Deposit rate, deposit guarantee, Annual Percentage Yield, and overdraft protection… these are just a few key terms that you often hear about when people discuss savings and growing their money. For a first-time deposit account applicant, it can be difficult to know what exactly you need to know to understand what you are signing up for. However, in this day and age when inflation and the cost of living are high, deposit accounts are a necessity to protect yourself and make the most of your funds.

If you are looking to open an account and don’t know how to start, one of the best things you can do is equip yourself with the knowledge of financial terminology with our guide. Know what you are signing up for and agreeing to is essential, and even though you have the guidance of banks and online providers, there is nothing like having first-hand knowledge.

Key terminology related to deposit accounts

Deposit rate

One of the first terms you will come across when you compare deposit accounts is deposit rate. What is a deposit rate? Also known as interest or savings rate, deposit rate refers to the percentage of interest that a bank or financial institution pays to deposit account holders. It represents the return that you can get for keeping your money with the bank or institution, and it is usually expressed as a percentage of your deposited amount on an annual basis.

Deposit rates vary depending on the type of account you hold your funds in, the market conditions, and the institution that you work with. Generally, higher risk or longer-term deposit accounts offer higher deposit rates, while lower-risk or shorter-term accounts offer lower rates.

Annual Percentage Yield (APY)

Closely related to deposit rate is the Annual Percentage Yield (APY), which is a more comprehensive measure of the return on a deposit account – while accounting for the effect of compounding. APY represents the total interest earned on the deposited funds over a year, including the reinvestment of interest. APY also looks at the frequency at which interest is compounded, be it annually, semi-annually, quarterly, or monthly.

Compared to the deposit rate, APY can help deposit account applicants understand their potential earnings a bit more clearly, including any compounding effects.

Overdraft protection

Overdraft refers to a situation when the deposit account holder withdraws or spends more money than the funds available in the account balance. This means the balance goes below zero, into the negative. Typically, deposit accounts are not designed to allow overdrafts, as their main purpose is to hold funds. Therefore, account holders may not be able to withdraw funds beyond their available balance. Nevertheless, there may be banks or providers that provide overdraft protection, that prevents account holders from making transactions beyond their available funds.

Early withdrawal penalty

Time deposit accounts, such as Certificates of Deposit, often have a fixed term. Account holders may benefit from a higher interest rate in exchange for agreeing to keep their funds in the account for a period. If they decide to withdraw money from the account before the maturity date, they may incur an early withdrawal penalty, which is a small fee charged by the account provider for violating the agreed-upon terms.

Certificate of Deposit (CD)

This takes us smoothly to the next point – what are Certificates of Deposit (CDs)? A CD is a time deposit account with a fixed term and a fixed interest rate. CD holders agree to hold a specific amount of money for a predetermined period, and they may incur an early withdrawal penalty or loss of interest if they break the agreement.

Direct deposit

Direct deposit is a feature of deposit accounts that enable employers or government agencies to deposit funds directly into your account. For example, when you receive your pay cheque each month, your employer may be able to deposit it into your account straight away. This is a convenient way for many people to receive their income. It can also be a way for those on government benefits to receive the benefits.

Account statement

An account statement is a periodic document provided by the bank or account provider, and it summarises the activity and balances in an account over a period, such as over the past month. They can be received in the post or electronically, and it is essential for account holders to regularly review their statements to ensure it is accurate and their fund’s performance is being closely monitored.

Final words

These are just a few examples of terminology related to deposit accounts. In Sweden, the most popular banks are Swedbank, Nordea, SEB (Skandinaviska Enskilda Banken), Handelsbanken, and Danske Bank. If you are eager to open an account, you should contact your bank and compare providers and options to make sure you find one that best suits your financial situation and objectives.