Cut through industry jargon with these financial definitions.
Getting hung up on confusing terms while making a big financial decision is the worst. Let us demystify personal finance parlance so that you can focus on what’s important: making the right decisions for your situation.
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ACH. Short for Automatic Clearing House, an electronic network for financial transactions between people, financial institutions and businesses in the US.
actual output. What an economy actually produces as measured by the real GDP.
additional cardholder. A person you’ve approved to receive a credit card linked to your own credit account. If your additional cardholder uses the card to make purchases, the transaction will appear on your credit card statement. (And, ultimately, you are responsible for those charges.)
adjustable rate mortgage. Also known as a variable rate mortgage, this is a mortgage loan whereby both parties agree to the lender periodically adjusting the interest rate according to an accepted benchmark. With an adjustable rate mortgage, the initial interest rate is typically fixed for a specific time, after which it adjusts periodically.
agent. A person who acts on another person’s or institution’s behalf in a financial transaction. Agents include stockbrokers, realtors and forex and money transfer services.
American Stock Exchange. Also referred to as Amex, this is the second-largest US stock exchange after the New York Stock Exchange.
angel investor. An investor who provides capital to a startup in exchange for a piece of the business.
annual fee. A maintenance fee that is charged to a credit card account once a year. Annual fees typically range from $25 to $50 but are sometimes over $100 for “gold” or “platinum” cards. These premium cards offer a host of benefits (like points and travel perks) that balance the annual fee.
annuity. A series of fixed predictable payments paid regularly — for instance, weekly, monthly or every pay period — over a specified period of time.
appraisal. An estimate of the value of a property, vehicle or other item prepared by a qualified professional and typically used in lending and borrowing.
APR. Short for annual percentage rate, this is the effective interest rate that you pay for borrowing money. It includes all finance charges and the total you’ve financed.
Credit card APRs vary by card and even transaction. For instance, your credit card company could charge you one APR for purchases and another for cash advances or balance transfers.
In general, banks and credit providers offer two types of APRs: variable and nonvariable (or fixed rate).
- A variable APR allows the credit provider to change your APR when interest rates or other economic indicators, called indexes, change. Most credit card offers include variable rates. Providers must disclose how the rate is determined, which index it uses and the amount (or “margin”) it will add to determine your new rate. You should also know by how much and how often your rate may change.
- A fixed-rate APR is not subject to adjustment. It remains at the rate your provider indicated at the time you opened the account. Even so, credit card companies often include disclosures that allow them to change this rate at any time. The only caveat is that they must provide a written notice at least 15 days prior to the change.
APY. Short for annual percentage yield, this is an effective annual rate of return that takes into account the effect of compounding interest over a year. In short, using a standard formula, it’s the interest rate compounded monthly over the course of a year — or the total interest you’d yield if the account remained untouched for a year.
arbitrage. The simultaneous buying or selling of securities, currency or commodities to profit from small price differences between markets.
ask price. The lowest price at which a trader can buy a commodity, security or currency.
asset. Resources or anything of value that you can use as a future economic resource, such as property, inventory, bank accounts and even trademarks.
at best. An instruction given to a broker to purchase or sell at the best rate currently available in the market.
automatic transfer. A recurring electronic payment that is automatically deducted from an account balance.
available credit. Refers to the total amount of unused credit available to a cardholder. Available credit is reached by subtracting the outstanding balance from the amount of credit extended to you.
average daily balance. This number is determined by adding up all account balances over a billing cycle and then dividing the total sum by the number of days in a given billing cycle (typically a month). Most credit card companies calculate the daily balance based on the APR. For example, if the APR is 12%, the monthly periodic rate would be 1%.
bad credit. Also referred to as poor credit, this term is synonymous with a lack of creditworthiness. Lenders and other financial institutions use this term to refer to borrowers that it considers a credit risk.
balance sheet. One of three business reports (along with a profit-and-loss statement and cash flow statement) that measures the performance and health of a business. It’s a snapshot of a business’s owners, assets, liabilities and capital over a period of time.
balance of payments. A summary of transactions involving goods, services or investments made by multiple parties over a given period of time.
