Terms

Terms summary:

• Terms and conditions explain the rules of a financial product.

• Annual percentage rates, fees, and minimum balance requirements are terms that some financial products have.

• Terms are legally binding and can only be changed with advance notice from the financial institution.

Terms Definition and Meaning

The terms of a financial product provide the rules and guidelines, such as the rates, fees, and benefits. Loans, credit cards, bank accounts, and other financial products all have terms and conditions. You can typically find the terms on the web page for the financial product or included in paperwork sent by mail when you sign up.

Key Aspects of Financial Terms

Terms are an official document related to a financial product. The terms explain the agreement between the product provider, normally a bank or lender, and the consumer, you. In the terms, you can get all the details on how the financial product works.

To read the terms, go to the web page for the financial product you’re interested in. Terms are generally available at the bottom of the page in the fine print or through a link.

Terms are legally binding for both you and the product provider. The financial institution generally needs to provide advance notice if it plans to change the terms on a product you have.

Types of Financial Terms

There are many types of terms and conditions for financial products. Here are some of the most common types you can expect to see for bank accounts, credit cards, and loans.

Annual percentage rate

Annual percentage rate (APR) is a percentage that expresses the total amount a lender charges you per year for borrowing money, including the interest rate and any additional fees. Loans, credit cards, and lines of credit all have an APR. Check the APR to determine how expensive a credit product will be on an annual basis and to compare multiple loans or credit cards.

Annual percentage yield

Annual percentage yield (APY) is a percentage that expresses the total amount of interest a financial product pays per year. APY is part of the terms and conditions for banking products, including checking accounts, savings accounts, and certificates of deposit (CDs).

Balance calculation method

Credit card companies have balance calculation methods to determine your card balance and calculate interest charges. For example, actual/365 interest means the lender takes the annual rate and divides it by 365, and then multiplies the answer by the number of days in the month to determine how much to charge you that month. For actual/360, the lender divides the rate by 360 and uses the result to calculate your interest.

Your lender’s interest calculation method will be disclosed in the terms.

Deposit availability

Bank accounts have a funds availability policy that explains how soon your deposits are available depending on the deposit method.

Fees

Most financial products have at least some fees. These can include:

• Monthly maintenance fees for bank accounts

• Annual fees for credit cards

• Foreign transaction fees for credit and debit cards

• Out-of-network ATM fees for checking accounts

• Overdraft fees for checking accounts

• Origination fees for loans

• Prepayment penalties for loans

Fees vary, even among the same type of financial product. For example, some bank accounts don’t charge monthly maintenance fees, and some credit cards don’t charge annual fees or even foreign transaction fees.

Loan amounts

Lenders may include the minimum and maximum amounts you can borrow in the terms and conditions.

Minimum balance/deposit requirements

Banks may require a minimum starting deposit to open an account, that you maintain a minimum balance in your account, or both. If an account has a minimum balance requirement, the bank could charge you a fee for going below that amount.