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Terminology

Accrued Interest

Interest that has been earned but not yet paid.


Adjustable-Rate Mortgages (ARMS):

Also known as variable-rate mortgages. The initial interest rate is usually below that of conventional fixed-rate loans. The interest rate may change over the life of the loan as market conditions change.

There is typically a maximum (or ceiling) and a minimum (or floor) defined in the loan agreement. If interest rates rise, so does the loan payment. If interest rates fall, the loan payment may as well.

 

Adverse Action:

Under the Equal Credit Opportunity Act, a financial institution’s refusal to grant credit on the terms requested, termination of an existing account, or an unfavorable change in an existing account.


Amortization:

The process of reducing debt through regular installment payments of principal and interest that will result in the payoff of a loan at its maturity

 

Annual Percentage Rate (APR):

The cost of credit on a yearly basis, expressed as a percentage.


Annual Percentage Yield (APY):

A percentage rate reflecting the total amount of interest paid on a deposit account based on the interest rate and the frequency of compounding for a 365-day year.

 

Automated Clearing House (ACH):

A computerized facility used by member depository institutions to electronically combine, sort, and distribute inter-bank credits and debits. ACHs process electronic transfers of government securities and provide customer services, such as direct deposit of customers' salaries and government benefit payments (i.e., social security, welfare, and veterans' entitlements), and preauthorized transfers.

 

Availability Date:

Bank's policy as to when funds deposited into an account will be available for withdrawal.

 

Available Balance:

The balance of an account less any hold, uncollected funds, and restrictions against the account.

Available Credit:

The difference between the credit limit assigned to a cardholder account and the present balance of the account.

 

Billing Cycle:

The time interval between the dates on which regular periodic statements are issued.

 

Billing Date:

The month, date, and year when a periodic or monthly statement is generated. Calculations have been performed for appropriate finance charges, minimum payment due, and new balance.

 

Cashier's Check:

A check drawn on the funds of the bank, not against the funds in a depositor's account. However, the depositor paid for the cashier's check with funds from their account. The primary benefit of a cashier's check is that the recipient of the check is assured that the funds are available.

 

Certificate of Deposit:

A negotiable instrument issued by a bank in exchange for funds, usually bearing interest, deposited with the bank.


Closing Costs:

The expenses incurred by sellers and buyers in transferring ownership in real property. The costs of closing may include the origination fee, discount points, attorneys' fees, loan fees, title search and insurance, survey charge, recordation fees, and the credit report charge.

 

Collateral:

Assets that are offered to secure a loan or other credit. For example, if you get a real estate mortgage, the bank's collateral is typically your house. Collateral becomes subject to seizure on default.

 

Collected Funds:

Cash deposits or checks that have been presented for payment and for which payment has been received.


Conventional Fixed Rate Mortgage:

A fixed-rate mortgage offers you a set interest rate and payments that do not change throughout the life, or "term," of the loan.

A conventional fixed-rate loan is fully paid off over a given number of years-usually 15, 20, or 30. A portion of each monthly payment goes towards paying back the money borrowed, the "principal"; the rest is "interest."

 

Co-Signer:

An individual who signs the note of another person as support for the credit of the primary signer and who becomes responsible for the obligation. (Also known as a Co-maker.)

 

Credit Application:

A form to be completed by an applicant for a credit account, giving sufficient details (residence, employment, income, and existing debt) to allow the seller to establish the applicant's creditworthiness. Sometimes, an application fee is charged to cover the cost of loan processing.


Credit Bureau/Credit Reporting Agency:

An agency that collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. Typical clients include banks, mortgage lenders, credit card companies, and other financing companies.

 

Credit Report:

A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

 

Credit Score:

A number, roughly between 300 and 800, that measures an individual's credit worthiness. The most well-known type of credit score is the FICO® score. This score represents the answer from a mathematical formula that assigns numerical values to various pieces of information in your credit report.

Banks use a credit score to help determine whether you qualify for a particular credit card, loan, or service.

 

Cut-Off Time:

A time of day established by a bank for receipt of deposits. After the cut-off time, deposits are considered received on the next banking day.  Cornerstone Bank’s cut-off time is 4:00 pm.