balance of trade. Also called net exports, the difference between a country or entity’s total exports and total imports.
balance transfer. The process of moving a credit card balance or debt to a different provider, often to take advantage of lower interest rates or to consolidate debt from multiple cards.
balloon loan. A loan — often a mortgage — that does not fully amortize before the end of its term. While your payments are lower over the life of a balloon loan, you will owe a large payment to pay off the balance at its maturity.
bank statement. Statement issued by banks or credit unions to keep account holders informed of deposits and withdrawals made during the statement period.
bankruptcy. A legal process by which a person files a petition that declares themselves unable to repay outstanding debts to their creditors. The goal of bankruptcy is a discharge, or an order from the court that disallows eligible creditor from attempting to collect on an outstanding debt.
base currency. The first currency listed in a currency pair. It shows the value of one currency when measured against another — for example, AUD/USD.
basis point. Also called a pip, it’s a unit of measurement equal to a hundredth of a percentage point (0.01%) used to track changes in currency values.
bear market. A market or period in which the prices are falling, which typically encourages investors to sell off securities or commodities.
bid. In the context of currency, the price a dealer is willing to buy a base currency at.
billing cycle. The number of days in your credit card billing period, typically a month. A billing cycle starts the day after the previous cycle’s close date and repeats over the course of the contract.
bitcoin. A digital cryptocurrency using peer-to-peer technology for nearly instant payments.
bitcoin address. Also called a key, a string of alphanumeric characters used to receive bitcoin. Whereas public addresses typically begin with 1 or 3, private addresses — or addresses that aren’t visible to all users — typically begin with a 5 or 6.
bitcoin exchange. An online website or platform that allows users to buy and sell bitcoin for other currencies.
block. Each record or series of records on a blockchain.
block reward. The amount of cryptocurrency mined after a “miner” has succeeded in solving a hash.
blockchain. A public digital ledger in which the entire history of a cryptocurrency is recorded chronologically.
bond. A form of debt whereby you loan your money to a government or corporation that promises to pay you back with interest. Bonds are typically used by these entities to raise money for capital projects or infrastructure, like building bridges or highways.
borrower. A person or business responsible for paying back a loan.
broker. An intermediary agent that who charges a commission to buy or sell on behalf of a client.
budget. Itemized summary of forecasted income and expenses for a given period used to manage income, spending or saving, often to reach an established goal.
bull market. A market or period in which the prices are rising, which typically encourages investors to buy securities or commodities.
business day. Refers to any day other than Saturday or Sunday or a designated public holiday.
capital gains. The profits from selling off financial investments.
cardholder. Any person issued a credit or debit card or authorized to use another person’s card.
cash advance. Cash withdrawn from the available credit of your card account. Interest on cash advances is charged daily, and there is no grace period. Your provider will often charge a higher APR for cash advances until the card balance is paid in full. It will also charge a transaction fee — either a flat fee or a percentage of the total cash advance.
cash advance check. Checks that work like a personal check, but the money you advance is charged to your credit card account. You can write cash advance checks up to your available credit limit to anybody you’d like. Like cash advances, these checks incur a transaction finance charge.
cash flow. The money that moves into and out of a business in a month, quarter or year. Inbound cash flow can be revenues from customers or clients. Outbound cash flow can include rent or a mortgage, taxes and employee salaries.
cash flow statement. One of three business reports (along with a balance sheet and profit-and-loss statement) that measures the performance and health of a business. It breaks down assets, equity and liability to allow a company to analyze how cash balances compare to a business’s net income.
certificate of deposit (CD). An alternative means of saving whereby money is left on deposit for a specified period of time to earn a specific interest rate.
charge card. A type of credit card that requires you to pay off your balance in full each month.
checking account. An account held at a bank, credit union or other financial institution in which you can deposit funds, write checks against or withdraw funds from using a credit or debit card.
closing. The last step in the mortgage process, where parties involved in the sale of a property gather to sign mortgage documents that officially transfer ownership from the seller to the buyer.
closing balance. Usually displayed on the monthly statement, this is the total amount you owe at the end of your billing cycle that will carry to your next billing cycle if not paid. It is the amount of money you have borrowed up until the date of your statement that you will need to pay back.
