Glossary of Financial Terms
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Summary of banking services provided for a business. Account analysis statements are issued periodically, usually monthly. Relevant information reported in the account analysis statement includes the following: the company's average daily balance , average daily balance on uncollected checks, Earnings Credit Rate (ECR) on collected balances, account activity charges, and account balances needed to pay for bank services ( compensating balance ). An analytical tool mostly used in pricing corporate cash management services, account analysis is also used by banks to evaluate profitability of correspondent banking services, such as check clearing, performed for other financial institutions.
Account Balance History
A historical snapshot of your Available Balance, which reflects holds and transactions that are Processing or Cleared. This balance was used in making payment decisions and in triggering returned item or overdraft fees.
A printed or online statement of all the debit and credit transactions on an account for a given statement cycle.
A bank account in which there are recent transactions.
Annual percentage rate (APR)
The fee or interest rate one pays to borrow money expressed as a yearly percentage.
Annual percentage yield (APY)
A percentage rate reflecting the total amount of interest paid on a deposit account (checking, savings, CDs, IRAs), based on the interest rate and the effect of interest compounding for one year.
Items of value that one owns
Financing secured by a firm's balance sheet assets, such as inventory, receivables, or collateral other than real estate. The most common forms are accounts receivable financing , in which the lender advances funds against trade receivables, inventory lending, and equipment leasing. Asset-based lending covers a broad range of secured lending activities, and is used to support the credit needs of firms that cannot obtain bank financing on a fully unsecured basis. Also called "asset financing" or "asset-based financing".
Authorized transactions are Debit Card purchases made without entering a PIN at specific types of businesses. The amount of the transaction is not deducted from your Available Balance until the final purchase amount is received from the merchant, because the initial amount of the transaction is often higher than the final transaction.
Certain businesses will submit higher authorization amounts as a normal course of business. These businesses are often travel related (such as airlines, hotels, car rentals) as well as some catalog businesses.
Automated Clearing House (ACH)
A nationwide electronic funds transfer network that enables participating financial institutions to distribute electronic credit and debit entries to bank accounts and to settle such entries.
Automatic Funds Transfer(AFT)
An arrangement that moves funds from one account to another automatically on a pre-arranged schedule; for example, every payday or once a month.
An arrangement that authorizes payments to be deducted automatically from a bank account (usually a checking account) to pay bills (such as insurance payments, rent, mortgage or loan payments). Payments are usually scheduled to be made on a certain day of the month.
Your Available Balance is the amount of money in your checking or savings account that is currently available for you. It includes all Cleared and Processing transactions. Keep in mind that any transactions you have made but Landmark Community Bank has not yet received need to be subtracted from your Available Balance for you to know the exact amount of money you have to spend or withdraw.
The Available Balance does not include:
- Any transaction that has not been received by the bank (check, recurring Debit Card transactions, ACH)
- Amount of a deposit not currently available, including holds
- Debit Card transactions identified as Authorized
Average Daily Balance
The average amount in a deposit account that equals the sum of the daily account balances during an accounting period, usually a monthly statement cycle, divided by the number of days in the period. Can sometimes be used to calculate whether a service charge applies or to qualify for special services. See also Glossary term, "minimum daily balance."
A Landmark Community Bank branch office.
Bill Pay is an optional service of Online Banking from Landmark Community Bank that allows you to pay your bills online.
A check which a bank returns unpaid because there are not enough available funds in the account.
Business Day Cut-Off
Business Day Cut-off is generally the latest time by which you must make a transaction in order to be posted to your deposit account that business day.
A check that has been paid. A cancelled check may generally be used as proof of payment.
A check drawn on and issued by a bank. It does not usually bounce because its face amount is paid to the bank when it is issued and the bank then assumes the obligation.
Certificate of Deposit (CD)
A time deposit that is payable at the end of a specified term. CDs generally pay a fixed interest rate and generally offer a higher interest rate than other types of deposit accounts. Terms can range from 30 days to 5 years. CDs are insured by the FDIC up to the maximum allowed by law. If an early withdrawal from the CD prior to the end of the term is permitted, a penalty is usually assessed.
A check for which the bank guarantees payment.
Shortening of processing steps, in an effort to reduce paperwork and operating costs. For example, check truncation, or check safekeeping, where the bank holds the checks or microfilm records of them in a central file.
