Glossary of Financial Terms
This comprehensive glossary includes key financial terms compiled alphabetically for easy reference. Definitions are drawn from reliable educational resources to ensure clarity. For more in-depth explanations, visit the Consumer Financial Protection Bureau or Investopedia’s Financial Terms Dictionary.
| Term | Definition |
|---|---|
| 401(k) Plan | An employer-sponsored retirement savings plan in which employees invest part of their pay and avoid current taxes on that income. Employee contributions may be matched by employers, and earnings are not taxed until withdrawn. |
| 529 Plan | A tax-advantaged savings plan designed to help families save money for future educational costs. There are two types: 529 prepaid tuition plans and 529 savings plans. |
| 529 Prepaid Tuition Plan | A type of 529 plan that allows families to pay tuition ahead of time for specific colleges or college systems at today’s tuition rates. |
| 529 Savings Plan | A type of 529 plan that allows you to invest your education savings in various types of investments, including mutual funds. Like a 401(k) or IRA retirement plan, your account could go up or down depending on market performance. This plan, also called an education savings plan, is typically sponsored by a state and may be available from a private investment firm. You also can use this plan to help pay tuition at public, private, or religious schools from kindergarten through 12th grade. |
| Adjustable Rate Mortgage (ARM) | An interest rate that varies, and which the lender can increase or decrease at specified intervals based on changing market conditions. |
| Affinity Marketing and Fraud | Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional associations. Salespeople try to gain trust within the group, and then market products/services that may be inappropriate, or worse, fraudulent. |
| Amortization | The gradual and systematic reduction of debt by periodic payments that include both principal and interest. |
| Amortization Schedule | A schedule showing the amounts of principal and interest due at regular intervals. The remaining unpaid principal balance should be provided after each installment payment. |
| Annual Percentage Rate (APR) | The total cost of credit, including interest, fees, and other charges, expressed as an annual rate. Also: The cost of borrowing money on a yearly basis, expressed as a percentage rate. |
| Annual Return | The profit or loss on an investment over a one-year period. |
| Annuities | Contracts between you and an insurance company in which you make a lump sum payment or a series of payments in return for regular disbursements beginning either immediately or at some point in the future. California requires individual annuity contracts for seniors to contain a disclosure regarding the surrender charge period. Make sure to comparison shop and that you understand how the annuity works, the fees and charges involved, and all other terms and conditions. |
| Appraisal Fee | The charge to estimate the value of property, such as a house, usually for insurance, investment, or mortgage contracts. |
| Arbitration | A dispute resolution process in which parties agree to be bound by the decision of a neutral third person, the arbitrator, after a hearing that covers both sides of a case or dispute, usually outside the courts. |
| Asset | Any item that has equitable value, like a house or stock, which can be converted into cash. Also: An item with economic value, such as stock or real estate. |
| Associate’s Degree | A degree usually awarded for at least two years of full-time academic study beyond high school. |
| ATM | Stands for “automated teller machine,” a machine that lets bank customers perform basic transactions, such as deposits and withdrawals. |
| ATM Balance Inquiry Fee | A fee you may be charged if you check your prepaid card balance at an ATM or if you call customer service to ask about your balance. |
| Automatic or Direct Debit | A bill-paying method you set up with the merchant or service provider. You provide the merchant or service provider (for example, your cell phone provider or utility company) with your checking account information and they take the funds from your account each time the bill is due (for example, every month). |
| Bachelor’s Degree | A degree usually awarded for at least four years of full-time academic study beyond high school. |
| Balance Inquiry | A basic banking function by which consumers can determine the balance of funds in an account via phone or personal computer. |
| Balloon Payment | An oversized payment due at the end of a loan. |
| Bank | A financial institution and business that accepts deposits, makes loans, and handles other financial transactions. |
| Bankruptcy | The inability of a person or organization to pay their outstanding debts. The process begins with a petition filed by the debtor (which is most common), or on behalf of creditors. |