closing date. For credit cards, the date that a statement records its last transaction for a billing cycle. Transactions made after the closing date will reflect on the next billing cycle’s statement. For mortgages, this is the date that ownership of a home transfers from the seller to the buyer.
collateral. Property, assets or another item of value that a borrower offers as a way for a lender to secure a personal loan. If the borrower defaults on the loan, the lender has the option to take ownership of the property or sell it.
compound interest. The addition of interest to the principal or deposit and any other accumulated interest. In short, it’s interest on interest over the life of a loan.
convertible currency. A currency that can be exchanged for other currencies without government authorization.
cosigner. Someone who accepts equal liability for a loan.
credit bureau. Also called a credit reporting agency, this company evaluates the credit data and behaviors of people who have obtained any form of credit and retains files of their financial state of affairs. Credit bureaus report your credit history — often in the form of a credit score — to lenders that are considering approving you for credit or a loan.
credit card. Card issued by a financial company or provider offering the holder an option to borrow money, typically at a point of sale. Borrowing limits are set in a contract based on the cardholder’s creditworthiness.
credit union. A nonprofit financial institution offering a suite of products that typically include checking accounts, savings accounts and loans.
credit check. A check of a potential borrower’s credit history before a lender decides to approve or deny a personal loan application. These types of checks are sometimes referred to as a hard inquiry or a hard pull on your credit that could adversely affect your credit score.
credit limit. Also called a line of credit, the maximum amount of credit you can carry as a credit card balance. If you go over your limit, you will be charged a penalty fee.
credit risk. Risk of default on a debt that could potentially arise from a borrower failing to make the required repayments on a loan.
credit score. Also called a credit rating, this is a score of your creditworthiness that lenders use to determine their risk in extending you credit. Your credit score is determined by credit bureaus, each varying somewhat in how it evaluates your history to come up with it.
cross-currency basis swap. A foreign exchange derivative that allows you to borrow currency from one party while lending an equivalent amount in a second currency, essentially exchange floating interest rate payments with that party.
cryptocurrency. A digital currency for which encryption techniques are used to regulate its use and generate its release. Unlike fiat currency — like US dollars, euros and yen — cryptocurrency is not regulated or controlled by any government or agency.
currency swap. With this tool, you essentially trade a loan with another party to obtain a lower interest rate on a loan to get a more favorable interest rate on a foreign loan.
daily periodic rate. The rate determined by dividing your APR by either 360 or 365, depending on the credit card company. The daily periodic rate is used to calculate interest owed at the end of each day.
debt. An individual or total amount of money that you owe to creditors.
debt consolidation. Generally, the process of taking on a loan to pay off higher-interest debts, resulting in one monthly payment.
deductible. In the context of insurance, the amount of money you must pay before an insurance company will pay a claim.
default. To default on a contract or a loan means that you or a party to the contract in question is unable to fulfill their obligation specified in the contract’s or loan’s terms.
delinquent. If you’re delinquent on a loan, you’ve failed to make a payment on time or according to your contract.
digital wallet. Sometimes called an e-wallet, an electronic system or app that securely stores personal information, payment details and passwords so that a consumer can make digital payments online or at retail stores that accept it.
direct deposit. Funds that are electronically deposited into a bank account by an employer, a lender or other financial institution.
Equifax. Along with Experian and TransUnion, one of the three national credit bureaus that collects and provides consumer financial records used to measure a potential borrower’s creditworthiness.
equity. The value of shares issued by a company.
exchange rate depreciation. Currency that loses value when compared to one or more other currencies.
exchange rate risk. The potential for loss from adverse movement in exchange rates.
