charity organization.

Impulse purchase

Buying things without having planned for them beforehand. It can cause you to spend more money than you can afford.

Inactivity fee

A fee charged if you don’t use your card for a certain period of time. The length of time that triggers an inactivity fee varies. Not all prepaid cards charge inactivity fees.

Income

Money earned or received such as wages or salaries, tips, commissions, contracted pay, government transfer payments, dividends on investments, tax refunds, gifts, and inheritances.

Income tax

Federal, state, and local taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Includes both personal and business or corporate income taxes. Not all states and localities have income taxes.

Inflation

Inflation occurs when the prices of goods and services increase over time.

Insurance

The practice or arrangement in which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium.

Insured

The person, group, or organization whose life or property is covered by an insurance policy.

Insurer

A person or company offering insurance policies in return for premiums; person or organization that insures.

Interest

A fee charged by a lender, and paid by a borrower, for the use of money. A bank or credit union may also pay you interest if you deposit money in certain types of accounts.

Interest capitalization

Interest capitalization occurs when unpaid interest is added to the principal amount of your student loan. When the interest on your federal student loan is not paid as it accrues (during periods when you are responsible for paying the interest), your lender may capitalize the unpaid interest. This increases the outstanding principal amount due on the loan. Interest is then charged on that higher principal balance, increasing the amount of interest charged and the overall cost of the loan.

Interest rate

A percentage of a sum borrowed that is charged by a lender or merchant for letting you use its money. A bank or credit union may also pay you an interest rate if you deposit money in certain types of accounts.

Invest

To commit money to earn a financial return; the strategic purchase or sale of assets to produce income or capital gains.

Investment

Something you spend your money on that you expect will earn a financial return.

Irregular income

Inconsistent amounts of money you receive through work or investments; both the schedule and the amount may vary.

A specific arrangement where you do tasks for an employer.

The act of giving something to someone with the understanding that they will give it back to you.

Lender

An organization or person that lends money with the expectation that it will be repaid, generally with interest.

Liability

Something that is a disadvantage, money owed, or a debt or obligation according to law.

Liquidity

A measure of the ability and ease with which you can access and use your money.

Money that needs to be repaid by the borrower, generally with interest.

Long-term goals

Goals that can take more than five years to achieve.

Mail fraud scam

Letters that look real but contain fake promises. A common warning sign is a letter asking you to send money or personal information now to receive something of value later.

Master’s degree

A degree usually awarded for one or two years of full-time academic study beyond a bachelor’s degree.

Maturity date

The date that an investor’s investment is to be paid back in full in accordance with its agreement. A certificate of deposit (CD) contains a maturity date provision obligating the financial institution to repay an investor sums invested plus interest on a specified date.

Medicaid

The single largest source of health coverage in the United States; it is a joint federal and state program that, together with the Children’s Health Insurance Program, provides health coverage to low income Americans, including children, pregnant women, parents, seniors, and individuals with disabilities.

Medicare

A health insurance program for people who are 65 or older, certain younger people with disabilities, and people with permanent kidney failure requiring dialysis or a transplant; financed by deductions from wages and managed by the federal Social Security Administration.

Minimum payment

The minimum dollar amount that must be paid each month on a loan, line of credit, or other debt.

Minimum wage

A wage set by contract or by law as the lowest that may be paid to employees.

Mobile banking

A service that allows you to use your smartphone or tablet to manage your bank or credit union account without the aid of a teller. Generally, you can deposit checks into your account using this service, but not cash.

Money

You can use money to buy goods and services. Money looks different in different places around the world.

Money market deposit account

Federally insured account at a bank or credit union that offers a higher rate of interest than a savings account, allows for a limited number of transactions monthly, and may require a minimum deposit or minimum account balance.

Money order

A money order can be used instead of a check. You can buy a money order to pay a business or other party.

Moral hazard

The idea that you are less likely to be careful when you are shielded from the consequences of your actions.

Mortgage

Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.

Mutual fund

A company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

Needs

Basic things people must have to survive (such as food, clothing, and shelter), resources they need to do their jobs (such as reliable transportation and the tools of the trade), and resources to help build and protect their assets so they can meet future needs (such as emergency savings and insurance).

Net income

Amount of money you bring home in your paycheck after taxes and other deductions are taken out; also called take-home pay.

Occupation

Describes a type of work with associated tasks, education and training, typical wages, work settings, and more. Can be a synonym for career.

Online banking

A service that allows you to use a secure website to manage your bank or credit union account without the aid of a teller. While you can transfer money between accounts using this service, you generally cannot deposit checks or cash.