 

Debit:

A debit may be an account entry representing money you owe a lender or money that has been taken from your deposit account.

 

Debit Card:

A debit card allows the account owner to access their funds electronically. Debit cards may be used to obtain cash from automated teller machines or purchase goods or services using point-of-sale systems. The use of a debit card involves immediate debiting and crediting of consumers' accounts.

 

Deferred Payment:

A payment postponed until a future date.

 

Delinquency:

A debt that was not paid when due.

 

Demand Deposit:

A deposit of funds that can be withdrawn without any advance notice.

 

Deposit Slip:

An itemized memorandum of the cash and other funds that a customer presents to the bank for credit to his or her account.

 

Direct Deposit:

A payment that is electronically deposited into an individual's account at a depository institution.

 

Electronic Banking:

A service that allows an account holder to obtain account information and manage certain banking transactions through a personal computer via the financial institution's Web site on the Internet. (This is also known as Internet or online banking.)

 

Electronic Check Conversion:

Electronic check conversion is a process in which your check is used as a source of information-for the check number, your account number, and the number that identifies your financial institution. The information is then used to make a one-time electronic payment from your account-an electronic fund transfer. The check itself is not the method of payment.

 

Electronic Funds Transfer (EFT):

The transfer of money between accounts by consumer electronic systems-such as automated teller machines (ATMs) and electronic payment of bills-rather than by check or cash. (Wire transfers, checks, drafts, and paper instruments do not fall into this category.)

 

Encoding:

The process used to imprint or inscribe MICR characters on checks, deposits, and other financial instruments. [Magnetic Ink Character Recognition (MICR) is a character-recognition technology adopted mainly by the banking industry to facilitate the processing of checks. Each check in encoded at the bottom with the dollar amount of the check. If that information is entered incorrectly, there is an encoding error.]

 

Federal Deposit Insurance Corporation (FDIC):

A government corporation that insures the deposits of all national and State banks that are members of the Federal Reserve System.

 

Federal Emergency Management Agency (FEMA):

Federal agency responsible for the emergency evaluation and response to all disasters, natural and man-made. FEMA oversees the administration of flood insurance programs and the designation of certain areas as flood prone.

 

Federal Reserve System:

The central bank of the United States. The Fed, as it is commonly called, regulates the U.S. monetary and financial system. The Federal Reserve System is composed of a central governmental agency in Washington, D.C. (the Board of Governors) and twelve regional Federal Reserve Banks in major cities throughout the United States.

 

Fiduciary:

Undertaking to act as executor, administrator, guardian, conservator, or trustee for a family trust, authorized trust, or testamentary trust, or receiver or trustee in bankruptcy.

 

Finance Charge:

The total cost of credit a customer must pay on a consumer loan, including interest. The Truth in Lending Act requires disclosure of the finance charge.

 

First Mortgage:

A real estate loan which is in a first lien position, taking priority over all other liens. In case of a foreclosure, the first mortgage will be repaid before any other mortgages.

 

Fixed Rate Loan:

The interest rate and the payment remain the same over the life of the loan. The consumer makes equal monthly payments of principal and interest until the debt is paid in full.

 

Fixed Rate Mortgage:

A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

 

Float:

1) The amount of uncollected funds represented by checks in the possession of one bank but drawn on other banks. 2) The time that elapses between the day a check is deposited and the day it is presented for payment to the financial institution on which it is drawn.

 

Flood Insurance:

Flood insurance protects against water from an overflowing river or a hurricane's tidal surge and also covers damage from water that builds up during storms

 

Foreclosure:

A legal process in which property that is collateral or security for a loan may be sold to help repay the loan when the loan is in default.

 

Foreign Transaction Fees:

A fee assessed by your bank for making a transaction at another bank's ATM.

 

Forged Check:

A check on which the drawer's signature has been forged.

 

Forgery:

The fraudulent signing or alteration of another's name to an instrument such as a deed, mortgage, or check. The intent of the forgery is to deceive or defraud.

 

Garnishment/Garnish:

A legal process that allows a creditor to remove funds from your bank account to satisfy a debt that you have not paid. If you owe money to a person or company, they can obtain a court order directing your bank to take money out of your account to pay off your debt.

