Glossary of Financial Terms
A comprehensive list of financial terms and definitions to help you understand key concepts.
A
Annual Percentage Rate (APR)
The yearly interest rate charged on borrowed money, expressed as a percentage of the loan amount.
Annual Percentage Yield (APY)
The effective annual rate of return taking into account the effect of compounding interest.
Asset
Something of value that you own, such as cash, investments, property, or possessions.
B
Budget
A plan for managing income and expenses over a specific period of time.
C
Capital Gain
The profit realized when you sell an asset for more than you paid for it.
Certificate of Deposit (CD)
A savings certificate with a fixed maturity date and fixed interest rate, typically issued by a bank.
Compound Interest
Interest calculated on both the initial principal and the accumulated interest from previous periods.
Credit Score
A numerical representation of your creditworthiness based on your credit history.
D
Debt-to-Income Ratio
The percentage of your gross monthly income that goes toward paying your monthly debt payments.
Diversification
Spreading investments across different asset types to reduce risk.
E
Emergency Fund
Money set aside for unexpected expenses or financial emergencies.
Equity
The value of an asset after subtracting any associated debt. In homeownership, it's the difference between your home's market value and your mortgage balance.
F
FICO Score
A specific type of credit score created by the Fair Isaac Corporation, ranging from 300 to 850.
Fixed-Rate Mortgage
A home loan with an interest rate that remains the same for the entire term of the loan.
I
Individual Retirement Account (IRA)
A tax-advantaged investment account designed to help you save for retirement.
Inflation
The rate at which the general level of prices for goods and services rises, causing purchasing power to fall.
L
Liability
Something you owe, such as debt or financial obligations.
Liquidity
How quickly an asset can be converted to cash without significantly affecting its value.
N
Net Worth
The total value of your assets minus your liabilities.
P
Principal
The original amount of money borrowed in a loan or invested.
R
Retirement Account
A financial account designed to help you save for retirement, often with tax advantages.
Risk Tolerance
Your ability and willingness to endure fluctuations in the value of your investments.
Roth IRA
A retirement account funded with after-tax dollars, allowing for tax-free withdrawals in retirement.
S
Simple Interest
Interest calculated only on the initial principal amount of a loan or deposit.
T
Tax Deduction
An expense that reduces your taxable income and, therefore, the amount of tax you owe.
Term Life Insurance
Life insurance that provides coverage for a specified period of time (the 'term').
V
Variable-Rate Mortgage
A home loan with an interest rate that can change periodically based on market conditions.
Y
Yield
The income return on an investment, expressed as a percentage of the investment's cost or current market value.