FINANCIAL GLOSSARY

Financial TermsGlossary

160 terms

Plain-English definitions for the most important financial terms. From mortgage basics to investing concepts.

Mortgage & Home Loans

20 terms

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

Down PaymentThe cash you pay upfront when buying a home, which becomes your initial equity in the property.

PrincipalThe original amount of money borrowed on a mortgage loan, or the outstanding balance remaining unpaid.

Interest RateThe percentage charged by a lender for borrowing mortgage funds, representing the annual cost of credit before fees.

APRA broader measure of the cost of borrowing mortgage money, incorporating the interest rate, broker fees, and closing costs.

Fixed-Rate MortgageA home loan featuring a constant interest rate that never changes over the entire lifespan of the loan.

Adjustable-Rate Mortgage (ARM)A mortgage loan with an interest rate that is fixed for an initial period and then adjusts periodically based on market indexes.

AmortizationThe process of paying off a mortgage over time through regular, structured payments split between principal and interest.

Credit & Debt

20 terms

Credit ScoreA three-digit number that tells lenders how likely you are to repay borrowed money.

Credit ReportA record of your borrowing history, including accounts, payments, and public records.

FICO ScoreThe primary credit scoring brand developed by Fair Isaac Corporation, used by over 90% of U.S. lending institutions.

Credit UtilizationThe ratio of a borrower's outstanding revolving credit card balances compared to their total available credit limit.

Hard InquiryA credit report check initiated by a lender when a consumer applies for new credit, which can affect credit scores.

Soft InquiryA credit report check for non-lending purposes, such as background checks or pre-approved offers, which does not affect credit scores.

Credit LimitThe maximum amount of revolving credit a lender permits a borrower to carry on a credit card or line of credit.

Minimum PaymentThe lowest amount a borrower must pay on a credit account each month to keep the account current and avoid late fees.

Investing & Markets

20 terms

StockA financial security representing a fractional share of ownership in a corporation, conveying voting rights and claims on assets.

BondA debt security representing a loan made by an investor to a borrower, typically a corporation or government agency.

ETFAn investment fund trading on stock exchanges, holding assets like stocks or bonds, and tracking specific indexes.

Mutual FundA pooled investment vehicle managed by professionals that buys a diversified portfolio of securities, priced once daily.

Index FundA mutual fund or ETF designed to track the performance of a specific market index, offering passive diversification at low cost.

DividendA distribution of a portion of a corporation's earnings to its shareholders, typically paid in cash or additional shares.

Capital GainAn increase in the value of a capital asset, such as stock or real estate, realized when the asset is sold for a profit.

PortfolioA collection of financial investments, such as stocks, bonds, cash equivalents, and alternative assets, held by an investor.

Retirement

20 terms

401(k)An employer-sponsored, tax-advantaged retirement savings plan defined under Section 401(k) of the Internal Revenue Code.

IRAAn Individual Retirement Account that allows individuals to save for retirement with tax-free growth or on a tax-deferred basis.

Roth IRAAn Individual Retirement Account funded with after-tax contributions, offering tax-free growth and tax-free withdrawals in retirement.

Traditional IRAAn Individual Retirement Account funded with pre-tax or tax-deductible contributions, with taxes deferred until withdrawal.

Roth 401(k)An employer-sponsored retirement account that combines the high contribution limits of a 401(k) with the tax-free withdrawals of a Roth IRA.

RMDThe minimum amount that retirement account owners must withdraw annually starting at age 73 to avoid tax penalties.

VestingThe process by which an employee earns non-forfeitable ownership of employer-provided contributions to a retirement plan.

Employer MatchContributions made by an employer to an employee's retirement account, matching a portion of the employee's elective contributions.

Taxes

20 terms

Taxable incomeThe portion of an individual's gross income that is subject to federal income tax after all deductions are applied.

Tax bracketThe range of taxable income levels subject to a specific tax rate under the progressive federal income tax system.

Marginal tax rateThe tax rate applied to the last dollar of a taxpayer's taxable income, corresponding to their highest tax bracket.

Effective tax rateThe average rate at which a taxpayer's income is taxed, calculated by dividing total tax liability by total income.

Standard deductionA flat dollar amount that reduces taxable income, which taxpayers can claim without itemizing individual expenses.

Itemized deductionsAllowable individual expenses that taxpayers list on Schedule A to reduce their Adjusted Gross Income.

Tax creditA dollar-for-dollar reduction of a taxpayer's actual tax liability, more valuable than a deduction of the same amount.

Tax deductionAn expense that reduces a taxpayer's taxable income, lowering tax liability based on their marginal tax rate.

Personal Finance Basics

20 terms

Net WorthThe total value of an individual's or entity's assets minus all outstanding liabilities, serving as a primary metric of financial health.

BudgetA financial plan that estimates income and allocates it to savings, debt payoff, and essential and discretionary expenses over a set period.

Emergency FundA liquid reserve of money set aside specifically to cover unexpected and essential costs, preventing the need to accumulate high-interest debt.

Cash FlowThe net amount of cash and cash equivalents being transferred in and out of a household, business, or investment portfolio.

Savings RateThe percentage of an individual's or household's disposable income that is saved rather than consumed.

InflationThe general increase in prices and fall in the purchasing value of money, primarily measured by the Consumer Price Index (CPI-U).

Purchasing PowerThe financial capacity of a unit of currency to buy goods and services, which systematically declines as price inflation rises.

Cost of LivingThe average cost of maintaining a basic standard of living, covering essentials like housing, food, taxes, and healthcare.

Banking

20 terms

Checking AccountA highly liquid transactional deposit account held at a bank, allowing for frequent deposits and immediate withdrawals.

Savings AccountAn interest-bearing deposit account held at a financial institution, designed for accumulating funds with high liquidity.

APY (Annual Percentage Yield)The real annual rate of return earned on a deposit account, accounting for the compounding of interest over one year.

CD (Certificate of Deposit)A time deposit product offering a fixed interest rate for a specific term, subject to penalties for early withdrawal.

Money Market AccountA hybrid deposit account offering higher interest rates and limited transactional features like check-writing.

OverdraftAn account status occurring when a transaction exceeds the available account balance, resulting in a negative balance.

FDIC InsuranceU.S. government backing that protects deposit accounts at insured banks up to $250,000 per depositor.

Wire TransferAn immediate electronic transfer of funds between financial institutions, typically executed via the Fedwire network.

Insurance

20 terms

DeductibleThe amount a policyholder must pay out of pocket for covered claims before their insurance coverage begins to pay.

PremiumThe periodic payment made by a policyholder to keep an insurance policy active and maintain coverage.

CopayA fixed dollar amount paid by an insured individual for a specific medical service, visit, or prescription drug.

CoinsuranceThe percentage-based sharing of covered medical costs between the policyholder and the insurer, after the deductible is met.

Out-of-Pocket MaximumThe annual limit on a policyholder's covered medical expenses, after which the insurer pays 100% of covered benefits.

HMO vs. PPOTwo health insurance network structures dictating doctor access, referral mandates, and out-of-network coverage rules.

Life InsuranceA contract guaranteeing a tax-free lump-sum payment to beneficiaries upon the death of the insured.

Term Life InsuranceStraightforward life insurance providing coverage for a specified period, offering a death benefit but no cash value.

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FINANCIAL GLOSSARY

Financial Terms Glossary

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