Quiz: Do You Know Your Banking Terms?

Money Market accounts are a type of savings account that allow you easier access to your money than traditional savings accounts. Most offer checks and debit cards, but come with restrictions on how often you can make withdrawals. Money Market accounts are great for when you want your savings to earn interest, but you’re not sure when you’ll need to access your cash.

A Certificate of Deposit is an account where you can save money. It’s different from a traditional savings account because you agree to keep the money saved for a specific term (anywhere from 3 months to 5 years, for example) and can face penalties for early withdrawal. The bonus? By agreeing to save the money for a term, you can benefit from higher interest rates.

Each bank and financial institution has at least one unique nine-digit routing number, which is also sometimes referred to as a transit number. Banks use these numbers in tandem with your account numbers to ensure that money transfers or payments go to the right accounts at the right banks. You can find yours along the bottom of your checks, if you have a checking account, or on your monthly statements.

The FDIC was formed by Congress way back in 1933 to create consumer faith in American financial institutions. If your bank is FDIC insured, it means that the government will protect your deposits in the case that the bank fails or otherwise loses your money. Usually deposits up to $250,000 are covered. The FDIC offers a tool to help you confirm your bank is recognized and insured.

Banks and credit unions are similar, but it’s important for you to understand the differences before you decide where to put your money. The biggest difference is that banks are run as for-profit businesses, which means that they must satisfy their shareholders, whereas credit unions are “owned” by their members—meaning their account holders. But credit unions may not have all the services you need, because they are more likely local institutions with limited offerings.

False. Today, anyone who is eligible to have a bank account can open one from their couch. Online-only banks can provide customers with the same banking services as traditional in-person banks, but without the overhead costs of maintaining branches. Often these digital-first banks can provide better interest rates due to their lower overhead.

To be eligible to open a checking account without a co-owner in the United States, you must be at least 18 years old. That doesn’t mean you can’t have an account earlier, though! To open an account as a minor, you’ll need to open a joint account with a parent or guardian. Anyone listed on the joint account can deposit or withdraw money.

False. While cashier’s checks and money orders are very similar, they have notable differences. Both are issued by a bank in exchange for actual money, so they are essentially worth the equivalent value of what you paid. To get a cashier’s check from a bank you must have an account there, while money orders can be purchased without one. There are more differences, but one of the biggest is that money orders can’t typically exceed $1,000, while cashier’s checks can be of any value.

False. APY is short for annual percentage yield. APR is short for annual percentage rate. They are both calculations made by your bank, but which is used depends on whether you’re saving money or borrowing it. APY is a way for banks to calculate how much interest your bank account will accrue over the course of a year. APR is the amount of interest (along with fees) you can expect to pay each year on borrowed money.

The Automated Clearing House is a network that allows money to be electronically exchanged by financial institutions. It’s used when your paycheck comes via direct deposit, for example. The transfers typically take a few days.

When you make a purchase that is higher than your bank account balance, in many cases you will be subject to an overdraft fee. While banks and accounts have different terms for how these fees are calculated (and compounded if you make multiple purchases), the national average in 2020 was $33.47 per overdraft.

False. Your employer doesn’t need to visit a brick-and-mortar bank to initiate your regular paycheck. But employers do need to establish the process for direct deposit, collect your information and create a schedule for when you are paid. All of that work takes time and effort on their part.

False. Each bank handles balance requirements differently. One bank might offer to waive monthly service fees if you maintain a minimum balance in your account, while others may have built-in, unavoidable fees for their accounts. Sometimes minimum balance requirements can work to your favor, as some accounts with higher minimums can offer you higher interest rates or other perks. Some banks have no minimum balance requirements.

False. Traditionally, statements were mailed to bank account holders every month. These statements would include all transaction information, any details about interest and a starting and ending balance for the month. With the rise of internet banking, these statements are now often delivered via email as a PDF. Most online-only banks still send them.

True. If you want to make a purchase with your bank account, check your available bank balance, which is the amount of money you can spend at any time. The current bank balance is often a slightly different number, because it includes pending transactions. You might, for example, see your paycheck included in your current bank balance, but it won’t show up in your available bank balance until it clears.

Many people don’t rely on physical checks in the age of online-only banking, but there was a time when you couldn’t immediately access your account balance on your smartphone, your computer or even the telephone. In those days, you kept track of your account balance by recording transactions on a paper ledger in your checkbook. Today, it is just as important to keep an eye on your balance and ensure purchases are recorded correctly.

If you want to store physical assets that have value (e.g., jewelry, important documents or heirlooms), many banks offer safe deposit boxes for rent. These containers, which are available in multiple sizes, will be stored in a vault and you’ll be given a key to access them as needed, during bank hours.

False. When you open a new account, review the terms provided to you by the bank. There may be fees imposed for overdrafts, dipping below minimum balances, exceeding withdrawal limits and/or a monthly service cost. But not all accounts are created equal, and in many cases, you can avoid fees as a whole by following specific rules, such as setting up your direct deposit into the account.

The Federal Reserve Board establishes baseline rules for all types of bank accounts. Account owners were allowed only six transfers or withdrawals per month up until April 2020, when federal-level rules were amended to allow unlimited transactions. Now banks can establish their own limits, as needed.