| Bankruptcy Protection | Process invoked by someone in bankruptcy; used because a bankruptcy filing in a court of law stops all collections activity and legal proceedings regarding debt and financial matters. Without bankruptcy protection, your assets may be in danger of being lost to your creditors through lawsuits and judgments. |
| Beneficiary | Someone or something named to receive proceeds or benefits. In the insurance context, it’s the person, charity, trust, or estate designated by the policyholder to receive the policy’s benefits or payments. |
| Benefit | Something that an employer, the government, or an insurance company provides that’s often used only for a particular purpose, such as food or medical costs. Also: An advantage; something that is good. |
| Bill-Payment Service | A service you set up with a bank, credit union, prepaid card account, or a business you owe money to that lets you pay bills online or through a mobile app. |
| Bimonthly (Semi-Monthly) | Twice a month. |
| Bloom’s Taxonomy | Named for educational psychologist Dr. Benjamin Bloom who, in 1956, led the creation of a framework for classifying educational goals and promoting higher order thinking skills when designing learning activities. His taxonomy allows educators to categorize activities by their level of challenge and complexity. It was revised in 2011 by a group of practitioners and researchers to promote a more dynamic conception of classification. |
| Bond | A type of debt. When you buy a bond, you’re lending to the issuer, which may be a government, municipality, or corporation. The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal — also known as the bond’s face value or par value — when the bond “matures,” or comes due after a set period. Also: An interest-bearing security that obligates the issuer to pay a specified amount of interest for a specified time, usually several years, before repaying the bondholder the face value of the note. |
| Borrow | To receive something on loan with the understanding that you will return it. |
| Borrower | A person or organization that borrows something, especially money from a bank or other financial institution. Also: Any person or organization that obtains funds from another for a period of time upon condition to repay. A written document is signed by both lender and borrower as evidence of the indebtedness. |
| Broker Dealers | Also called B/Ds, they are salespeople or firms that buy and sell securities for themselves and others. Broker Dealers must be registered with the federal Securities and Exchange Commission and the California Department of Financial Protection and Innovation. They are duty-bound to make recommendations in keeping with their client’s investment objectives and risk tolerance. |
| Budget | A plan that outlines what money you expect to earn or receive (your income) and how you will save it or spend it (your expenses) for a given period of time; also called a spending plan. |
| Business | The activity of making, buying, or selling goods or providing services in exchange for money. |
| Business Income | The money a business receives for selling its goods and services is its income. |
| Buy | To get something by paying money for it. |
| Buying Plan | A plan people use to identify and consider factors like cost, features, and choices as they prepare to make a purchase. |
| Buying Power | Also called purchasing power, it is the amount of goods and services that can be purchased by a given unit of currency, taking into account the effect of inflation. |
| Capital | Wealth in the form of money or other assets owned by a person or organization. |
| Capital Gain (or Loss) | The difference between the price at which you buy an investment and the price at which you sell it. There are frequently complex tax implications associated with capital gains or losses. Also: The profit that comes from selling an investment for more than you paid for it. |
| Card Replacement Fee | A fee your prepaid card provider may charge to replace your card if it is lost, stolen, or damaged. |
| Career | A profession that may span your lifetime and includes your education, training, professional memberships, volunteering, and full history of paid work. Can be a synonym for occupation. |
| Cash | Paper or coin money. |
| Certificate of Deposit (CD) | A savings tool from a bank or credit union that has a fixed maturity date and a fixed interest rate. Also: CDs are short- to medium-term investments (usually one to five years) offered by banks or credit unions that pay a higher interest rate than regular savings accounts. |
| Certified Check | A check which guarantees payment. When a check is certified, it becomes an obligation of the bank, and the funds are immediately withdrawn from the account. |
| Chapter 7 | A form of bankruptcy wherein a company is required to liquidate its assets to pay off its creditors. |
| Chapter 11 | A form of bankruptcy that allows a company to remain in business while its owners attempt to pay its debts. |
