For those new to the financial world, the different terminology used can be confusing and overwhelming to take in at first. All the same, sharpening your financial literacy is the key towards planning and achieving your goals and making the smartest possible financial decisions for your situation. Banking terms and concepts are some of the first (and most important) words you’ll encounter, especially while you’re still new to handling your finances.

If you have a new open bank account from a digital bank like Maya and want to learn how to manage your money properly, you can start by brushing up on your banking terminology. Here are a few terms to keep in mind:

1) Maintaining Balance

The maintaining balance, also known as the minimum balance, is the minimum amount of money a bank account must have to remain open. If an account’s funds go below the maintaining balance, the bank may impose fees or penalties, which may either be charged monthly or based on the number of days the balance is below the requirement.

Take note that if an account is below the minimum balance for an extended period and the penalty fees are not paid, the bank may close the account. While some banks notify customers before closing an account, giving them the chance to pay any fees and add funds into their balance, they also reserve the right to close the account without any notification.

2) ADB

Average daily balance, or ADB, is the average amount of money in a deposit account every month. Some banks require an account to reach the minimum required ADB in order to keep it open, similar to a maintaining or minimum balance.

To calculate one month’s ADB, simply add up all of the balances at the end of each day for the entirety of the month and then divide it by the total number of days in the qualifying month. For example, if an account consistently only had PHP 2,000 from Day 1 to Day 30 of a 30-day month, the sum of the account’s daily balance would be PHP 60,000 (PHP 2,000 x 30 days). Dividing PHP 60,000 by the number of days in the month would result in an ADB of PHP 2,000 (PHP 60,000 / 30 days).

3) Savings Account

A savings account is a type of deposit account meant for funds that the account holder doesn't plan on spending right away. Not only is this a safe way to store any savings, but some banks also offer high yield savings accounts with competitive interest rates, allowing account holders to grow their savings. However, take note that the amount of interest earned depends on how much money is still left in the account.

While savings account holders can still deposit and withdraw money, some banks do impose a withdrawal limit on savings accounts, either by the amount of money withdrawn or by the number of times a withdrawal is made in a certain period.

4) Checking Account

On the other hand, a checking account is for holding funds that are for day-to-day expenses. They typically do not earn interest, but they also typically don’t have deposit or withdrawal limits. A checking account also comes with a checkbook for writing paper checks, as well as a debit card that the account holder can use to withdraw funds at an ATM or pay for purchases through a card terminal.

5) Savings Account Interest Rate

The savings account interest rate is the amount of money a bank pays on the money deposited in a savings account. Interest rates are usually expressed in percentages per year, and so the amount of money in an account directly affects how much interest it earns. For example, an account with PHP 1,000 and a 1% interest rate would yield PHP 1,010 at the end of the year (.01 x PHP 1,000).

Compound interest is interest calculated on both the principal and earned interest from previous periods. For example, the account with PHP 1,010 at the end of Year 1 would have PHP 1,010.10 at the end of year 2 (.01 x PHP 1,010).

6) Online and Mobile Banking

Thanks to today’s technology, banking has become easier and more accessible than ever. Online banking allows bank users to log into their accounts, view balances, enter transactions, and do other self-service banking through the computer. Mobile banking allows users to do the same through smartphones, usually through the bank’s own app.

Expand Your Financial Literacy Further

The terminology discussed in this article is only scratching the surface of the financial terms and concepts that you can learn. While these terms mostly focus on personal banking, there are many more that are used in investing, credit, debt, taxation, and many more.

Consider looking for other ways to expand your financial knowledge, such as through webinars or free online resources. This is vital to ensure that you make wiser decisions that will propel you towards your financial goals.

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