We know that understanding financial terms isn't always
easy. That's why we've put together this glossary of financial
terms. Bookmark this page now so that any time you encounter
a financial term that you don't understand, you'll be able
to quickly find out what it means.
Annual Percentage Rate (APR) - the rate
of interest (in terms of a percent, such as 9.4%) being
charged for a loan over a year's time. The APR rate includes
interest, transaction fees, and service fees. Look for APRs
on such things as credit cards, student loans and car loans.
Appreciate - to grow in value. Usually
a term used in relation to investments (stocks) or collectibles
(old stamps, baseball cards, rare coins, etc.) that are
now worth more than you originally paid for them.
Asset - any item of value that you own:
house, property, jewelry, stocks, bonds, money in savings,
Balance - 1) In talking about loans, the
balance is the difference between the original amount owed
and the amount paid on the loan to date. In other words,
the money you still have to pay. 2) In talking about checkbooks,
balancing means to account for all money that came into
and went out of your account. 3) In talking about savings,
your balance is what is left in your savings account after
you deposit or withdraw money.
Bankruptcy - a state of being in so much
debt that you are legally declared unable to pay in full
the people and companies you owe. In some states, declaring
bankruptcy means you must sell all your possessions and
pay off your debts as best you can.
Blue Chip Stock - a name given to the
stocks of major corporations. The name comes from the most
highly valued poker chip, the blue chip.
Bond - a kind of investment in which you
lend money to a corporation or government for a certain
amount of time and at a certain interest rate. You receive
regular interest payments, also known as a coupon. At the
end of the bond's term, the corporation or government returns
to you the amount you originally lent, also known as the
bond's face value.
Budget - a plan you create for controlling
spending and encouraging saving.
Certificate of Deposit - a type of investment
that requires you to invest money for a certain length of
time and guarantees the same rate of return (interest) for
that entire period. CDs usually require a minimum deposit.
Charge - to borrow money (from a store,
service provider, or credit card company) to make a purchase.
If you do not pay the debt off in full each month, you will
pay interest on the amount you owe.
Check Register - (sometimes called a check
ledger). A booklet usually kept in your checkbook that you
can use to keep track of all the deposits, withdrawals,
and checks you write. After you record each transaction
in your register, you subtract or add the amount to your
checking account balance. If you keep your register updated,
you will always know how much money you have in your checking
Checking Account (or Share Draft Account)
- an account where you deposit money to fund the checks
you write. A credit union checking account is called a share
Compound Interest - interest on an investment
that is calculated not only on the amount originally invested,
but also on any interest the investment has already earned.
For example, if you invest $100 dollars in a savings account
and get 5% interest, after one period you will have $105.
During the next period, you will earn interest on the $105
(not just on the $100 originally invested) and end up with
Corporation - the most common form of
organizing a business - the organization's total worth is
divided into shares of stock, and each share represents
a unit of ownership and is sold to stockholders.
Credit - a loan that enables people to
buy something now and to pay for it in the future.
Credit Limit - the highest amount you
may charge on a credit card. Your limit is set by your card
company's opinion of your ability to handle debt.
Credit History - a record of your borrowing
and paying habits. Credit reporting companies track your
history and supply this information to credit card companies,
financial institutions, and other lenders.
Credit Rating - a "score" that a credit
agency assigns you based on your ability to manage credit
responsibility. Your credit rating depends upon factors
such as on-time payments, age, and amount of debt accumulated.
Debt - money or goods you owe.
Debit Card - a card like a credit card
that you can use to pay for things directly from your credit
union account without the paying interest. You have to have
the funds in your account at the credit union in order to
spend them with your debit card.
Deposit - to put money into a checking,
savings, or other investment account.
Dividend - a payment made by a company
to a stockholder to share in the company's profits. In a
credit union, a dividend is the interest paid on your savings
or share account.
Discount - to reduce from an original
price or an item's full worth.
Earned Income - wages paid in exchange
Entrepreneur - a person who assumes the
risk to start a business with the idea of making a profit.
Expenses - things you pay money for -
both needs and wants.
Finance Charge - the fee you pay when
you do not pay off the entire credit card debt within a
single payment period, usually about 25-28 days.
Fixed Expenses - expenses that stay basically
the same from month to month, such as rent, transportation,
Grace Period - the time, usually about
25-28 days, which you have to pay a bill or a loan in full.
If you pay within the grace period, you do not have to pay
a finance charge.
Income Tax - money that wage earners pay
the government each year. The amount of the tax depends
upon how much income you earn.
Insufficient Funds - a phrase that means
you did not have enough money to cover an expense. Usually
checks that bounce are returned stamped with the phrase
"insufficient funds." The amount of the check was larger
than the balance in the checking account.
Interest - the amount paid by a borrower
to a lender for the privilege of borrowing the money.
Interest Rate - the price paid for borrowing
money, expressed as an annual percentage rate, such as 10.5%.
Invest - to put your money into CDs, money
market accounts, mutual funds, savings accounts, bonds,
stocks or objects that you hope will grow in value and earn
Loan - money or an object that is lent
with the understanding that the loan will be paid back,
usually with interest.
Minimum Payment - the smallest payment
you are required to make each month on a debt.
Mutual Fund - a savings fund that uses
money from a group of savers to buy a wide range of securities,
like stocks, bonds, and real estate. This allows you to
diversify your investments because you own small units of
each of the fund's investments.
Opportunity Cost - the next best alternative
that is given up when a choice is made.
Penny Stock - a nickname for extremely
low priced stock, usually only a few dollars a share. These
stocks are considered quite risky. They are priced low because
they have not yet proven themselves in the market.
Profit - the money you've earned after
you subtract a) any money you had to spend to make the product
or perform the service. B) any taxes that had to be paid
on your earnings.
Rate of Compounding - When an account
compounds interest it does so in regular intervals. Compounding
can take place annually, semi-annually, quarterly, monthly,
or daily. The more often interest is compounded the faster
your money will grow.
Return - the amount of money you receive
from a savings account or fund. The return is usually expressed
as a percentage, such as "This account returns 6.3%."
Risk - the likelihood that you will lose
money on an investment.
Save - holding onto your money for a future
goal instead of spending it now. Saving is the opposite
Savings Account (or Share Account) - a
credit union account that pays you interest for keeping
your money in it.
Share - a unit of ownership in an investment
or a company or a credit union. Depositors in a credit union
own the CU because it is a member owned financial cooperative.
Share Draft Account (or Checking Account)
Shareholder - someone who owns stock in
Sole Proprietorship - a business owned
by a single person.
Stock - a certificate representing a share
of ownership in a company.
Stock Market - an organized way for 1)
people to buy and sell stocks and 2) corporations to raise
money. There are stock exchanges all around the world, but
perhaps the best known are The New York Stock Exchange (NYSE),
the American Stock Exchange (AYSE), and the National Association
of Securities Dealers Automated Quotation System (NASDAQ).
Unearned Income - income that is not the
result of your labor, such as interest from a savings account
or other kind of investment.
Variable Expenses - spending that changes
from month to month. For example, entertainment can be a
variable expense. Depending on your preferences, the amount
you spend on movies, CDs, video games, and eating out will
be different each month. With variable expenses, you have
Withdraw - to take money out of an account.