Experian. Along with Equifax and TransUnion, one of the three national credit bureaus that collects and provides consumer financial records used to measure a potential borrower’s creditworthiness.
finance charge. The cost of borrowing money that typically comprises interest and other fees.
fixed exchange rate. Sometimes called a pegged exchange rate, this exchange rate is tied to another country’s currency or sometimes gold. The fixed exchange rate is set by the government or central bank of a country controlling that particular currency.
fixed rate. An interest rate that does not change over the term of a loan.
floating exchange rate. An exchange rate that determines the value of currency through supply and demand.
foreign exchange derivative. A contract to buy or sell a currency at a specified time in the future. The three types of forex derivatives are forward contracts, futures contracts and foreign exchange options.
foreign exchange options. A type of foreign exchange derivative that gives you the option to buy or sell an amount of money in one currency for another currency up until an agreed-on date in the future.
foreign exchange swap. Also called a forex swap, this tool essentially allows you to borrow currency from another party and lend a second currency at the same time to eliminate foreign exchange risk.
foreign transaction fee. A fee assessed when you use your credit card for a purchase outside of the United States. A card’s foreign transaction fee is typically between 1% and 3% of the transaction amount in US dollars.
forex. An abbreviation of foreign exchange that refers to the market in which currency is traded.
forward contract. Also called a forward outright, an agreement between you and a broker to buy currency at a specified price by a certain date in the future.
futures contract. A standardized contract backed by a clearing house — or a financial intermediary — used to buy or sell a currency at a specified time in the future. Because the contract is backed by a clearing house, a party to it typically cannot default on it.
goods. Things that satisfy a person’s or the public’s wants.
grace period. Also called a free period, this is the period in which you can pay your balance in full before the due date, avoiding any finance charges. Knowing whether your credit card offers a grace period is especially important if you plan to pay your account in full each month. Without a grace period, the card provider may impose a finance charge from the date you use your card or from the date each transaction is posted to your account.
guarantor. A third-party individual who guarantees that they will assume lease payments in the event that the lessee can’t.
gross domestic product. Commonly referred to as GDP, the total value of a country’s goods and services produced in its borders over a given year.
gross national product. Total value of a country’s GDP plus income from foreign investments during a year.
gross pay. The amount earned in a pay period before any deductions or taxes are withheld.
hard inquiry. Also called a hard pull, a request to see your credit report for the purpose of applying for credit. Each hard inquiry is recorded on your credit report for up to two years.
hash. A computational puzzle that a cryptocurrency “miner” must solve in order to add the next block on a blockchain.
hedging. When discussing currency, a strategy that protects an asset or liability from wild fluctuations in exchange rates.
home equity line of credit (HELOC). With this line of credit, you borrow against the equity you’ve built in your home by using a debit card or writing checks against your available balance, essentially using your property as collateral. These loans come with variable interest rates and terms of repayment.
human capital. Knowledge and skills obtained through education, experience and training.
income. In general, payment that people earn for the work they do.
income tax. Taxes on income — earned salaries, wages, tips and commissions and unearned interest and dividends — levied on individuals or businesses.
inflation. A sustained increase in prices for goods and services in an economy, often discussed as a percentage referred to as the inflation rate.
initial margin. The deposit required to transact a forward order.
installment loan. A type of loan where the borrower pays the same amount each month for a specific number of payments. Installment loans include personal loans, auto loans and mortgage loans.
interbank rates. Rates of interest that are charged between large international banks.
interest. Money paid to a lender at a particular rate for borrowing money or delaying the repayment of a debt, usually calculated as a percentage of the original amount borrowed. In short, it’s a charge for the privilege of borrowing money.
interest rate. When we’re talking about savings accounts or investments, your interest rate reflects the simple interest you’re paid on that account or investment over the period of a year. For example, if you’ve invested $1,000 into an account that comes with 1% interest, you’ll have earned $10 on that investment at the end of a year.
When we talk about credit cards or loans, your interest rate is the cost of borrowing money measured as a percentage. A variable interest rate fluctuates over time based on benchmarks or indices, whereas a fixed interest rate does not fluctuate over the fixed-rate period of a loan.
interest rate risk. The potential for loss from movements in interest rates.
interest only loan. A loan where repayment covers accumulating interest on the loan balance and not on the actual price of a property. For this type of loan, the principal does not decrease with the payments.
intro APR. A temporary interest rate a credit card provider offers to a new customer. After the intro APR ends, it reverts to the ongoing APR.
invoice financing. The process by which businesses sell their accounts re
IPO. Short for initial public offering, a company’s first sale of stock to the public.
IRA. An individual retirement account that allows you to direct pretax or after-tax income toward investments, often up to specified annual limits.