 

Guarantor:

A party who agrees to be responsible for the payment of another party's debts should that party default.

 

Hold:

Used to indicate that a certain amount of a customer's balance may not be withdrawn until an item has been collected, or until a specific check or debit is posted.

 

Home Equity Line of Credit (HELOC):

A line of credit secured by the equity in a consumer's home. It can be used for home improvements, debt consolidation, and other major purchases. Interest paid on the loan is generally tax deductible (consult a tax advisor to be sure).

 

Home Equity Loan:

A home equity loan allows you to tap into your home's built-up equity, which is the difference between the amount that your home could be sold for and the amount that you still owe.

Homeowners often use a home-equity loan for home improvements, to pay for a new car, or to finance their child's college education. The interest paid is usually tax-deductible.

Because the loan is secured by your home's equity, if you default, the bank may foreclose on your house and take ownership of it.

This type of loan is sometimes referred to as a second mortgage or borrowing against your home.


Individual Retirement Account (IRA):

A retirement savings program for individuals to which yearly tax-deductible contributions up to a specified limit can be made. The amount contributed is not taxed until withdrawn. Withdrawal is not permitted without penalty until the individual reaches age 59 1/2.

 

Insufficient Funds:

When a depositor's checking account balance is inadequate to pay a check presented for payment.

 

Insured Deposits:

Deposits held in financial institutions that are guaranteed by the Federal Deposit Insurance Corporation (FDIC) against loss due to bank failure.

 

Interest:

The term interest is used to describe the cost of using money, a right, share, or title in property.

 

Interest Rate:

The amount paid by a borrower to a lender in exchange for the use of the lender's money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures.

 

Late Charge:

The fee charged for delinquent payment on an installment loan, usually expressed as a percentage of the loan balance or payment.

 

Line of Credit:

A pre-approved loan authorization with a specific borrowing limit based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit.

 

Loan-to-Value Ratio (LTV):

The ratio of the loan principal (amount borrowed) to the appraised value (selling price). For example, on a $100,000 home, with a mortgage loan principal of $80,000, the loan-to-value ratio is 80 percent. The LTV will affect programs available to the borrower; generally, the lower the LTV, the more favorable the program terms offered by lenders.

 

Loan Fee:

A fee charged by a lender to make a loan (in addition to the interest charged to the borrower).

 

Loan Proceeds:

The net amount of funds that a lending institution disburses under the terms of a loan, and which the borrower then owes.

 

Local Check:

A check payable by, at, or through a bank in the same check processing region as the location of the branch of the depository bank. The depository bank is the bank into which the check was deposited. As of February 27, 2010, the Federal Reserve consolidated its checking processing centers into one processing center. Therefore, all checks are now considered local.

 

Minimum Balance:

The amount of money required to be on deposit in an account to qualify the depositor for special services or to waive a service charge.

 

Money Market Deposit Account:

A savings account that offers a higher rate of interest in exchange for larger than normal deposits. Insured by the FDIC, these accounts have limits on the number of transactions allowed and may require higher balances to receive the higher rate of interest.

 

Mortgage:

A debt instrument used in a real estate transaction where the property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to pay off the loan.

 

Mortgage Loan:

A loan made by a lender to a borrower for the financing of real property.

 

Mortgagee:

The lender in a mortgage loan relationship.

 

Mortgagor:

The borrower in a mortgage loan relationship. (Property is used as collateral to make payment.)

 

Official Check:

A check drawn on a bank and signed by an authorized bank official. (Also known as a cashier's check.)

 

Offset, Right of:

Banks' legal right to seize funds that a guarantor or debtor may have on deposit to cover a loan in default. It is also known as right of setoff

 

Online Banking:

A service that allows an account holder to obtain account information and manage certain banking transactions through a personal computer via the financial institution's web site on the Internet. (This is also known as Internet or electronic banking.)

 

Outstanding Check:

A check written by a depositor that has not yet been presented for payment to or paid by the depositor's bank.

 

Overdraft:

When the amount of money withdrawn from a bank account is greater than the amount actually available in the account, the excess is known as an overdraft, and the account is said to be overdrawn.

 

Overdraw:

To write a check for an amount that exceeds the amount on deposit in the account.

