bank glossary of terms
If you have a bank account then here are a list of everyday banking terms used and what they mean. Find answers to your questions on banking terms
Active accounts - A current account, which has had at least one transaction during the previous three months.
Ancillary charges - Charges or fees for transactions carried out abroad, issuing replacement statements, making payments overseas, banker’s drafts and other special money transfers, and arrangement fees.
Arranged overdraft - A bank account facility that lets you borrow an agreed amount of money either for a specified period of time or long term overdraft facility. This limit is agreed beforehand.
Arranged overdraft interest rate - The annual interest rate that banks charge on arranged overdraft balances.
ATM - An automated teller machine, Cash Machine, or Cash Point, is a computerised telecommunications device that provides you direct access to your funds available without the need to go in to the bank. As well as managing everyday banking, like getting mini-statements, changing your PIN and checking your balance.
Average daily credit balance - The sum of daily credit balances divided by the number of over the year days in the year. This definition can be applied to a consumer, a bank or a number of banks depending on the level of aggregation.
Average daily credit balance - The sum of credit balances on all days when in credit, when in credit divided by the number of days when in credit. This gives an indication of a consumer’s balance when in credit.
Average daily debit balance - The sum of daily debit balances divided by the number of over the year days in the year. This definition can be applied to a consumer, a bank or a number of banks.
Average daily debit balance - The sum of daily debit balances divided by the number of when in debit days when in debit. This gives an indication of a consumer balance when in debit.
Bank account - A bank or current account is an account that you use for your everyday purposes such as having your wages paid in, paying bills and making payment for items or services.
Banker’s draft - This is a cheque that is issued by your bank on behalf of you. Banker’s drafts are typically used when making a large purchase. There is usually a charge for this service.
Basic bank account - An account that allows consumers to pay income, benefits, cheques or cash directly into the account and withdraw cash at ATMs. Basic bank accounts can also be used to pay bills by either direct debit, by transferring money to another account or by payment to a linked account. Basic bank accounts do not offer an overdraft.
BERR - The Department for Business, Enterprise and Regulatory Reform (formally the Department of Trade and Industry).
Cash card - A cash card allows you to withdraw or pay in money at ATM machines
Challenger banks - Banks which are not one of the traditional established four banks of Lloyds, RBSG, Barclays and HSBC Group.
Cheque-clearance cycle - When you pay a cheque into your account, The bank need to check there is enough money in the issuers account and then get that money from their bank and works the same way when you write a cheque.
Consumer Categorisation - A method of classifying and describing social classes, used for market research purposes. The consumer categories include A, B, C, D and E classifications.
Consumer category D - Semi and unskilled manual workers.226
Consumer category E - State pensioners or widows (no other earner), casual or lowest grade workers.
Credit interest rate (CIR) - The interest rate banks pay on credit balances (either monthly or annually).
Cross Subsidisation - Funding the loss or low return from one line of goods or services from another more profitable activity. For example a bank or other lending institution might charge a lower-than-cost rate on certain loans or services and compensate by charging a more-than-economic rate on other loans or services.
Current Account - A bank or current account is the account that you use for your everyday needs, like buying things, paying in your salary and paying bills.
Debit card – An alternative to writing cheques or cash. When you use a debit card the money comes out of your bank account automatically, within a few days of you using it.
Debit interest rate - The interest rate banks charge on balances in debit (either monthly or annually).
Direct debit – Allows service providers a direct way to take money from your account that has been authorised by you. Direct Debits are used to pay regular bills such as mortgages, utility bills or mobile phone. The amount taken each month is may vary according to the charges from the service provider.
Dormant / non-active accounts - An account, which has not had at least one transaction during the previous three months.
Equivalent annual rate (EAR) - A notional rate which illustrates the annual interest rate, taking into account how often interest is charged to the account, and does not include any fees or charges.
Economies of scale - Economies of scale exist when long run average costs of each unit of output falls as output rises. This allows the firm to produce proportionately more for the same amount of inputs as volume increases.
