Financial Terms FAQ
Understanding financial terms helps you make better decisions. Learn what each term means and how it affects your money.
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1Bank Account Terms
Interest Rate (APY)
The annualized rate of return on your savings account, accounting for the frequency of compounding. It shows what you would earn in a year if the interest rate remained constant.
Example:
If you deposit $1,000 in an account with 2% interest rate, you'll earn $20.00 in the first year.
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Monthly Service Fee
A fixed monthly charge for maintaining your bank account. Some accounts waive this fee if you meet certain conditions.
Example:
A $5 monthly service fee means you pay $60 per year just to keep the account open.
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Minimum Opening Balance
The minimum amount of money you must deposit when first opening a bank account.
Example:
If the minimum opening balance is $150, you need to deposit at least $150 to open the account.
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Minimum Balance Service Fee
A fee charged when your account balance falls below a specified minimum amount.
Example:
If the minimum balance is $500 and you have $300, you might pay a $10 fee each month until you increase your balance.
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Teller Fee
A charge for using bank teller services instead of online or ATM banking.
Example:
Each time you visit a teller to deposit cash, you might pay $3-5 per transaction.
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Free Teller Transactions
The number of teller visits you can make each month without paying additional fees.
Example:
If you get 2 free teller transactions per month, your 3rd visit will incur a fee.
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2Credit Card Terms
Annual Fee
A yearly charge for having a credit card, regardless of how much you use it.
Example:
A $50 annual fee means you pay $50 every year just to have the card, even if you never use it.
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Annual Interest Rate
The interest rate charged on purchases when you don't pay your full balance each month. Your actual rate depends on your creditworthiness.
Example:
With a 19.99% annual interest rate, a $1,000 purchase would cost about $16.66 in interest per month if not paid in full.
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APR (Annual Percentage Rate)
An American term for the total cost of credit expressed as a yearly rate, including both the interest rate and any fees. In Barbados, we typically use "interest rate" or "purchase rate" instead.
Example:
If your interest rate is 19.99% and you pay a $25 annual fee, the APR might be around 20.5% when fees are included. Most Barbadian banks don't calculate or display APR.
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Cash Advance Rate
The interest rate for cash withdrawals from your credit card, usually higher than the purchase rate.
Example:
If the cash advance rate is 24.99%, withdrawing $100 in cash costs about $2.08 in interest per month.
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Late Payment Fee
A penalty charged when you don't make your minimum payment by the due date.
Example:
Missing your payment due date might result in a $25-35 late fee, plus interest charges.
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Credit Limit
The maximum amount you can borrow on your credit card at any time.
Example:
With a $5,000 credit limit, you can spend up to $5,000, but must pay it back over time.
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Minimum Payment
The smallest amount you must pay each month to keep your account in good standing.
Example:
If your balance is $1,000, your minimum payment might be $25 (usually 2-3% of the balance).
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3General Financial Terms
Compound Interest
Interest calculated on both the principal amount and previously earned interest.
Example:
If you earn 2% interest on $1,000, next month you earn interest on $1,020, not just the original $1,000.
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Overdraft Fee
A charge when you spend more money than you have in your account.
Example:
If you have $50 but spend $75, you might pay a $35 overdraft fee for the $25 overage.
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Foreign Transaction Fee
A charge for using your card outside your home country or in foreign currency. In Barbados, this includes the 2% Foreign Exchange Fee (FXF) applied by the Central Bank of Barbados.
Example:
Using your BBD card in the US incurs a 2% FXF plus any additional bank fees. A $100 purchase would cost $102 plus any bank charges.
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Foreign Exchange Fee (FXF)
A 2% fee applied by the Central Bank of Barbados on purchases of foreign currency and foreign currency transactions. This includes using credit/debit cards abroad, buying foreign cash, and wire transfers.
Example:
Converting $100 BBD to USD would cost $102 BBD due to the 2% FXF. However, converting foreign currency back to BBD is exempt from this fee.
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