8. Credit Card
Similar in form to the Debit card but varies in functionality. In the use of a credit card, the amount is not deducted from the associated bank account but is “lent” to you by the card issuer. The cardholder is expected to return the amount back within the specified time failing which the lender starts charging interest. Such cards are only issued to people with a healthy credit score.
The encircled bit is the CVV
Card Verification Value (CVV) or sometimes called Card Security Code (CSC) is a 3 digit code found at the back of your credit or debit card. It is an additional security feature and is required while making a transaction. In an American express card the CVV is 4 digits long and found on the front side.
10. Credit score (Or CIBIL score)
A CIBIL score is a three-digit numeric summary ranging from 300 to 900, of an individual’s entire credit history. Lenders use these figures to check whether an individual will, in fact, return his or her debts. An ideal credit score ranges between 300 and 850. The closer to 850, the more financially trustworthy an individual is and likelier to get the loan he or she desires.
Know Your Customer (KYC) is the process by which a bank verifies the identity of its customers and checks whether there are any chances of the customer in question posing any form of risks to the bank. Some acceptable KYC documents are Passport, PAN, Voters ID, Drivers License, Ration Card etc.
12. Monthly average balance (MAB)
The account balance calculated over a certain period based on several closing balances during that time is called the account balance. Done on a monthly basis, it is called monthly average balance.
Most banks will charge a penalty if a certain monthly average balance is not maintained. To avoid this ask for a “Zero balance account” or a “No frills account” when signing up.
13. Savings Account
A basic bank account where you can deposit money and earn interest. Most banks today offer additional services on your savings account like a debit card, loyalty rewards, internet banking and checkbook facility.
14. Current Account
A step above Savings Bank account, it allows for larger and frequent transactions. Unlike a Savings account, it does not earn any interest and the bank will require you to maintain a Monthly Average Balance (MAB) failing which a penalty will be applied.
15. No-frills Account (Zero balance account)
This unique type of bank account can be opened and maintained with zero balance. It does not levy any charges and does not offer any unnecessary services. While this is advantageous to the customer, the downside is that some of the facilities offered here are limited.
16. Fixed Deposit
A Fixed Deposit (FD) is an investment plan which offers customers a higher rate of interest than a mere Savings Account, till the date of maturity. The interest rate varies is often not more than 7.25% and its tenure can range from seven days and go on to 10 years.
17. Recurring Deposit
Recurring Deposit (RD) is an investment plan where you deposit a fixed amount every month and earn interest ranging from 4-8%. The minimum terms is 6 months and goes all the way up to 10 years. This is generally prefered by people to build up their savings.
18. Demat account
A demat account is a service in a bank that allows its customers to hold shares electronically. It is just like a bank account that is used to send and receive money, without actually using paper money. A demat account enables customers to buy and sell shares electronically in the stock market without actually exchanging physical share certificates.
The Public Provident Fund (PPF) scheme is a highly popular one, backed by the Indian government. It is an extremely safe scheme and comes with a competitive interest rate. Its returns are 100% tax-exempt. The minimum amount to be invested here is Rs. 500 and the maximum Rs. 1,50,000 in any financial year.
Against this, investors can take loans or withdraw money. At the end of the 15-year tenure, the investor’s account can be renewed for a further term. Resident Indians can open accounts in their names and on behalf of minors.
A passbook is a paper-made book that the bank issues to all its customers. It holds a record of all banking transactions the customer has done since the time he or she has become a customer of the bank. These days, bank officials use dot matrix or inkjet printers to update passbooks instead of the earlier method of hand writing accounts.
A bank challan is a form that a customer must fill and tender along with money that he wants to deposit in the bank. After receiving the money, the bank stamps, signs and delivers the challan back to the customer as an acknowledgment of the transaction so that he can keep it in his files.
A cheque is a banking document that orders a bank to pay an individual whose name and bank account number are on the cheque a certain amount of money. The person writing the cheque is the drawer, from whose bank account the money will be transferred or paid to the other person or organization or drawee. There are various types of cheques issued: self, bearer, crossed, uncrossed, post-dated, anti-dated, travellers and stale.