IRC. Short for Internal Revenue Code, a collection of US tax laws.
issuer. A bank or other financial institution that issues credit cards.
late fee. A fee charged by a lender when you fail to submit a payment on a loan or credit card by the due date.
lender. Also called a creditor, an individual, organization or business that extends credit.
leverage. In the context of investing, leverage refers to borrowing funds or other assets to increase the potential for significant returns.
liability. A responsibility or legal obligation for something. In the realm of personal finance, a liability is typically your debts or other money owed to a person, company or institution.
lien. The legal right to take or sell property as security against a debt.
limit order. A limit order allows you to request a currency exchange or money transfer that’s executed only when a specific exchange rate is reached, at which point your provider locks it in.
loan. Money provided temporarily on the condition that the full amount borrowed will be repaid, typically with interest.
loan-to-value ratio. Also called the LTV, this ratio is a number representing the total you’re looking to borrow against the value of the property you’re looking to buy. It helps lenders to determine how risky a potential loan is. For mortgages, it can help determine whether mortgage insurance is required for the loan.
macroeconomics. The study of the broad economy, including how an economy grows and is maintained.
margin. Cash collateral deposited in case of losses due to foreign exchange trades.
margin call. A broker’s demand for additional funds to be deposited when your trading account doesn’t hold sufficient funds to maintain all your open positions.
maturity date. The predetermined and agreed-on date on which a loan or policy becomes due for settlement.
microeconomics. The study of markets that make up a broad economy.
microloan. A small, short-term low-interest loan typically used by entrepreneurs or new businesses for startup expenses.
mid-market rate. What your money’s actually worth on the global market compared to another currency. It’s the midpoint between worldwide supply and demand for that currency — and the rate banks and transfer services use when they trade among themselves.
minimum wage. The lowest wage that an employer may legally pay for an employee’s hour of labor. Effective July 2009, the federal minimum wage for covered nonexempt employees is $7.25 an hour. Twenty-nine states and DC have passed minimum wage laws that require employers to pay rates that are higher than the federal minimum wage.
mining. A process by which a cryptocurrency is released into the world. “Miners” complete a computational puzzle to be rewarded with a block of currency along the public blockchain.
Nasdaq. The largest stock exchange in the US and the oldest electronic stock market in the world. Short for the National Association of Securities Dealers Automated Quotations, it’s a computerized trading network on which investors can buy or sell stock.
New York Stock Exchange. Based in New York City, it’s the oldest securities exchange in the US and the largest stock exchange in the world. Brokers representing buyers and sellers trade with NYSE.
no-fee balance transfer card. A card for which you’re not charged fees when you move debt to it. Sometimes this perk is for a temporary period. Other card providers may offer no-balance transfer fees indefinitely.
offer. In the context of currency, the rate at which a dealer is willing to sell a base currency.
ongoing APR. Also known as the revert rate, this is the interest rate you’ll pay after your intro APR period ends. Typically, the ongoing APR is much higher than the intro APR.
origination fee. A fee charged by a lender for taking out a loan, typically due at the time of application approval.
outright rate. The spot price plus or minus the difference in interest rates between two currencies.
over-the-credit-limit fee. A penalty fee charged to you for exceeding your credit limit.
overhead. Any ongoing expense associated with running a business that you can’t attribute to production or labor costs and don’t necessarily generate revenue or profits.
penalty rate. Also called a default rate, this is a high interest rate charged when you violate the terms of your cardholder agreement. The penalty rate is usually assessed if you’re late on a monthly payment.
personal income. A person’s total annual gross earnings from wages, investments or businesses. It’s the key to personal spending, which represents two-thirds of an economy’s GDP.
peer-to-peer. A style of lending in which borrowers have their loans funded by an investor or group of investors (peers), rather than a bank.
pension plan. A style of retirement plan in which the employer contributes to the
principal. The amount of a loan excluding interest.
profit-and-loss statement. One of three business reports (along with a balance sheet and cash flow statement) that measures the performance and health of a business. It’s a snapshot of total income, revenue and expenses typically over a quarter or year.