A type of deposit account, sometimes interest bearing, which enables customers to place funds and withdraw their available funds on demand, typically by writing a check.
A service where you receive images of the front of your cancelled checks. Each account statement includes images of checks that posted to your account during the statement cycle. You can view and print copies of the front and back of checks posted to your account by signing on to Online Banking, or you can request check copies by visiting your nearest Landmark Community Bank banking center.
Transactions are given a "Cleared" status when they have been posted to your account. "Cleared", or posted transactions, are not always final because there may be certain circumstances when such transactions may be reversed.
Checking account cash balance after deducting checks drawn on other banks. Generally defined as account ledger balances, less unpaid checks in the process of collection. A bank may count a deposited check as funds available for use by its customer in two business days, but usually will not include it in the depositor's collected balance for five or six days. This allows time for the drawer bank to return the check because of insufficient funds in the check maker's account or for other reasons.
Interest that is calculated not only on the principal balance in the account, but also on the accumulated interest. The more frequently interest is compounded, the higher the effective yield.
A financial term that refers to an increase in a deposit account balance (such as a deposit made to the account). See also Glossary term, "debit."
The process of analyzing information on companies in order to estimate the ability of the company to live up to its future contractual obligations.
A service where the bank returns the checks with the account statement.
An account created for the benefit of a minor with an adult as the custodian.
A financial term that refers to a decrease in a deposit account balance, such as a check posted to the account. See also Glossary term, "credit."
A plastic card issued by Landmark Community Bank that customers can use anywhere Visa debit cards are accepted. Because money is deducted directly from a designated checking account, there are no interest charges. A Debit Card can also be used at ATMs so there is no need to carry both a Debit Card and an ATM card. Also referred to as a debit card.
Account balance that, without prior notice to the bank, can be drawn on by check , by cash withdrawal from an Automated Teller Machine (ATM) , or by transfer to other accounts using a telephone or home computer.
Demand line of credit
A bank line of credit that enables a customer to borrow on a daily or on-demand basis.
Money added into a customer's account at a financial institution.
With direct deposit, your recurring deposits are made electronically into your checking, savings or money market account. Deposits can include salary, pension, Social Security and Supplemental Security Income (SSI) benefits, or other regular monthly income.
Information pertaining to the account services, fees and regulatory requirements.
Account showing no activity, other than posting of interest for a specified period. These are generally low balance accounts. If unclaimed for a certain number of years, ownership reverts to the state under escheat laws.
Earnings Credit Rate (ECR)
Adjustment factor that reduces bank service charges on business checking accounts. Large banks often peg their earnings credit rate to the U.S. Treasury bill rate.
Electronic Check Presentment (ECP)/Check 21
In check clearing, electronic transmission of the check writer's account number and other payment data directly to the paying bank. Electronic check presentment does not eliminate use of paper checks, but it does allow for a more efficient and less costly method for clearing checks. The Check Clearing for the 21st Century (or Check 21) Act permits banks to send a digital image of a paper check instead of the actual check and thus eliminates much of the labor-intensive costs associated with clearing the billions of checks Americans write every year.
Electronic Funds Transfer (EFT)
Any transfer of funds initiated by electronic means, such as an electronic terminal, telephone, computer, ATM.
Signature on the back of a negotiable instrument, such as a check . Endorsement legally transfers ownership to another party. The Uniform Commercial Code (UCC) recognizes five kinds of endorsement: (1) blank endorsement or unqualified endorsement; (2) special endorsement; for example, "Pay to the order of ABC Company"; (3) restrictive endorsement, writing limiting further negotiation, such as "for deposit only"; (4) qualified endorsement, "Pay to ABC Bank, without recourse"; and (5) conditional endorsement, "Pay XYZ Company upon completion of contract." (Rarely used.) The Expedited Funds Availability Act of 1987 imposes certain restrictions on check endorsements, requiring endorsers to write their names in the top 1 1/2 inches on the back of a check, leaving space for bank endorsements
Reversion of property to the state under certain prescribed conditions when the owner dies without heirs or if a depositor's account remains inactive for a specified number of years and the owner cannot be located. Property may be redeemed if the owner reappears.
Federal Deposit Insurance Corporation (FDIC)
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government. The FDIC protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.