Economies of scope - Economies of scope exist when average costs fall as the range of products provided increases. This allows the firm to produce proportionately more for the same amount of inputs, as its product range increases. This is often due to common costs.
Established four banks - Lloyds, RBSG, Barclays and HSBC Group.
Faster payments - A new payment service, introduced in May 2008, designed to speed up Internet and telephone initiated payments and standing order payments.
Financially constrained - Indicates consumers with low income and low savings.
Fixed costs - Costs that do not change with the volume of activity of a business.
Free-if-in-credit model - The ‘free-if-in-credit’ model imposes no charges on consumers for day-to-day money transmission services, or for access via ATMs, branches, telephone or Internet.
Interest - When the banks pay you a percentage for using your money or pay you a set monthly. It also works the other way round if you take a loan or go overdrawn the bank will charge you interest for using the money you have borrowed.
Interest forgone - The difference between the amount a consumer could earn in credit interest from his or her current account the amount he or she could earn using an account that pays a higher interest rate or a savings account. It is in effect the opportunity cost of holding credit in a current account with a low credit interest rate.
Interest-free Arranged Overdraft - This means you can borrow an agreed amount, for an agreed time, without paying interest usually when you open a bank account.
Internal funding price - The cost/benefit of lending/storing consumers’ funds to the bank. It is set by the treasury of the bank and is used to determine the net interest income from credit and debit balances.
Interest rate - The amount paid (received) in interest divided by the amount borrowed (deposited).
Insufficient funds charges - Charges levied as a result of consumers requesting or instructing their bank to make payments for which there are insufficient funds available in their current account.
Ipsos MORI - Market & Opinion Research International Ltd/MORI Financial Services, a market research company.
LINK cash machines - LINK is a UK network of cash machines where if you hold a debit or cash card that works with the LINK network you can withdraw cash without charge. Link Interchange Network Ltd, a company jointly owned by banks and building societies, which was set up to share the costs of building and operating an ATM network. At peak, the LINK switch processes almost one million transactions per hour.
Maintenance charges - Monthly and/ or daily overdraft excess charges levied for each relevant period the balance remains in unarranged overdraft. The period may be a month or may be a day depending on the bank.
MasterCard debit card - Your MasterCard debit card is a debit card, and cash card, which lets you use all the functions on a cash machine. You can use it to pay for things wherever you see the MasterCard logo.
Money transmission services - ‘Money transmission’ includes services that transfer funds and make payments to and from a current account.
Net interest income from - The difference between interest earned by banks from credit balances held by their customers, less the cost to them of borrowing this money.
OFT - The Office of Fair Trading.
Online Banking - A simple and convenient way to manage your accounts over the Internet.
Overdraft Manager - If you have graduate facilities on your account they are there to help you repay money in a manageable way
Overdraft - An overdraft is a negative balance in a current account.
Overdraft excess charge - Unarranged overdraft charge that is incurred when a current account is in unarranged overdraft at any stage in a given period, usually a month.
Overdraft facility - An overdraft facility is where the bank has agreed in advance that a customer has a right to draw on his account to create an overdraft up to an agreed level if they wish to do so.
Packaged account - A current account where customers typically pay a monthly or quarterly fixed charge regardless of whether the account is in credit or debit. Customers are also likely to receive preferential terms on other characteristics of the account (for example, on credit interest rates or approved overdraft rates), may be exempt from some ancillary charges, and often receive other bundled benefits such as free travel insurance or discounts on some purchases.
Paid Item charge - Unarranged overdraft charges that are levied when a bank authorises a payment that creates or extends an unarranged overdraft.
Personal Current Account - An account, for individuals not businesses, which provides the facility to hold deposits, receive and make payments (cheque and debit cards), use ATM facilities and make regular payments (direct debits and standing orders).
Personal banking - Banking aimed at individuals. This may include products such as PCAs, mortgages, loans, credit cards or savings accounts.