- Bearer cheque: A bearer cheque is the one that is payable to the bearer i.e. the person who presents the cheque. Some banks will ask you to submit ID proof before handing over the amount.
- Crossed cheque: When you draw two parallel at the top left corner of the cheque it becomes a crossed cheque. Such cheques cannot be encashed and the amount can be credited to the payee’s account only.
- Post Dated Cheque: A cheque which is dated in the future. Such cheques can only be presented on or after the specified date.
- Stale cheque: A cheque past its validity is called a stale cheque. Most cheques in India are valid for 3 months since they were written.
- Blank cheque: A cheque that is signed but has other fields like the amount left blank. The bearer can enter amount and present it to the bank.
- Self cheque: A cheque that the account holder issues to him/her. This can be done by writing “Self” in the Pay field.
- Multi-city Cheque: A Multi city cheque is a cheque which can be presented for payment at all branches of a bank.
- Travellers Cheque: These are fixed value cheques that are an alternative for cash used mostly while traveling. They are available in many denominations and you need to pay the full amount when buying them.
- Cancelled cheque: A cheque that has been crossed out with two lines and the word cancelled written across it is a cancelled cheques. It serves the purpose of proving that one has, in fact, an account with a particular bank.
23. Cheque clearing
This is also called bank clearance and involves moving cash from the bank in which a customer draws a cheque to the one in which it was deposited. These days, it means sending the digital form of the cheque to the other bank in question.
This is the clearing cycle and ends in the money being credited in the receiver’s bank account and debited from the giver’s bank account. If the sender of the cheque has insufficient funds, the cheque is returned as a dishonoured one, and it is said to have “bounced”.
Cheque Truncation System (CTS) is a system of cheque clearing, first begun by the Reserve Bank of India (RBI) to speed up cheque clearance. This stops the earlier method of sending the physical cheque to the other bank for clearing.
Now, with this system, an electronic image of the cheque is sent with all the necessary details to the other bank. This system results in time and cost savings and quicker fund transfers. Since January 1, 2019 most banks have stopped processing non-CTS cheques.
A bank customer with an overdraft facility can write cheques or withdraw cash from his account even when the balance is nil. This is a short-term credit facility and needs to be repaid within the agreed upon terms. When you use this facility your bank account is said to be “overdrawn”.
Equated Monthly Installment (EMI) is a fixed payment made by a borrower to the lender every month. The borrowed money along with its interest is divided in equal installments to pay off the loan.
Bankruptcy is a term for when a person or business cannot repay their outstanding debts to creditors. When you are in this position you can approach the court and file for bankruptcy. If the court finds you to be bankrupt it will appoint an officer who will try to sell your properties to pay back your debt.
28. Non Performing Assets
When the borrower stop paying interest or installment on a loan for 90 days or more it becomes a Non-Performing Asset (NPA). As of March 31, 2018 it was estimated that the total volume of gross NPA’s in the Indian economy stood at a massive Rs 10.35 lakh crore.
29. Repo rate
Similar to how you take a loan, banks too sometimes have to take a loan when short on funds. They, however, don’t go to other banks but go right to the top, the Reserve Bank of India (RBI). The RBI charges an interest on this loan and it is called the Repo Rate. The Repo rate has a direct impact on the economy and is frequently changed by the RBI.
- When the Repo rate is decreased it becomes cheaper for banks to borrow money so the benefits pass on to the consumers as lower interest rates on loans.
- When the Repo rate is increased the banks have to pay higher interest to the RBI so in turn they raise the interest rate on loans.
The Repo rate is also responsible for inflation. When there’s more money in the market the demand for goods and services will increase which results higher prices causing inflation. Now to control this, the RBI increases the Repo rate which makes borrowing more costly and thus reduces the money in the system.
Since we touched upon inflation in the last point we will end this list with it. Inflation is the long term rise in the prices of goods and services. When inflation is high you will be spending more on your purchases. As of this writing the inflation rate in India is 2.57%.
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