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Common Financial Terms Every Adult Needs to Know

When it comes time to buy a car or house, plan for retirement or prepare for another major financial event, understanding the complex terminology can be overwhelming.

Most of us weren’t taught financial literacy skills in school, yet are expected to be financially savvy nonetheless. Peapack-Gladstone Bank is here to help you make sense of common financial terms so the next time you need to make a major financial decision, you have the vocabulary to set you up for success.

Bank Account Terminology

Most of us have checking and savings accounts to manage our money. Here are some terms you may encounter while doing your everyday banking.

  • Electronic Funds Transfer (EFT): Electronic funds transfer, or EFT, refers to the many types of electronic payments, including direct deposit, online bill pay and electronic debits.
  • ACH & Electronic Debits: You can allow a company or merchant to request electronic payments directly from your bank account. These transactions are called electronic debits, or ACH (Automatic Clearing House) transactions, and are often managed through online banking. Real-life examples may include your monthly gym membership, Netflix or car insurance.
  • Clear: Peapack-Gladstone Bank may use the term “clear” when a transaction (e.g., depositing a check) has been successfully credited or debited to your account.
  • Direct Deposit: This popular service allows money to be automatically deposited into your account. You can use direct deposit for your paycheck, pension or Social Security benefits so to save you a trip to one of our branches.
  • EMV Chip-Enabled Card: A credit card or debit card with a magnetic strip and microchip is known as an EMV, or chip-enabled card. This technology uses encryption and dynamic, card-specific data to protect against credit and debit card fraud.
  • Hold: When you deposit a check into your account, the transferred funds may be delayed before they become available to you. This is known as a hold. Cash deposits, wire transfer and electronic deposits are generally not subject to a hold.
  • Internal Transfer: When you transfer money between your Peapack-Gladstone Bank accounts, this is known as an internal transfer. You can transfer money using online banking, an ATM or by visiting a branch.
  • Low Balance Alerts: Our online banking platform allows you to setup low balance alerts so you can be immediately notified if your account has fallen below your specified amount. This helps prevent overdrawing your account and protects you from associated fees.
  • Overdraft Protection: If you try to spend or take out more money than you have in your account, your account will be overdrawn. Overdraft protection allows you to link one account to another, so your transactions are covered by both balances or available credit.
  • Routing Number: This nine-digit string of numbers is on the bottom of your check, to the left of your account number. Each financial institution has a unique routing number to ensure money goes to the proper institution. You’ll need your routing number if you are setting up direct deposit, transferring money between institutions, paying bills by direct debit and receiving tax refunds.
  • APY: APY stands for annual percentage yield and is typically associated with deposits or investments. APY is the annual interest rate earned on qualifying accounts, representing the yearly amount of money returned to the owner. Certificates of deposit, as well as special checking and savings accounts are common interest-earning accounts.

Lending Terminology

  • Principal: A loan principal is the amount of money you owe, not including interest. On a mortgage or student loan, the amount of money you borrow is considered the principal. When you make a monthly payment, however, you are paying back the principal plus interest accrued and any related fees.
  • Loan Term: This indicates the amount of time a borrower is granted to repay a loan. For example, car loans can have up to 60-month terms, while mortgage loans are commonly offered in 30-year terms and 15-year terms.
  • APR: APR stands for annual percentage rate. It represents the annual interest rate charged by your lender and constitutes the yearly cost associated with borrowing funds. APR includes any fees an institution may charge.
  • Interest Rate: A loan’s interest rate refers to the percent of the principal, or amount borrowed, that a lender charges for using its money. You can also earn interest on deposits because institutions are effectively borrowing money from you.

Financial Planning Terminology

  • Beneficiary: A person who is designated to receive distributions from a trust, 401(k) plan, IRA, will or life insurance policy is known as a beneficiary. For example, if you have a 401(k) plan through your employer and pass away suddenly, your beneficiaries will receive the money you’ve saved.
  • Estate Plan: An estate plan is a document created by an attorney that outlines what will happen to your money and assets when you die or become incapacitated. Generally, the goal is to reduce taxes and make it easier for living family members to manage financial-related issues. Estate plans include specifics about how assets will be handled with heirs and how estate taxes will be addressed, as well as naming of beneficiaries for things like IRAs, 401(k) plans and life insurance policies. Estate plans also generally reference a person’s will.
  • Power of Attorney: When someone else has the power to act on behalf of another person’s legal matters, this is known as power of attorney. Someone who is overseas on military deployment, undergoing major surgery or even unable make a mortgage closing may grant power of attorney to another person.
  • Trust: A trust is a legal document that certifies ownership of assets. A trust generally has many provisions that determine how and when assets can be divided or distributed, and offers tax breaks. For example, a person may set up a trust for a child but not grant access to the money until the child turns 21. A trust can also be used to provide income to a family member who may need regular financial support because of a disability. There are many different types of trusts available, from a revocable living trust to a charitable trust.

Now that you’ve explored the basics, you can feel more comfortable making your next big financial decision. At Peapack-Gladstone Bank, we’re always here when you need us. Contact a financial advisor today, or visit one of our New Jersey branches.