Understand the different types of bank accounts and banking terms

Understand the different types of bank accounts and banking terms

As soon as you’re earning money or get a loan in your name, you will need to open a bank account. Unlike accounts at shops, a bank account is necessary. It keeps your money safe and allows you manage your money from a single point of reference (imagine hiding your money in shoes and bags and books!)

Here are a few terms that you should understand before you decide to open a bank account:

1. ATM: This is a quick-service machine placed outside banks and in various locations around towns and cities. You can draw, deposit and transfer money from these machines, usually at a cheaper rate than if you go into the bank. This is because banks have to pay more staff if everyone goes into the bank for service whereas a machine runs itself once it’s paid for. TIP: Just don’t use a different bank’s ATM because you get charged more.
2. Balance: This is how much money you have available in your account. It can also mean the amount you owe on an account. For example, if you have an Edgars account, your balance is what you owe on it.
3. Cheque account: This type of account allows you to have a cheque book to pay for your purchases. Most people don’t use cheques anymore as they are expensive. A cheque account generally has higher bank charges than a savings account.
4. Credit Card: This is a facility that allows you to borrow money. So you can charge purchases to your credit card even if you don’t have any money in your bank account. If you don’t pay your credit card in full every month, you pay finance charges (this interest on the amount you’ve borrowed). TIP: Only get a credit card if you are extremely diligent about not buying items you can’t afford, otherwise you will land yourself in financial trouble in a short space of time. The credit card interest rate is very high. If you have a balance on your credit card, clear it as soon as possible.
5. Credit limit: This is how much credit you have in total. You can’t borrow beyond that point.
6. Current account: This is a standard bank account that allows you to draw, deposit and transfer money.
7. Debit card: This is the opposite of a credit card. You can only use the card as long as you have enough money in it to cover the purchase you’re making. This means you don’t pay interest on your purchases. This is a safer option than using a credit card.
8. Fraud: This is when someone is able to retrieve your credit card or bank account details and makes purchases using your account details. Every bank has a fraud hotline, keep this handy and if you get notified by your bank that a purchase you never made went through your account, cancel your card with them immediately. They will issue with a new card and investigate the transaction. If they find that you didn’t lose the card and it wasn’t you that made the purchase, they will credit you with the fraudulent amount.
9. Interest: This is a percentage of money you get charged if you borrow money from the bank, either on your credit card or as an overdraft (you draw more money than you have in your account). But interest can also be a good thing, it’s what the bank pays you if you invest your money with them.
10. Minimum balance: This is the amount of money you need to have in your account, otherwise you get penalised or the bank will close the account down.
11. Minimum payment: This is the least amount you can pay into your account.
12. Mortgage: This is an international term for home loan.
13. Savings account: This account was designed for people to save money so deposits are incentivised while withdrawals and debits are charged for at a higher rate.

Now that you know what all these banking terms mean, you can learn how to open a bank account right here.