Financial Terms Glossary

A guide to important financial terms for everyone to know

401(k) Plan: An employer-sponsored retirement savings plan in which an employee contributes part of their pay toward retirement.

403(B) Plan: A type of tax-deferred retirement savings plan for employees of public schools, certain non-profits, and some members of the clergy.

529 Plan: A tax-advantaged savings plan geared to help families save for their children’s future educational costs.

Amortization: An accounting technique that spreads out payments over a specified period.

Annual Percentage Rate (APR): The total cost of borrowing money each year, formulated as a percentage rate.

Annual Return: The profit or loss of an investment over one year.

Annuity Contract: A written agreement between an insurance company and a customer that outlines each party’s obligation in an annuity agreement.

Appraisal Fee: A fee charged when estimating the value of a property.

Appreciation: The rise in the value of an asset, such as currency or real estate.

Asset: An item that has economic value, such as stock or real estate.

Asset Allocation: An investment strategy that balances risk and reward by dividing investment among different assets.

Asset Class: The grouping of investments that have similar financial characteristics and are subject to the same laws and regulations.

Benchmark: A standard that is used to measure changes in an asset’s value over time.

Beneficiary: A person named to receive proceeds or benefits.

Bond: An interest-bearing security that requires the issuer to pay a specified amount of interest over a set period.

Borrower: Anyone who obtains funds or an asset under the condition that they must repay it.

Capital: Wealth in the form of money or other assets owned by an individual or institution.

Capital Gain (or Loss): The profit or loss that comes from selling an investment.

Certificate of Deposit: A type of savings account offered by a bank or credit union with a fixed maturity date and fixed interest rate.

Claim: An insurer’s request for payment following a covered loss.

Collateral: An asset that secures a loan or debt and may be taken by the lender if the borrower fails to repay.

Commission: An amount of money someone earns for selling something.

Compound Interest: When additional interest is earned on interest.

Copay: A fixed amount paid for health care services in addition to what the insurer pays.

Cosigner: An individual who signs a loan or credit account and becomes responsible for the debt.

Crypto Asset: A decentralized digital currency whose ownership records are available via blockchain technology.

Debt Money: owed to another person or business.

Debt Consolidation: The consolidation of multiple debts into one monthly payment.

Default: When a borrower fails to repay a debt owed.

Deferment: A temporary pause or reduction of a student loan payment balance.

Delinquency: When a borrower is late or overdue on a debt payment.

Depreciation: The decrease in the value of an asset over time.

Diversification: A strategy used to balance risk by investing in different securities.

Dividend: A portion of a company’s profit paid to shareholders.

Earnings: Profit a company has earned.

Equity: Ownership interest in an asset after liabilities are deducted.

Exchange Traded Fund (ETF): An SEC-registered investment company that pools investor money into stocks, bonds, or other assets.

Fiduciary: A person who legally manages the money or property of someone else.

Financial Planner: A person who creates financial plans based on client needs.

Fixed Annuity: An insurance product that promises a minimum rate of interest while an account is growing.

Fixed Income: A type of investment security that pays fixed interest or dividend payments until maturity.

Forbearance: When borrowers are temporarily allowed to stop making payments while interest continues to accrue.

Foreclosure: A process allowing a creditor to take collateral, such as property, to repay debt.

Grace Period: A period after a payment due date during which payment can still be made without penalty.

Gross Income: The amount earned before taxes and deductions.

Health Savings Account (HSA): A tax-advantaged account used to save for qualified medical expenses.

Hedge Fund: A pooled investment vehicle that seeks positive returns through various investment strategies.

Income Driven Repayment Plan (IDR): A student loan repayment plan based on income or family size.

Index: A group of securities or financial instruments used to measure market performance.

Index Fund: A mutual fund or investment trust that seeks to match the return of a market index.

Individual Retirement Account (IRA): A retirement savings account with tax advantages.

Interest: The price paid for borrowing money.

Investment Advisor (IA): A person or firm that provides investment advice regarding securities.

Joint and Last Survivor Annuity: An annuity that provides lifetime income payments for an owner and survivor.

Lender: The party who lends money to a borrower.

Liability: The amount owed to a lender.

Lien: The legal right to take property until a debt is paid.

Liquidity: A measure of how easy it is to access and use money.

Maturity Date: The date an investment must be paid back in full.

Medicaid: A joint federal and state program that helps cover medical costs for eligible individuals.

Medicare: A federal health insurance program for certain populations, including people age 65 and older.

Mortgage: A loan used to purchase a home.

Mutual Fund: A professionally managed portfolio of stocks, bonds and other investments.

Net Income: The amount received after taxes and deductions.

Net Worth: The value of assets minus liabilities.

Opportunity Cost: The cost of the next best use of money.

Out-of-Pocket Cost: Expenses paid that are not reimbursed by insurance.

Policyholder: The owner of an insurance policy.

Portfolio: The combined holdings of investments owned by an individual or institution.

Portfolio Manager: A person responsible for making and executing investment decisions.

Premium: The amount by which the price of a bond exceeds its principal amount.

Principal For lending: the amount borrowed. For investing: the amount invested.

Property Tax: Taxes assessed on property such as a house, business, or boat.

Rate of Return: The profit or loss on an investment expressed as a percentage.

Refinance: A strategy that replaces a loan with another loan that typically has better terms.

Return on Investment (ROI): An approximate measure of an investment’s profitability.

Risk: Exposure to loss.

Risk Tolerance: An investor’s ability and willingness to lose some or all of an investment.

Securities: Investment instruments such as stocks or bonds.

Securities and Exchange Commission (SEC): U.S. government agency that oversees securities markets and participants.

Share: A unit of ownership.

Shareholder: A person who owns shares in a company.

Social Security: A federal program that provides income to retired workers and people with disabilities.

Stock: A share representing ownership in a company.

Tariff: A tax or duty paid on imports or exports.

Terms: The conditions and requirements included in a loan agreement.

Unearned Income: Income earned passively, such as inheritances, rent, or lottery winnings.

U.S. Treasury Bonds: Fixed-interest bonds issued by the U.S. government with maturities of more than ten years.

Variable Rate: An interest rate that may increase or decrease over the life of a loan.

Form W-2: A document employers provide to employees and the IRS showing annual wages and taxes withheld.

Form W-4: An IRS form that determines how much tax is withheld from an employee’s paycheck.

Wrap Account: An investment account where a single fee covers management, brokerage, and administrative expenses.

Yield: The income an investor receives from an investment.