Deposit Holds are delays to the availability of a portion of deposited checks.
Situations that typically cause a check to be held include:
The check is for an amount larger than you normally deposit
The source of the check (for example, a personal check is more likely to be held than a government check)
We suspect that we cannot collect the funds from the account the check is drawn on
Previous overdrafts from this account
Balance Holds are holds placed on your entire account balance. For assistance and additional information, please contact customer service.
A bank account in which there have not been any transactions for an extended period of time. In some cases (no activity within the period specified by state law, generally at least three years), the law requires a bank to turn the account over to the state as unclaimed property.
A loan that is repaid with a fixed number of periodic equal-sized payments
An account that earns interest is an interest bearing account.
The rate paid on an interest-bearing account, such as savings, CDs and some checking accounts; also, the rate charged on a loan or line of credit. Different types of accounts and loans pay or charge different rates of interest.
A system allowing customers to perform banking activities via the internet.
Special accounts where you can save and invest and the taxes are deferred until money is withdrawn. These plans are subject to frequent changes in law with respect to the deductibility of contributions. Withdrawals of tax deferred contributions are taxed as income, including the capital gains from such accounts.
Any account owned by two or more people.
Letter Of Credit (L/C)
Instrument or document issued by a bank guaranteeing the payment of a customer's drafts up to a stated amount for a specified period. It substitutes the bank's credit for the buyer's and eliminates the seller's risk. It is used extensively in international trade. A commercial letter of credit is normally drawn in favor of a third party, called the beneficiary. A confirmed letter of credit is provided by a correspondent bank and guaranteed by the issuing bank. A revolving letter of credit is issued for a specified amount and automatically renewed for the same amount for a specified period, permitting any number of drafts to be drawn so long as they do not exceed its overall limit. A traveler's letter of credit is issued for the convenience of a traveling customer and typically lists correspondent banks at which drafts will be honored. A performance letter of credit is issued to guarantee performance under a contract.
A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation.
Line of credit
An informal arrangement between a bank and a customer establishing a maximum loan balance that the bank will permit the borrower to maintain.
Any account linked to another account at the same financial institution so that funds may be transferred electronically between accounts, and, in some cases, the combined balance may be used to help meet the balance required to waive a monthly service charge on one of the accounts.
A collection and processing service provided to firms by banks, which collect payments from a dedicated postal box that the firm directs its customers to send payments to. The bank collects the payments from the postal box and processes the payments immediately and deposits the funds into the firm's bank account.
Date on which the principal balance of a loan, debt instrument or other financial security is due and payable to the holder. Also, the date on which a time draft is payable.
Merchant credit card services/third party credit
Credit facilitating the sale of merchandise and services that is arranged by someone other than the seller. Retail merchants accept bank credit cards and travel and entertainment cards as payment for merchandise, which often is less costly than extending credit directly, because the merchant is relieved of the expense of funding the credit receivables and collecting the payments. In return for payment of a merchant discount , computed as a percentage of net sales, the merchant can get immediate credit for bank card sales slips deposited with a bank. If the merchant discount rate is 2%, the merchant gets $98 for every $100 in credit sales. As long as the merchant follows the terms of the credit agreement, the merchant also is not liable for credit or fraud losses.
Minimum daily balance
The lowest end-of-day balance in an account during a statement cycle. It is often required to be kept in an account each day to earn interest, avoid a service charge or qualify for special services. See also Glossary term, "average daily balance."
Money market account
A savings account that generally permits up to six withdrawals by check or debit card each statement cycle.
Monthly maintenance fee
The fee charged to maintain a particular account, such as a checking account.
Negative collected balance
Refers to funds that have been deposited into an account but have not cleared the originating bank therefore resulting in a negative balance in the account.
A service that allows an account holder to obtain account information and manage certain banking transactions, including bill payment through a personal computer.
An overdraft occurs when you do not have enough available funds in your account to cover a check or other withdrawal, but the bank pays the items and overdraws your account.
Personal identification number (PIN)
Personal Identification Numbers (PINs) are numbers that customers use with their ATM or Debit Card to access their accounts via ATMs or to make purchases with their Debit Card. These numbers should always be kept confidential.