proof of work. A system that replaces the concept of “mining” a cryptocurrency with a consensus algorithm, whereby miners put up a stake of their currency to verify a block of transactions.
proof of stake. A hash — or computational puzzle to unlock a cryptocurrency — that is so difficult, it could only have been solved through significant work or power.
qualified retirement plan. A retirement plan provided by an employer that meets Section 401(a) of the Internal Revenue Code.
refinancing. When a borrower takes out a new loan to pay off an existing loan, often at stronger rates and terms. You can refinance mortgages, student loans, payday loans and many other types of lending products.
rollover. In the context of currencies, the process of extending the settlement date.
recurring payments. If you have the need to send regular transfers overseas — for instance, weekly, monthly or quarterly payments to the same recipient — many services will allow you to lock in even better rates with lower fees.
savings account. An account with a bank, credit union or other financial institution in which you can deposit money for future use and typically earn interest on it.
secured credit card. A type of credit card that is secured by the cardholder with a savings account or cash collateral. This deposit protects the lender from default. This type of credit is used by people who are building their creditworthiness or are new to the credit system.
secured loan. A loan that protects the lender from default through collateral, such as the borrower’s home or car. If the borrower defaults, the lender can take possession of the collateral to recover the loan amount.
services. Actions that can satisfy a person’s or the public’s wants.
settlement date. In the context of currency, when the actual exchange of one currency for another takes place.
short-term loan. Also called a payday loan or payday advance, this type of loan is a small, short-term high-interest loan typically due on your next payday.
soft inquiry. Also called a soft pull, a request to see your credit report for any purpose outside of applying for credit. A soft inquiry can include your own requests to see your report as well as employment-related requests.
speculating. Buying or selling assets with a lot of risk but potentially substantial gains or profits.
spot contract. A settlement date that is two business days forward.
spot transfers. These transfers allow you to lock in a spot rate and then make your transfer within two days. Ideal for single international transfers, you select a competitive rate and make a transfer when you’re ready.
spread. The difference between a bid price and an ask price.
statement period. The time period in which a list of transactions are reported on your credit card statement. A credit card statement period typically is 30 days but may differ depending on the provider.
stop-loss order. A hedging tool used to set a price at which the stop-loss order can be executed by a broker if and when the prevailing market price reaches that price.
subprime. A term describing credit or loan products for borrowers with poor credit. Subprime lenders typically offer higher interest rates and less favorable terms than for borrowers with stronger credit.
tick. The the smallest amount that the price of a future exchange, index or option can change. An increase in the price is called an uptick, and a decrease in the price is called a downtick.
ticker symbol. Also called a stock symbol, this string of letters represents a specific stock traded on any of the exchanges.
title. A legal document proving ownership of property, including homes and cars.
title loan. Also called a car title loan, this is a secured loan whereby a borrower gives the lender their vehicle title in exchange for the loan. The lender places a lien on the car title, using the vehicle as collateral against default until the loan is repaid in full.
transaction fees and other charges. Fees that cover costs associated with a credit card. Some issuers charge a fee if you use the card for a cash advance, make a late payment or exceed your credit limit. Others may charge a monthly fee whether or not you use the card.
TransUnion. Along with Equifax and Experian, one of the three national credit bureaus that collects and provides consumer financial records used to measure a potential borrower’s creditworthiness.
underwriting. The process by which a lender determines whether a loan meets its guidelines for approval. Underwriting can involve reviewing an item’s official appraisal, assessing a potential borrower’s ability to repay a loan, searching for existing titles or claims against the item in question and more.
unsecured credit card. A credit card that is not secured with collateral. If you have good credit, you may qualify for an unsecured card.
unsecured loan. A loan that does not require collateral. An unsecured loan can come with a higher APR, as collateral can minimize risk for the lender.
variable rate. An interest rate that can change over the term of a loan. Also called an adjustable rate.
virtual bank. A bank that offers the same types of accounts and services as a brick-and-mortar bank but exists solely online. They often have low overhead, which could translate to lower fees and ber interest rates for its account holders.
volatility. A statistical metric for price fluctuations.
write-off. An expense or a loss that can be deducted from taxable income.
yield. An investment’s rate of return.