PIN – (Personal Identification Number (A four-digit number that comes with your Visa, MasterCard, debit card or cash card. You need to type in your PIN when you use a cash machine or pay for goods and services. You should never reveal your PIN to anyone else.
PLUS cash machines - PLUS is part of the Visa cash-machine network. You can take money out of cash machines in the UK and abroad wherever you see the PLUS logo. Check first to see if there are any costs for using this service.
Post Office Card Account - Account offered by Citibank International Plc through the Post Office Limited which can be used only to receive state benefits (such as pensions, income support and tax credits).
Price list (Also known as Key Features Document) - This is a list that shows all your banks service fees and is provided by all banks. You can use it to check how much you’ll have to pay in charges (if there are any). Including any Interest Rates and Fees you are liable to pay with your bank account.
Regular transfer - This is a regular fixed amount you pay on a set date each month between two accounts or nominated account. You just need to confirm the amount, which account it’s going to and the date you want us to transfer the money. The payment then happens automatically and will continue unless you set an end date or request the bank to change it.
Retail banking - Banking aimed at consumers, rather than corporations or other banks.
Revenue - Income that a company receives from its normal business activities, usually from the sale of goods and services to customers.
SMEs - Small and medium sized enterprises.
Snowballing of charges - A snowball effect is said to occur where a consumer enters unarranged overdraft and incurs multiple charges.
Standard current account - A current account, which in addition to providing basic banking services, may offer additional services such as an overdraft facility.
Statement - A communication from a bank to a customer setting out the transactions that occurred on that customer’s account in a given period.
Savings accounts - These are accounts, which offer you a higher interest when you keep your money for a period of time. Saving accounts vary in the amount of interest you can earn, depending on the amount and the length of time you save the money will depend on the amount of interest you can earn.
Service fees - Service fees are the charges banks make for things like unarranged overdrafts. Banks will give you at least 14 days notice before they take service fees.
Standing order - This is a way to make regular payments to another account where the amount is the same every month The bank arrange to pay the money out of your account on a set date each month. You confirm the amount, the account that it’s going to, and the date you want the bank to pay out the money.
Sweep accounts - Accounts under which cash can be moved between accounts automatically. They could be used to sweep excess cash from a current account to a savings account to minimise interest forgone or sweep in cash from a savings account to avoid an unarranged overdraft.
Switching services - Services provided by banks to customers, whereby a new bank facilitates switching accounts from another bank.
TBN - This is your telephone banking number. It helps your bank to identify you and keep your account secure when you phone your bank. You should never reveal your telephone banking number to anyone.
Telephone Banking – This is a telephone banking service provided by banks where you can access your account details including your balance, pay bills, or report lost or stolen cards.
Transaction charges - Charges that may apply for common transactions such as cheques, ATM withdrawals and debit card payments. These are usually levied on standard accounts only when they are in arranged overdraft, and any account when it is in unarranged overdraft. Transaction charges in unarranged overdraft may be called paid item charges, referral charges or card misuse charges where the transaction is made, and unpaid item charges if the transaction is declined.
Unarranged overdraft - When you have not agreed an overdraft facility with your bank in advance or cause it to go over the limits of an existing Arranged Overdraft. Banks have different service fees and interest rates that apply to an Unarranged Overdraft.
Unarranged overdraft charges - Transaction and maintenance charges incurred when a customer goes into, or is in, an unarranged overdraft.
Unarranged overdraft interest rate - The annual interest rate that banks charge on unarranged overdraft balances.
Unpaid item charges - Unpaid item charges are insufficient funds charges that are levied on any unpaid payment that, if paid, would create or extend an unarranged overdraft.
UTCCR - Unfair Terms in Consumer Contracts Regulations 1999.
Variable costs - Costs that change with the volume of activity of a business.
Visa debit card - Your Visa debit card is a debit card, and cash card, which lets you use all the functions on a cash machine. You can use it to pay for things wherever you see the Visa logo.