Online or mobile bill payment

A bill-paying method you set up with your bank or credit union. You use online banking to give your bank the merchant or service provider’s information, and your bank makes the payment according to the amount and schedule you set up. Online bill paying may or may not also be offered on a bank’s or credit union’s mobile application.

Open-loop prepaid card

This type of card has a network logo on it. Examples of networks are Visa, MasterCard, American Express, and Discover. These cards can be used at any location that accepts that card type. Most prepaid cards are open-loop cards.

Opportunity cost

Cost of the next best use of your money or time when you choose to buy or do one thing rather than another.

Out-of-pocket cost

The expenses and losses that are not reimbursed by insurance. This cost includes deductibles, copayments, and amounts paid for services or repairs that are excluded from coverage. It’s the amount paid before insurance coverage kicks in.

Overdraft

An overdraft occurs when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway.

Paper check

A paper order to a bank or credit union to pay someone from a checking account.

Pay period

The amount of time that an employee works before being paid — for example, a week or a month.

Paycheck

A check for your salary or wages made out to you.

Payroll card

A type of prepaid card you get from your employer that you receive your paycheck on.

Payroll tax

Taxes taken from your paycheck, including Social Security and Medicare taxes.

Phishing scam

When someone tries to get you to give them personal information, such as through an email or text message, often by impersonating a business or government agency. This can be thought of as “fishing for confidential information”

Policy

In the insurance context, it is a written contract between the insured and the insurer.

Policyholder

The individual or firm that acquires and wants protection from the risk and generally in whose name an insurance policy is written. The holder is not necessarily the insured. For instance, life insurance policies might be bought by employers of key employees, or a husband may buy and be the holder of a life insurance policy on his wife. In such cases, the buyer is the policyholder.

Post-secondary education

Includes all forms of schooling after high school, not just college.

Post-secondary school certificate (non-degree)

A certificate or credential that an educational institution awards after a student completes formal schooling lasting from a few weeks to two years after high school. A certificate is not a degree.

Premium

The amount of money that has to be paid for an insurance policy.

Prepaid card

A card on which you load money in advance to spend. While a prepaid card might look like a debit or credit card, there are differences. A debit card is linked to your checking account. When you use a credit card, you’re borrowing money. A prepaid card is not linked to a checking account or credit union share draft account. In most cases, you can’t spend more money than you have already loaded onto your prepaid card.

Prepayment

Payment of all or part of a debt before it comes due.

Prepayment penalty

A fee lenders can charge borrowers if they pay off a loan early.

Principal

In the lending context, principal is the amount of money that you originally received from the creditor and agreed to pay back on the loan with interest. In the investment context, it is the amount of money you contribute with the expectation of receiving income.

Private college or university (nonprofit)

A higher education institution that is primarily supported by private funds. Includes not-for-profit schools and schools associated with a religious organization.

Private student loans

These loans are from private organizations, such as banks and credit unions, which set their own terms and conditions. Private loans are generally more expensive than federal loans.

Profit

Money that is made in a business after all the costs and expenses are paid.

Property tax

Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

Protect

To make sure that somebody or something isn’t harmed, injured, damaged, or lost.

Public college or university

A higher education institution whose programs and activities are operated by publicly elected or appointed school officials and which is supported by public funds.

Public service announcement (PSA)

An announcement or message delivered, often on radio or television, for the good of the public.

Raise

An increase in the amount of wages or salary.

Rate of return

The profit or loss on an investment expressed as a percentage.

Rebate

A rebate reduces the price of consumer goods. Most rebates require consumers to pay the full cost of an item at the time of purchase, then to send documentation to the manufacturer or retailer to receive a rebate by mail.

Regular income

A set amount of money you receive at the same time each week or month.

Return

The profit or loss on an investment.

Exposure to danger, harm, or loss.

Salary

Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period of time worked, such as weekly or monthly.

Sales tax

A tax on retail products based on a set percentage of the retail price.

Setting something, like money, aside to use in the future.

Savings

Money you have set aside in a secure place, such as in a bank account, that you can use for future emergencies or to make specific purchases.

Savings account

An account at a bank (sometimes called a share savings account at a credit union) used to set aside money and that pays you interest.

Savings goal

The amount of money you plan to put aside for a specific purpose.

A dishonest trick used to cheat somebody out of something important, like money. Scams can happen by phone, email, postal mail, text, or social media.

Scholarships

Money that students receive based on academic or other achievements to help pay education expenses. Scholarships generally don’t have to be repaid.

