13 Common Financial Terms Decoded for You With Explanations

Introduction

Is it hard for you to comprehend financial articles or banking agreements? It can be irritating to look for the meaning of most of the words while reading important financial news or going through a crucial document. Hence, it’s beneficial to be aware of the standard financial terms banks and financial institutions use.

List of 13 Financial Terms Which You Must Know

Here is a banking glossary that can help you decode various financial information, surveys, and agreements without being stuck to find out the meaning of financial or banking terms.

1. Fiscal Deficit

The fiscal deficit for a country is its GDP (Gross Domestic Product). It’s the difference between the expenditure and revenue of a government. Most nations make yearly targets to adhere to a certain GDP at the beginning of every financial year.

2. Inflation

Inflation is the rise in the prices of goods and services. A gradual increase in inflation decreases our money’s capacity to buy goods and services.

3. Credit History

Your credit history is the record of your credit behaviour in the past. A credit bureau collects this information from each individual and then provides a score between 300 to 900. A high credit score increases your chances of getting a loan.

4. Credit Rating

Credit rating is defined as the estimate of a person’s or an organisation’s reliability in fulfilling their financial commitment. Like a credit score, it is also decided based on the credit history. Thus it’s easy to confuse financial terms like credit score and credit rating.

They are all the same, but credit score is mainly given to individuals, and credit rating is generally used for organisations or groups.

5. Flexi Loan

A flexi loan is a new way of buying, but it is similar to the good old overdraft facility. A flexi loan is a preapproved credit limit that a bank provides you. Any amount from this limit can be withdrawn by you when you need it. You can prepay this anytime. It’s like a quick credit.

6. Collateral

Collateral is security you provide to a bank in exchange for a loan. It can be an asset like gold, home, land, etc. It reduces the risk for the lender as the lender gets the right to confiscate and auction the collateral in case of non-payment of the loan.

7. Fixed Rate

When you take a loan on a fixed rate of interest, it means the interest rate will be fixed for the entire loan tenure.

8. Floating Rate

Unlike fixed-rate, the floating rates may change during the tenure of the loan. These rates vary according to the changing norms of the interest rate of the economy.

9. No-frills Account

In banking terms, a no-frills account means a savings account that doesn’t require you to maintain a minimum balance. You can enjoy all the benefits of a savings account, such as net banking and electronic clearing services, without worrying about keeping a minimum balance in your account.

10. MICR Code

MICR stands for Magnetic Ink Character Recognition. Every bank and branch has a unique MICR code assigned by RBI, which helps identify the particular bank and the unit. MICR code is mentioned in the bottom right corner of every bank’s cheque book.

11. Cash Reserve Ratio (CRR)

This is the percentage of total bank deposits in cash. RBI has issued guidelines to banks for maintaining a minimum percentage of CRR.

12. APY

APY is the acronym for Annual Percentage Yield. It’s a financial term for the interest earned by you every year. It is similar to APR (Annual Percentage Rate). Compound interest is not included in APY.

13. Micro Finance

The loan provided to the impoverished class of society in urban as well as rural areas is known as micro finance. It helps poverty-stricken people to increase their level of income.

Author bio:

Shikha Ahuja is part of the content marketing team at KreditBee – India’s fastest personal loan platform where professionals can easily avail of personal loans in just a few minutes when in need of quick funds. Shikha writes to create awareness amongst her readers on topics related to loans, personal finance, and budgeting. Being a part of the FinTech industry keeps her on her toes, but she keeps herself grounded through yoga and meditation, and loves to host game nights during the weekends.

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