Cash management service-a deterrent to check fraud- by which banks compare a company's record of checks issued with checks presented for payment. Suspicious checks are referred to the check issuer for approval. A less-costly alternative, reverse positive pay, calls for the check issuer to self-monitor its checking account and notify the bank when it declines to pay a check.
The interest rate at which banks lend to their best (prime) customers. Much more often than not, banks most creditworthy customers borrow at these rates.
Processing transactions are any deposits, transfers, purchases and withdrawals which have been added to or deducted from your Available Balance, but have not yet Cleared (also known as memo post).
When you do not have enough available funds in your account to cover a check, the bank may decide not to pay the check and to return it to the payee. A returned item fee may be charged to your account.
Revolving Line of Credit
A bank line of credit on which the customer pays a commitment fee and can take down and repay funds according to his needs. Normally the line involves a firm commitment from the bank for a period of time.
A deposit account which pays interest, but funds cannot be withdrawn by check writing.
Safe Deposit Box
Storage facility maintained in the vault area of a bank that is rented to customers for safekeeping of personal valuables. Access to a safe deposit box is controlled through dual keys, one kept by the customer and one by the bank, and signature cards. Date of entry is recorded on a signature card. If the safe deposit box is rented by a corporation, a separate corporate resolution must be obtained before access is granted. Safe deposit box contracts usually contain a disclaimer limiting the bank's liability to the bank's failure to provide adequate protection facilities. A bank ordinarily is not responsible for loss of personal valuables, and has no knowledge of the contents of a safe deposit box.
Document giving a lender a security interest in assets or property pledged as collateral . This agreement, signed by the borrower, describes the collateral and its location in sufficient detail so the lender can identify it, and assigns to the lender the right to sell or dispose of the assigned collateral if the borrower is unable to pay the obligation. The security agreement may contain loan covenants governing the advancement of funds, and a schedule for repayment of principal and interest, or require the borrower to obtain insurance coverage for the assets pledged.
The security agreement may cover no possessory liens in intangible property such as accounts receivable, or a possessory lien, in which the lender holds the collateral, for example, stock certificates, until the loan is fully paid. In some loans, the security agreement is also the financing statement filed with a public records office, if it has the signatures of both borrower and lender.
The interest calculated on a principal sum, not compounded on earned interest.
When you ask a bank not to pay a check or payment you have written or authorized. Stop payments are generally placed on lost or stolen checks or on checks related to disputed purchases. Stop payment orders generally expire after 6 months and a fee usually applies.
An account whose collected cash balance is automatically transferred into an interest-bearing investment account such as a money market account or automatically transferred to a loan reducing the balance
Time deposit/ Certificate of Deposit (CD)
An account for a fixed term with the understanding that the funds will remain on deposit until the end of the term. Penalties for early withdrawals may apply.
Refers to a Federal Reserve Board regulation that limits certain types of withdrawals and/or transfers
from savings and money market deposit accounts. There can be no more than six preauthorized or automatic transfers or telephone/PC transfers (including bill payments) out of the account each month; of the six, if applicable, no more than three of the six limited transfers may be by check or debit card. Withdrawals at ATMs and teller windows from these accounts are unlimited.
A movement of funds from one account to another.
Refers to items deposited in an account that have not yet been collected, or paid, by the bank on which they were drawn.
An interest rate that may fluctuate during the term of a loan, line of credit or deposit account. Sometimes the rate changes based on changes in an index rate, such as the prime rate or other prescribed criteria. Sometimes the bank changes the rate at its discretion.
An electronic payment service for transferring funds by wire.
A removal of funds from an account.
Defined as the difference between current assets and current liabilities (excluding short-term debt). Current assets may or may not include cash and cash equivalents, depending on the company.
Checking account used by corporations to accelerate collection of funds from subsidiaries, or control funds disbursed to pay trade creditors. In a zero-balance collection account, collected balances are transferred by Depository Transfer Check or automated clearing house debit from subsidiary accounts into a central concentration account , bringing the collecting account to a zero balance at the end of each business day. Zero-balance concentration accounts are generally used by companies wanting centralized control of cash receipts. In a zero-balance disbursing account, corporate funds are transferred out of a central account to subsidiary accounts for payment to trading partners. Funds to cover the payment are transferred from a control account whenever a payment is made from the zero-balance account. Zero-balance disbursement accounts are typically used by companies that want centralized cash control but decentralized funds disbursement.