Secured credit card

Credit card that typically requires a cash security deposit. The larger the security deposit, the higher the credit limit. Secured cards are often used to build credit history.

Secured loans

Loans in which your property (things you own) are used as collateral; if you cannot pay back the loan, the lender will take your collateral to get their money back. The lender can also engage in debt collection, file negative information on your credit report, and may sue you.

Security

An investment product such as a stock or bond.

Services

Actions that a person does for someone else, such as cutting hair, giving a medical checkup, or fixing a car.

Share

A unit of ownership, often in a company’s stock or in a mutual fund.

Short-term goals

Goals that can take a short time, or up to five years, to reach.

SMART goals

Goals that are specific, measurable, attainable, relevant, and timebound.

Social Security

Provides benefits for retired workers and people with disabilities, as well as the unmarried children, surviving spouses, or former spouses (in certain cases) of both.

Social Security number

The nine-digit number on a Social Security card, an important piece of identification issued by the federal government that you’ll need to get a job and collect government benefits.

Spend

The act of using money to buy goods or services.

Spoofing

When a caller disguises the information shown on your caller ID to appear as though they are calling as a certain person or from a specific location.

State income tax

Most states and some local municipalities require their residents to pay a personal income tax. Generally, states use one of two methods to determine income tax: the graduated income tax or the flat rate income tax. Both methods first require you to figure your taxable income.

Stock

A type of investment that gives people a share of ownership in a company.

Student aid report

A paper or electronic document that gives you some basic information about your eligibility for federal student aid and lists your answers to the FAFSA questions.

Student loan servicer

This is a company that collects payments on student loans, tracks loans while borrowers are in school, responds to borrowers’ questions, and handles other tasks associated with loans.

Subscription

An agreement that you make with a company to get a publication or service regularly and that you usually pay for in advance.

Supply

How much of a product is available to buy at any given time.

Tariff

A tax on products imported from foreign countries. This tax can increase the costs of those products, which ultimately can be passed on to consumers as higher prices.

Tax deduction

An amount (often a personal or business expense) that reduces income subject to tax.

Tax refund

Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

Tax-related identity theft

When someone steals your Social Security number to file a tax return claiming a fraudulent refund; may also be called tax-filing-related identity theft.

Taxes

Required payments of money to governments, which use the funds to provide public goods and services for the benefit of the community as a whole.

A fixed or limited period of time for which something lasts or is intended to last (for example, a five-year loan, a three-year certificate of deposit, a one-year insurance policy, a 30-year mortgage).

An optional or extra payment a customer gives to an employee. Also called a gratuity.

Tip income

Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the stated amount of the bill and are given voluntarily.

Transaction fee

A fee charged every time you use the card for a certain type of transaction. Be sure to ask about fees or read the cardholder agreement associated with your card.

Unauthorized use

Transactions to your ATM, debit, or credit card that you didn’t make or approve (such as withdrawals, transfers, purchases, or charges) and for which you received no benefit.

Unbanked

Unbanked households don’t have a checking or savings account at an institution that is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

Underbanked

A person who has an account at a bank or credit union, but also uses an alternative financial service like a payday loan, check cashing, or a pawn shop loan.

Unearned income

Income people receive even if they don’t work for pay. Can include things like children’s allowances, stock dividends paid by corporations, and financial gifts.

Unsecured loan

A loan that does not use property as collateral (such as most types of credit cards). Lenders consider these loans to be more risky than secured loans, so they may charge a higher rate of interest for them. If the loan is not paid back as agreed, the lender can also start debt collection, file negative information on your credit report, and can sue you.

U.S. savings bond

An interest-bearing savings security issued by the U.S. government for a set amount of money.

Value

The amount of money that something is worth.

Variable expenses

Expenses that change in amount from month to month.

Virtual currency

A kind of electronic money. It’s a digital representation of value that is not issued by a government, such as a central bank or a public authority, but is accepted as a means of payment and can be transferred, stored, or traded electronically.

Volunteer

To do something helpful for other people without getting paid to do it.

Compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the number of hours worked.

Wants

Upgrades and other things that would be nice to have but aren’t necessary for living, earning, or protecting what you have.

Warranty

A manufacturer’s warranty is a promise from that company to pay for some repairs or services. A warranty is for a specific period of time, usually a few years.

Wire transfer fraud

Tricking someone into wiring or transferring money to steal from them. One common example of a wire transfer fraud is the “grandparent scam.” This is when a scammer posing as a grandchild or a friend of a grandchild calls to say they are in a foreign country, or in some kind of trouble, and need money wired or sent right away.

