Financial Glossary
Use this glossary to understand common financial terms before reading guides or using calculators.
Adjustable-Rate Mortgage (ARM)A home loan with an interest rate that can change after an initial fixed period.Annual FeeA yearly charge for holding a credit card or financial product.Balance TransferMoving debt from one credit account to another, often to pursue a lower promotional rate.Brokerage AccountAn account used to buy and sell investments such as stocks, bonds, ETFs, and mutual funds.Cash FlowThe money coming in and going out over a period of time.Certificate of Deposit (CD)A deposit account that usually pays a fixed rate for a set term.Compound InterestInterest earned on both the original amount and prior interest.Credit LimitThe maximum amount a lender allows you to borrow on a credit account.Credit ReportA record of borrowing and repayment information compiled by credit bureaus.Credit ScoreA numeric estimate of credit risk based on credit report information.Debt AvalancheA payoff method that targets the highest-interest debt first.Debt SnowballA payoff method that targets the smallest balance first.Direct DepositElectronic payment sent directly into a bank account.Down PaymentMoney paid upfront toward a purchase, usually a home or vehicle.Emergency SavingsCash reserved for unexpected expenses or income disruption.Fixed-Rate MortgageA home loan with an interest rate that stays the same for the life of the loan.Grace PeriodThe time between a credit card statement closing date and payment due date when interest may be avoided.Hard InquiryA credit check that may affect a credit score because it is tied to a credit application.High-Yield Savings AccountA savings account that usually pays a higher rate than a traditional savings account.IRAAn individual retirement account used to save for retirement with tax advantages.Interest RateThe percentage charged for borrowing or earned on saving before some fees or compounding effects.Loan TermThe amount of time scheduled to repay a loan.Minimum PaymentThe smallest required payment due on a credit account for a billing cycle.Money Market AccountA deposit account that may combine savings features with limited transaction access.Payment HistoryA record of whether debt payments are made on time.PrincipalThe original amount borrowed or invested before interest.Rate LockAn agreement to hold a mortgage interest rate for a specific period.Roth IRAA retirement account funded with after-tax money that may allow qualified tax-free withdrawals.Soft InquiryA credit check that does not affect credit scores.Taxable IncomeIncome remaining after allowed adjustments and deductions are applied.APYAPY explained in plain English with related calculators and guides.APRAPR explained in plain English with related calculators and guides.Debt-to-Income RatioDebt-to-Income Ratio explained in plain English with related calculators and guides.PMIPMI explained in plain English with related calculators and guides.Emergency FundEmergency Fund explained in plain English with related calculators and guides.Credit UtilizationCredit Utilization explained in plain English with related calculators and guides.AmortizationAmortization explained in plain English with related calculators and guides.EscrowEscrow explained in plain English with related calculators and guides.Loan-to-Value RatioLoan-to-Value Ratio explained in plain English with related calculators and guides.Effective Interest RateThe interest rate after accounting for compounding effects over a period.Nominal Interest RateThe stated interest rate before accounting for compounding or inflation.Real ReturnInvestment return after adjusting for inflation.Payment ShockA sharp increase in monthly payment after a rate change, escrow change, or promotional period ends.Escrow ShortageWhen an escrow account does not have enough money to cover expected tax or insurance bills.Principal and InterestThe portion of a loan payment that repays borrowed money and interest charges.Prepayment PenaltyA fee some lenders charge if a borrower pays off a loan early.Origination FeeA fee charged by a lender for creating or processing a loan.Debt ServiceTotal required debt payments over a period, often monthly or annually.Cash ReserveMoney kept available for emergencies, upcoming expenses, or liquidity needs.Savings RateThe percentage of income saved or invested over a period.Billable HoursHours a freelancer or business can charge to a client.Tax CreditAn amount that may reduce tax liability, subject to tax rules.Tax DeductionAn amount that may reduce taxable income.Tax WithholdingMoney withheld from income and sent toward expected taxes.Health Savings Account (HSA)A tax-advantaged account available with certain high-deductible health plans.Secured Credit CardA credit card usually backed by a refundable security deposit.Credit Builder LoanA small installment loan designed to help establish payment history.Buy Now Pay LaterA short-term financing method that splits purchases into installments.Student Loan InterestInterest charged on student loan balances.Refinance FeeA cost associated with replacing one loan with another.Gross IncomeIncome before taxes, benefits, and deductions.Net IncomeIncome remaining after taxes and deductions.Variable ExpenseA cost that changes from month to month.Fixed ExpenseA recurring expense that is usually similar each period.Sinking FundSavings set aside gradually for a known future expense.Employer MatchMoney an employer contributes to a retirement plan based on employee contributions.Withdrawal RateThe percentage of savings withdrawn over a period, often used in retirement planning.Sequence of Returns RiskThe risk that poor investment returns early in retirement can reduce portfolio longevity.Money Market FundAn investment fund that holds short-term debt securities and is not the same as a bank deposit account.