| Chapter 13 | A form of bankruptcy that allows adjustments of debts for an individual with regular income. This enables an individual debtor to repay creditors over an extended period, and usually allows the debtor to retain his/her property. |
| Check Clearing | The process of moving cash/funds from a bank (or other depository institution) from which a check is drawn to the bank in which the check is deposited. This process results in credits to accounts at the institutions of deposit and corresponding debits to the accounts at the paying institutions. |
| Checking Account | An account at a bank (sometimes called a share draft account at a credit union) that allows you to make deposits, pay bills, and make withdrawals. |
| Churning | Excessive buying and selling of stocks or other securities in a customer’s account by a broker seeking to maximize commissions, regardless of the client’s best interests. |
| Claim | The insured’s request for payment due to loss incurred and covered under the policy agreement. |
| Closed-Loop Prepaid Card | This type of card can only be used at certain locations. For example, a closed-loop card might be good only at a specific store or group of stores or on your public transportation system. |
| Coin | A small metal disc that we use as money. |
| Coinsurance | Coinsurance in insurance, is the splitting or spreading of risk among multiple parties. In the U.S. insurance market, coinsurance is the joint assumption of risk between the insurer and the insured. In health insurance, coinsurance is sometimes used synonymously with copayment, but copayment is really fixed while coinsurance is a percentage that the insurer pays after the insurance policy’s deductible is exceeded up to the policy’s stop loss. |
| Collateral | An asset that secures a loan or other debt that a lender can take if you don’t repay the money you borrow. For example, if you get a home loan, the bank’s collateral is typically your house. Also: An asset (such as an automobile or piece of property) that a person offers to secure a loan, promising to give the asset to the lender if loan payments cannot be met. Collateral also refers to the collection of receivables, such as mortgages, which are used to back the interest and/or principal security. |
| Commission | An amount of money someone earns for selling something. |
| Comparison Shopping | The practice of comparing prices, features, benefits, risks, and other characteristics of two or more similar products or services. |
| Compound Interest | Interest calculated on the initial principal, including all interest accrued to a point in time. Also: When you earn interest on both the money you save and the interest you earn. |
| Consumer | A person who buys or receives goods or services for personal needs or use and not for resale. |
| Consumer Price Index (CPI) | A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. |
| Contributor | Refers to anyone (you, your spouse, a biological or adoptive parent, or your parent’s spouse) who is required to provide information, consent, and approval, and a signature on the FAFSA form. |
| Copayment (or Copay) | A fixed amount ($20, for example) you pay for a covered health care service in addition to the amount your insurer pays. |
| Cosigner | An individual who signs a loan, credit account, or promissory note of another person as support for the credit of the primary signer and who becomes responsible for the debt obligation. Also: A person, other than the principal borrower, who also signs for a loan. In the event the principal borrower defaults, the co-signer(s) assumes liability to repay the loan. |
| Cost | The amount of money that is needed to pay for or buy something. |
| Cost of Attendance (COA) | The total amount it will cost you to go to school — usually stated as a yearly figure. COA includes tuition and fees; food and housing; books and supplies (including renting or purchasing a personal computer), transportation, and miscellaneous expenses. |
| Cost-Effective | To have good value for the amount of money you paid. |
| Credit | Borrowing money, or having the right to borrow money, to buy something. Usually it means you’re using a credit card, but it might also mean that you got a loan. Also: The trust which allows one person (or company) to lend money (or goods or services) to another person, where the second person repays the debt at a later date. |
| Credit Card | An open-ended loan that allows you to borrow money up to a certain limit and carry over an unpaid balance from month to month. There is no fixed time to repay the loan as long as you make the minimum payment due each month. You pay interest on any outstanding credit card loan balance. Also: A card issued by a financial company which enables the cardholder to borrow funds. These funds may be used as payment for goods and services. A credit limit is predetermined and has the condition that the cardholder will pay back the original borrowed amount plus any additional agreed upon charges. |
| Credit Card Statement | A summary of how you’ve used your credit card for a billing period. |
| Credit History | A record of how a person has borrowed and repaid debt. |
