10 Essential Banking Terms You Need to Know

Understanding basic banking and finance — and the terminology people use to talk about them — can make a big difference in your bank balance.

Here are 10 banking terms you should know to manage your money better.

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1. Routing number

A nine-digit number that identifies your financial institution. Larger banks may have multiple routing numbers that are based on the geographic location where the account was opened.

2. FDIC

The Federal Deposit Insurance Corp. A government-run organization that insures customers’ bank deposits up to $250,000 if the bank fails. The National Credit Union Administration is the equivalent for credit unions. (Read more about how FDIC insurance works.)

3. Certificate of deposit

Commonly known as a CD, an account into which you deposit a sum of money and agree to keep it there for a specified length of time. The account typically pays higher interest rates than standard savings and checking accounts.

» Check out this month's best CD rates

4. APY

Annual percentage yield. The amount of interest you gain from keeping money in an account in a year, including compound interest. (Want additional details? Read more about why securing a high APY is important for your savings.)

» Cash management accounts: See our top picks for these high-APY hybrids

5. APR

Annual percentage rate. The amount of interest you gain from keeping money in an account in a year, not including compound interest. In the context of a loan, the APR represents the cost of borrowing money.

6. Compound interest

Interest that applies to the original deposit as well as any newly earned interest. For example, if you put $100 in an account that earns compound interest at 5% a year, in the next year you will earn 5% on $105. Noncompounding interest would continue to earn 5% on $100.

» See how your savings could pile up with our compound interest calculator

7. Savings account

Typically, an interest-bearing account used to hold money for short- or long-term goals or emergencies. You can add to this account at any time, but certain types of withdrawals may be limited to six per month.

» Want to earn the highest rates? Check out NerdWallet's best high-yield online savings accounts

There is a wide range of interest rates available for savings accounts, and online banks tend to have higher rates than national banks, as seen on this chart:

8. Returned item fee

A bounced-check fee charged to the person trying to deposit the check. It can be charged if there are insufficient funds in the check writer’s account or if the account is closed.

9. Overdraft fee

A fee incurred when your checking account doesn’t have enough funds to cover a payment that is requested. The financial institution will pay what your account lacks, after which your account may have a negative balance. (Here's more information on how much banks charge for overdrafts.)

10. Checking account

An account at a financial institution into which you can deposit money and from which you can write checks for purchases. Most people use checking accounts to receive their wages and pay their bills.

» Level up your day-to-day banking with NerdWallet's best checking accounts