Overview of Financial Institutions and Accounts

Financial institution

banks, credit unions, insurance companies, and investment companies

Depository institution

financial institutions that accept monetary deposits from the public, essentially acting as a place to store money

Deposit

A deposit is a sum of money placed in a bank account

Nondepository institution

a financial institution that does not accept deposits from the public, unlike traditional banks. They primarily serve as intermediaries in financial transactions, providing services like insurance, investment management, or brokering

Automatic teller machines (ATMs)

is a self-service terminal that allows customers to conduct various banking transactions, primarily cash withdrawals, without a bank teller

Checking account

a type of bank account that allows you to easily access your money through various methods like debit cards, checks, and online transfers

Check

a written order to a bank to pay a specific amount of money to a designated person or organization

Negotiable order of withdrawal (NOW) accounts

is a bank account that combines the features of a checking account and a savings account

Debit card

is a payment card issued by a bank that allows you to access your checking account funds for purchases and withdrawals

Withdraw

Taking out money from your bank account

Personal identification number (PIN)

is a secret numeric code used for verifying identity and authorizing transactions

Check register

is a record of all transactions, such as checks written, deposits made, and other debits or credits, that occur in a checking account

Bank statement

an official document that summarizes your account activity over a certain period of time—typically one month

Safety deposit boxes

a small secure, or safe, storage compartment that you can rent in a bank, usually for $100 or less

Cashier's check

a check guaranteed by a bank or credit union, drawn on the financial institution's own funds, not the customer's account

Money order

a prepaid payment instrument similar to a check, used as a secure alternative to cash or personal checks for sending money or making payments

Travelers check

a form of prepaid payment that used to be a popular alternative to carrying cash when traveling, particularly internationally

Bank drafts

a payment instrument issued by a bank on behalf of the payer, acting as a guaranteed form of payment. Unlike regular checks, bank drafts are pre-funded, ensuring the payee receives the funds

Electronic funds transfer

the digital movement of money from one bank account to another, usually through computer-based systems

Federal Deposit Insurance Corporation (FDIC)

an independent US government agency that maintains stability and public confidence in the nation's financial system by insuring deposits in banks and savings associations

National Credit Union Savings Insurance Fund (NCUSIF)

a federal fund that insures member accounts at federally insured credit unions

Credit union

a nonprofit-making money cooperative whose members can borrow from pooled deposits at low interest rates

Federal Reserve System

the central bank of the United States

Price level stability

avoiding prolonged periods of excessively high inflation or deflation

Inflation

a sustained increase in the general price level of goods and services in an economy, which leads to a decrease in the purchasing power of money

Monetary policy

a set of actions undertaken by a central bank, like the Federal Reserve in the US, to influence the money supply and credit conditions in an economy

Fiat money

a type of government-issued currency that is not backed by a precious metal, such as gold or silver, nor by any other tangible asset or commodity

Discount rate

a rate of return used to determine the present value of future cash flows

Liquidity

the ability to quickly and easily convert an asset into cash without a significant loss of value

Demand deposit

a type of bank account that allows you to withdraw funds at any time, without prior notice or penalty

Savings account

a deposit account at a bank or credit union where you can store money and earn interest

Certificate of deposit (CD)

a type of savings account offered by banks and credit unions where you deposit a fixed amount of money for a specific period of time, and in return, you earn a fixed interest rate

Money market deposit accounts (MMDA)

a type of bank account that combines features of both checking and savings accounts

Compound interest

the interest calculated on the initial principal plus the accumulated interest from previous periods

Annual percentage yield (APY)

a number, expressed as a percentage, that tells you the actual amount of interest an account would earn over a year

Individual Retirement Account (IRA)

are personal retirement savings accounts that offer tax benefits and a range of investment options

Traditional IRA

an individual retirement account (IRA) designed to help people save for retirement, with taxes deferred on any potential investment growth

Tax deductible

an expense that an individual taxpayer or a business can subtract from adjusted gross income

Tax deferred

you don't pay taxes until you withdraw your funds, instead of paying them upfront when you make contributions

Roth IRA

an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement

Employer-sponsored retirement plans

a program established by an employer to help employees save for their retirement

Defined-benefit plan

provide a fixed, pre-established benefit for employees at retirement

Pension plan

A pension plan is an employee benefit plan established or maintained by an employer or by an employee organization (such as a union), or both, that provides retirement income or defers income until termination of covered employment or beyond.

Vesting

a point after a specific time period, known as a vesting period, at which a person acquires legal ownership of some kind of property

Defined-contribution plan

a retirement savings plan where contributions are made to individual employee accounts, with the amount of retirement benefits depending on the contributions, investment performance, and any fees

401(k)/403(b) plans

401(k) plans are typically for employees of for-profit companies, while 403(b) plans are for employees of certain non-profit organizations, public schools, and other tax-exempt entities. Both plans allow employees to deduct contributions from their paychecks and earn tax-deferred growth

Annuities

a contract that requires regular payments for more than one full year to the person entitled to receive the payments

Fixed annuity

a type of insurance contract that provides a guaranteed income stream for a set period or for life

Variable annuity

a contract between you and an insurance company