6 Essential Banking Terms You Should Understand

6 Essential Banking Terms You Should Understand
Image: iStock / sarayut

Many of us have hit that stage in life where the topics of finance, banking and savings cross our paths far more often than we’d like.

We’ve partnered with CUA to help you brush up on your banking know-how.

It simply comes with the territory of being an adult. The older you get, the more you have to take on responsibilities that you could usually palm off to your parents.

Taxes, budgeting, credit cards, rent, savings accounts, going to the dentist – all of these things that were either not on our radar or were handled by our parents are now solely our responsibility.

And while we can't help you bite the bullet and make that overdue dentist appointment, we can give you some simple definitions of a few banking terms you're likely to hear when the subject of money arises - in a manner all of us can understand.

Here are a few explainers to make life that little bit easier as a reluctant adult.

Credit score: Your credit score grades you on how eligible you are for a home loan. You can obtain a good credit score through making payments to certain services on time. In the simplest of terms, if you've been paying off your credit card, phone bill or loan on time (just to list a few), you're going to have a good credit score, which means you'll be able to take out bigger loans with lower interest. Financial institutions will use your credit score to help decide if you're worth lending more money to, so it might be time to start making some good decisions.

Term deposit: A term deposit is ideal for anyone who struggles to save. You pop a set amount of money into a term deposit account and, if you want to earn interest on the amount you deposited, it locks your money away over the months or years you choose, so you're not tempted to spend it. If you dip into your account then you won't earn as much interest.

PayID: While relatively new to the scene, PayID has quickly been adopted by banks across Australia. Instead of using BSBs and account numbers to transfer payments, people with PayID can use their email address, phone number or ABN as the one-stop shop for sending and receiving money. That way, when someone wants to transfer you money, instead of going into your phone and spouting off a long list of numbers, you can just give them your email address or phone number, and vice versa. This particularly comes in handy when you're out for drinks or dinner with your mates -- when you're stuck with one bill for the whole table, one person can just pay the full bill and give everyone else their PayID to receive the cash in minutes.

Comparison rates: In a nutshell, a comparison rate includes all of the fees associated with a loan - however, it's not just the interest rate, it also includes other fees you'd otherwise overlook. If a loan's comparison rate and interest rate are similar, this means there are little fees involved so you'll be choosing a loan wisely. This is particularly handy when looking for a car or home loan - just remember that it's for a set loan amount, so you'll need to figure out how much you want to borrow and have the actual comparison rate calculated for you.

Compound interest: The younger you give a savings account a crack, the more you'll benefit in the long-run. Time is on your side. Compound interest can be a handy factor in earning more on your savings too - it's interest that's earned on top of the interest you already earn, so if you let your investment sit there for a while, that compound interest will speed up the process of reaching your savings goals, whatever they may be.

Credit Union: Credit Unions like CUA are financial institutions like banks, but unlike banks, you become a member when you sign up. So while banks use their profits to pay dividends to shareholders, Credit Unions reinvest their profits back into their business to improve their products, services or digital channels and benefit their members, which is you if you bank with them.

While these definitions are merely scraping the surface, hopefully they can provide a bit more insight into the big wide world of adulting.

As always, be safe and smart with your money out there, and always ask for help before you make decisions.

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