| Credit Limit | A limit set by the credit card company on how much you can charge on the card it issued to you. You can use your credit card to make purchases up to your credit limit. |
| Credit Rating | An estimate of the amount of credit that can be extended to an individual or business without undue risk to the lenders. |
| Credit Report | A loan and bill payment history, kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that a borrower will repay future debt. Also: A summary of your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Lenders use these reports to help them decide if they will loan you money and what interest rates they will offer you. Other businesses might use your credit reports to determine whether to offer you insurance; rent a house or apartment to you; or provide you with cable TV, Internet, utility, or cell phone service. If you agree to let an employer look at your credit report, it may also be used to make employment decisions about you. |
| Credit Score | A number created from a scoring model that uses information from your credit history. |
| Credit Union | A cooperative financial institution that is chartered by the National Credit Union Administration (a federal independent agency) or a state government and is owned by its individual members. |
| Credit Utilization Ratio | The amount of credit a person has compared with the amount they’ve used. |
| Creditworthy | Financially sound enough to justify the extension of credit. |
| Crypto Asset | Refers to a digital asset, which may be a medium of exchange, for which generation or ownership records are supported through a distributed ledger technology that relies on cryptography, such as a blockchain. |
| Data Breach | The unauthorized movement or disclosure of sensitive information to a party, usually outside the organization, that is not authorized to have or see the information. Someone who gets the data might use it for identity theft. |
| Debit Card | A card used to make purchases at businesses (like grocery stores and gas stations) with money in your checking account. |
| Debt | Money you owe another person or a business. |
| Debt Consolidation | Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into a new loan with one monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments. But a debt consolidation loan does not erase your debt. You might also end up paying more by consolidating debt into another type of loan. |
| Deductible | The amount of expenses the insured must pay before the insurance company will contribute toward the covered item. For example, the amount you pay for covered health care services before your insurance plan starts to pay is your deductible. |
| Demand | A measure of how popular or necessary an item is and how many consumers want to buy it. |
| Depository Institution | A financial institution like a bank or credit union that is authorized to accept checking and saving deposits. |
| Direct Deposit | Money electronically sent to your bank account, credit union account, or prepaid card. |
| Dividend | A portion of a company’s profit paid to shareholders. |
| Doctoral Degree | A degree usually awarded for at least three years of full-time academic work beyond a bachelor’s degree. |
| Down Payment | Initial cash payment made when something is bought on credit, such as a home or vehicle. The down payment reduces the amount of money that is borrowed. |
| Earn | To receive money in exchange for goods or services. |
| Earned Income | Money made from working for someone who pays you or from running a business or farm. This includes all the income, wages, and tips you get from working. |
| Elder Financial Exploitation | The illegal or improper use of an older adult’s funds, property, or assets by family members, caregivers, friends, or strangers who gain their trust. |
| Emergency Fund | Money set aside for unexpected expenses or financial emergencies. |
| Equity | The value of an asset minus any debts on it, such as home equity being the home’s market value minus outstanding mortgage. |
| Escrow | A third-party account holding funds until conditions of a transaction are met, common in real estate. |
| Expense | The cost of goods or services; money paid out. |
| Fair Market Value | The price at which an asset would change hands between a willing buyer and seller. |
| Federal Deposit Insurance Corporation (FDIC) | An independent agency that provides deposit insurance on deposits in member banks and savings associations. |
| Financial Aid | Money to help pay for education expenses, like grants, work-study, loans, and scholarships. |
| Fixed Expense | A regular expense that doesn’t change much, like rent or insurance premiums. |
| Fixed Interest Rate | An interest rate that does not change over the life of the loan. |
| Foreclosure | The legal process by which a lender takes control of a property due to borrower default. |
| Fraud | The crime of using dishonest methods to take something valuable from another person. |