Withholding («pay-as-you-earn» taxes)

Money that employers withhold from employees’ paychecks. This money is deposited for the government and is credited against the employees’ tax liability when they file their returns. Employers withhold money for federal income taxes, Social Security and Medicare taxes, and state and local income taxes in some states and localities.

Work-study program

A federal program that provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.

English bank vocabulary 1: The essentials exercise

We all have to use banks today. We save our money in banks, we receive our salaries/wages in our bank accounts and we also pay our bills/invoices through them as well. In fact, there is very little that we can do (both in business and in our personal lives) with our money without the use of a bank.

In this online exercise on ‘bank vocabulary’, we will both look at and explain the essential vocabulary in English for banks (what they do). We will also look at and explain the different types of bank accounts that people can have at a bank.

To learn vocabulary for both using a bank and bank accounts, do our online exercise on ‘English bank vocabulary 2: Using banks and bank accounts‘.

Exercise: What a bank does

In the following conversation between two friends, Peter explains to Juan the essential English vocabulary connected to banks.

From the context, try to guess what the meaning of the words/phrases in bold are. Then do the quiz at the end to check if you are right.

Juan: ‘You used to work in a bank. How do they make so much money?’

Peter: ‘Well, banks lend money to people when they don’t have enough money to buy or pay for something (e.g. a car or a house). Then the people repay the money back to the bank in the future.’

Juan: ‘I have borrowed money from the bank before to buy both my car and my house and to pay for the cost of my university course. In fact, I still have a loan from the bank for my house, I borrowed ВЈ240,000 from my bank to buy it. So that’s how a bank makes money, from loans?’

Peter: ‘That’s right. Banks don’t lend money to people for free, they charge interest on all the loans they give to people. On the loan I have to pay for my car, they charge me 8% interest per year. So every year I haven’t repaid the loan from them, I have to pay them 8% in interest (8% of the original value of loan) in addition to repaying to them the actual money they gave me to buy the car.’

Juan: ‘8% interest per year isn’t a lot for borrowing money from a bank. I have a bank account where I can borrow money from my bank when I want. With this credit card account, my bank charges me 20% interest per year for borrowing money from them. Normally, I repay the money quickly, so I don’t get charged interest.’

‘But where do the bank get the money from to give loans to people?’

Peter: ‘They borrow the money.’

Peter: ‘Normally from the people and companies who deposit or give their money to the bank to look after. Anybody who has a bank account (except a credit card account) with them.’

Juan: ‘What types of bank accounts are there?’

Peter: ‘There are two main different types of bank accounts where people deposit their money. The first type is the one which people use to buy or pay for things with (e.g. in a shop, on the internet, bills etc. ) and you can take out money from it whenever you want. This is called a current account or a checking account in America. This is the type of bank account which most people’s salary/wage from their job is paid into.’

‘The second type of bank account is used for people who want to save not spend the money that is deposited in the account. This is called a savings account. With this type of account you can’t use it to buy or pay for things (e.g. in a supermarket) like with a current account. To use the money in a savings account, you can only withdraw/take the money out directly from the bank or move it into your current account.’

Juan: ‘So why do people have a savings account then? A current account seems more practical.’

Peter: ‘Because banks pay interest on the money in your savings account. They give you money for keeping money in the account.’

Juan: ‘And the banks don’t pay you interest for the money in your current account?’

Peter: ‘Yes they do. But the interest rate, the percentage of interest you receive, is higher in a savings account than in a current account. In my savings account, my money in it earns a 5% interest rate each year. While in my current account, the bank only pays an interest rate of 1%.’

Juan: ‘So, if a bank pays the people who deposit money with them interest, how can it make money?’

Peter: ‘Because the interest rate it pays to borrow money (from its customers who deposit money) is lower than the interest rate it charges when it lends money to people (e.g. in loans). That’s how it makes so much money.’

Now do the QUIZ below to make sure you understand the meaning of this vocabulary.

Quiz: English bank vocabulary 1

Below is a definition/description of each of the words/phrases in bold from the above text. Now fill in the blanks with one of these words/phrases in bold. Only use one word/phrase once and write it as it is in the text. Click on the «Check Answers» button at the bottom of the quiz to check your answers.

When the answer is correct, two icons will appear next to the question. The first is an Additional Information Icon » «. Click on this for extra information on the word/phrase and for a translation. The second is a Pronunciation Icon » «. Click on this to listen to the pronunciation of the word/phrase and to do a pronunciation speaking test.

Practice

Now that you understand the new vocabulary, practise it by creating your own sentences with the new words/phrases.