 

Over limit:

An open-end credit account in which the assigned dollar limit has been exceeded.

 

Payment Due Date:

The date on which a loan or installment payment is due. It is set by a financial institution. Any payment received after this date is considered late; fees and penalties can be assessed.

 

Payoff:

The complete repayment of a loan, including principal, interest, and any other amounts due. Payoff occurs either over the full term of the loan or through prepayments.

 

Periodic Rate:

The interest rate described in relation to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit per day.

 

Periodic Statement:

The billing summary produced and mailed at specified intervals, usually monthly.

 

Personal Identification Number (PIN):

Generally a four-character number or word, the PIN is the secret code given to credit or debit cardholders enabling them to access their accounts. The code is either randomly assigned by the bank or selected by the customer. It is intended to prevent unauthorized use of the card while accessing a financial service terminal.

 

Point of Sale (POS):

1) The location at which a transaction takes place. 2) Systems that allow bank customers to effect transfers of funds from their deposit accounts and other financial transactions at retail establishments.

 

Power of Attorney:

A written instrument which authorizes one person to act as another's agent or attorney. The power of attorney may be for a definite, specific act, or it may be general in nature. The terms of the written power of attorney may specify when it will expire. If not, the power of attorney usually expires when the person granting it dies.

Some institutions require that you use the bank's power of attorney forms. (The bank may refer to this as a Durable Power of Attorney: The principal grants specific rights to the agent.)

 

Preauthorized Electronic Fund Transfers:

An EFT authorized in advance to recur at substantially regular intervals.

 

Preauthorized Payment:

A system established by a written agreement under which a financial institution is authorized by the customer to debit the customer's account in order to pay bills or make loan payments.

 

Prepayment Penalty:

A penalty imposed on a borrower for repaying the loan before its due date. (In the case of a mortgage, this applies when there is not a prepayment clause in the mortgage note to offset the penalty.)

 

Revolving Credit:

A credit agreement (typically a credit card) that allows a customer to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due. (Also called a charge account or open-end credit.)

 

Right of Rescission:

Right to cancel, within three business days, a contract that uses the home of a person as collateral, except in the case of a first mortgage loan. There is no fee to the borrower, who receives a full refund of all fees paid. The right of rescission is guaranteed by the Truth in Lending Act (TILA).

 

Roth IRA

An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal

 

Safekeeping:

A service provided by banks where securities and valuables are protected in the vaults of the bank for customers.

 

Satisfaction of Mortgage:

A document issued by a mortgagee (the lender) when a mortgage is paid in full.

 

Service Charge:

A charge assessed by a depository institution for processing transactions and maintaining accounts.

 

Signature Card:

A card signed by each depositor and customer of a bank which may be used as a means of identification. The signature card represents a contract between the bank and the depositor.

 

Stale-Dated Check:

Presented to the paying bank 180 days (6 months) or more after the original issue date. Banks are not required by the Uniform Commercial Code to honor stale-dated checks and can return them to the issuing bank unpaid. The maker of a check can discourage late presentment by writing the words "not good after X days" on the back of the check.

 

Stop Payment:

An order not to pay a check that has been issued but not yet cashed. If requested soon enough, the check will not be debited from the payer's account. Most banks charge a fee for this service.

 

Substitute Check:

A substitute check is a paper copy of the front and back of the original check. A substitute check is slightly larger than a standard personal check so that it can contain a picture of your original check.

A substitute check is legally the same as the original check if it accurately represents the information on the original check and includes the following statement: "This is a legal copy of your check. You can use it the same way you would use the original check." The substitute check must also have been handled by a bank.

Substitute checks were created under Check 21, the Check Clearing for the 21st Century

 

Uniform Gift to Minors Account:

A UGMA provides a child under the age of 18 (a minor) with a way to own investments. The money is in the minor's name, but the custodian (usually the parent) has the responsibility to handle the money in a prudent manner for the minor's benefit. The parent cannot withdraw the money to use for his or her own needs.   The age is dictated by each state.   In North Dakota, the age is 21.

 

Variable Rate:

Any interest rate or dividend that changes on a periodic basis.

 

Wire Transfer:

A transfer of funds from one point to another by wire or network such the Federal Reserve Wire Network (also known as FedWire).