| Gross Income | Total earnings before deductions like taxes. |
| Home Equity Line of Credit (HELOC) | A revolving credit line secured by home equity, allowing draws as needed. |
| Identity Theft | When someone uses your personal information without your permission to commit fraud or other crimes. |
| Income | Money earned or received such as wages or salaries, tips, commissions, bonuses, and net income from self-employment. It can also come from investments or government benefit programs. |
| Income Tax | Annual taxes collected by a government on the income earned by an individual or business. |
| Inflation | The overall rise in the prices of goods and services over time. |
| Installment Loan | A loan repaid with a fixed number of payments. |
| Insurance | A product that transfers risk from an individual or business to an insurance company or other entity. |
| Interest | The cost of using somebody else’s money. When you borrow, you pay interest. When you lend, you earn interest. |
| Interest Rate | The percentage of the principal of a loan or the percentage of the amount of money in a savings account that is paid as interest. |
| Investment | Something you spend money on that you expect will earn a financial return. |
| IRA (Individual Retirement Account) | A tax-advantaged account for retirement savings. |
| Liability | A debt or something you owe. |
| Lien | A legal claim against a property that must be paid off when the property is sold. |
| Liquidity | How quickly and easily an asset or security can be converted into cash without impacting its market price. |
| Loan | Money borrowed that is usually repaid with interest. |
| Long-Term Goal | Something you want to achieve in the future that takes time to accomplish, like saving for college. |
| Mutual Fund | An investment that pools money from many investors to buy a collection of stocks, bonds, or other securities. |
| Net Income | The amount of money left after subtracting deductions, like taxes, from gross income. |
| Net Worth | The value of all of a person’s or company’s assets minus all liabilities or debts. |
| Opportunity Cost | What you give up when you make a choice. |
| Paycheck | A check issued to an employee for earned wages or salary. |
| Payday Loan | A small, short-term loan that is intended to cover a borrower’s expenses until their next payday. |
| Pension | A retirement plan that provides monthly income in retirement. Usually sponsored by an employer. |
| Phishing | When someone tries to get you to give them your personal information to commit fraud or theft. |
| Portfolio | A collection of investments such as stocks, bonds, mutual funds, and real estate. |
| Principal | The amount of money borrowed on a loan or put into an investment. |
| Profit | Money left over after paying for the cost of goods or services. |
| Recession | A period of declining economic performance across the economy that lasts for several months. |
| Refinance | To replace an existing loan with a new loan that has different terms, often to get a lower interest rate. |
| Return | The profit or loss on an investment. |
| Risk | The possibility of losing economic benefits or the chance that an investment’s actual return will be different than expected. |
| Roth IRA | A type of IRA where contributions are made with after-tax dollars and withdrawals are tax-free. |
| Savings | Money you have set aside in a secure place, such as a bank account, that you can use for future emergencies or to make specific purchases. |
| Savings Account | An account at a bank (sometimes called a share savings account at a credit union) used to set aside money and that pays you interest. |
| Scholarship | Money awarded to students that does not have to be repaid. |
| Security | An investment product such as a stock or bond. |
| Short-Term Goal | Something you want to achieve soon, like saving for a new phone. |
| Simple Interest | Interest calculated only on the initial amount of a loan or deposit. |
| Stock | A type of investment that gives people a share of ownership in a company. |
| Tax | Required payment to a government by a person or business. |
| Tax Refund | Money you get back from the government when too much tax was withheld from your paychecks. |
| Term | A fixed or limited period of time for which something lasts or is intended to last (for example, a five-year loan, a three-year certificate of deposit, a one-year insurance policy, a 30-year mortgage). |
| Transaction | An agreement between a buyer and a seller to exchange an asset for payment. |
| Variable Expense | An expense that changes from month to month, like groceries or entertainment. |
| Variable Interest Rate | An interest rate that can change over time. |
| Wage | Payment for work, usually calculated on an hourly, daily, or piecework basis. |
| Wealth | Abundance of valuable material possessions or resources. |
| Will | A legal document that tells what a person wants to have happen to their property when they die. |
| Yield | The return earned on an investment, usually expressed as a percentage. |