Related words

annual percentage rate: the percentage that a bank makes you pay in interest when you borrow money from it, calculated over a period of one year

a run on something

a time when a lot of people take their money out of a bank at the same time

balance

the amount of money you have in your bank account

bank balance

British the amount of money that you have in your bank account

bank draft

an order to pay someone that is sent from one bank to another bank, usually in a different country

banker’s draft

banker’s order

banking

banking

bank rate

the rate of interest that banks use to calculate how much interest to charge on money they lend to each other rather than to their customers

bank statement

a document that shows all the money that went into or out of your bank account during a particular period of time

base rate

British the rate of interest that banks use to calculate how much interest to charge on money they lend to their customers

bank internet payment system: an electronic system for making payments by moving money directly into a bank account over the internet

business South African an agreement to borrow money to buy a house, or the money that you borrow; a mortgage

borrower

someone who borrows money from a bank

cardholder

someone who owns a credit card or debit card for buying things with

cashback

British money from your bank account that you can get from a shop when you pay for goods with a debit card

CHIPS

collateral

property that you agree to give to a bank if you fail to pay back money that you have borrowed

commission

an extra amount of money that you have to pay to a bank or other organization when they provide a service for you

credit

an arrangement to receive goods from a shop or money from a bank and pay for it later

credit

an amount of money that you add to an account. An amount of money that you take out of an account is a debit

credit limit

credit line

an amount of money that a person or company can borrow from a bank or other financial institution

credit rating

financial information about someone that a bank or shop uses for deciding whether to lend them money or to give them credit

credit transfer

British a payment made directly from one bank account to another

debit

deposit

an amount of money that you pay into a bank account

depositor

someone who pays money into a bank

direct debit

direct deposit

American an arrangement in which your salary is always put directly into your bank account

discount rate

the rate of interest that a central bank charges another bank that borrows from it

draft

EFTPOS

electronic funds transfer at point of sale: a system of paying for goods by moving money by computer from the customer’s bank account to the account of the company or person they have bought from

in credit

to have more money in an account than the amount that you have taken out

interest

business money that a person or institution such as a bank charges you for lending you money

interest

money that you receive from an institution such as a bank when you keep money in an account there

interest rate

the percentage that an institution such as a bank charges or pays you in interest when you borrow money from it or keep money in an account

internet banking

a system that allows you to use the internet to communicate with your bank, check your account, pay bills etc

in the black

with money in your bank account, or with more money than you owe

lending rate

Libor

London Interbank Offered Rate: an interest rate at which banks can borrow from one another. It is set daily based on an average of the rates set by major banks around the world

money market

mortgage

night safe

British a metal container in the wall of a bank that you can put money into when the bank is closed

online banking

a system that allows you to communicate with your bank on the internet

overdraft

an agreement with your bank that allows you to spend money when you have no money left in your account

overdraft

the amount of money that someone owes their bank because they have used this agreement

overdrawn

if you are overdrawn, or if your bank account is overdrawn, you owe your bank money that you have spent when there was no money in your account

passbook

British a small book showing the amounts of money that you put into and take out of your account in a building society

paying-in slip

British a piece of paper on which you write information when you put money into a bank account

real-time authorization

a system that can check whether a customer’s credit card is acceptable in a few seconds, so that an internet shop can process an order immediately

robosigning

safe-deposit box

safety deposit box

saver

someone who regularly puts money in a bank or building society so that they can use it later

savings

money that you have saved in a bank or invested so that you can use it later

savings ratio

a measurement of how much money people in a country are saving, which compares the amount of money they have available to spend with the amount of money they do spend

sort code

a number that is used, for example on cheques, for recognizing the particular office of a bank where someone keeps their account

standing order

British an instruction that you give a bank to take a particular amount of money out of your account on a particular day, usually each month, to pay a person or organization for you. A direct debit is a similar arrangement, except that the amount can change and is decided by the person who you are paying.

statement

an official document that lists the amounts of money that have been put in or taken out of a bank account

stress test

economics a test used to find out if a bank or other financial institution is likely to fail or have serious problems in a difficult economic situation

strongroom

a room, often in a bank, for protecting money and other valuable things from being stolen or burned in a fire

sub-prime

used to describe lending at a higher than usual rate of interest because it involves borrowers who are less likely to be able to pay back their loan

telebanking

a way of doing business with a bank by using your telephone or computer

telephone banking

unsecured

business an unsecured loan is money that a bank lends someone without making them promise to give property to the bank if they cannot pay the money back

vault

withdrawal

the process of taking an amount of money out of your bank account, or the amount of money that you take out