Glossary of personal finance money transfers

Understand finance terms: Glossary of personal finance topics

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.


A | B | C | D | E | F | G | H | I | L | M | N | O | P | R | S | T | U | V

A
a
ccount balance. The total amount you owe after factoring in transactions and payments.

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.)

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.

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.

arbitrage. The simultaneous buying or selling of securities, currency or commodities to profit from small price differences between markets.

asset. Resources or anything of value that you can use as a future economic resource, such as property, inventory or bank accounts.

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%.

APR. Short for “annual percentage rate,” this is a yearly interest fee you pay for borrowing money. 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.


B
bear market.
A market or period in which the prices are falling, which typically encourages investors to sell off securities or commodities.

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.

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.

bid. In the context of currency, the price a dealer is willing to buy a base currency at.

bid/ask spread. The difference between a bid and an offer (or “ask”) price.

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.

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.

broker. An intermediary agent that who charges a commission to buy or sell on behalf of a client.

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.

C
c
ash 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. These checks work like 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.

charge card. A type of credit card that requires you to pay off your balance in full each month.

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.

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 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 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.

D
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.

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.

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.

E

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.

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.

F
f
inance charge. The cost of borrowing money on your credit card. It 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.

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. This is simply an abbreviation of foreign exchange and 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.

G

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.

gross domestic product. Commonly referred to as GDP, the total value of a country’s goods and services produced in its borders during a year.

gross national product. Total value of a country’s GDP plus income from foreign investments during  a year.

H

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.

I
i
nitial 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. 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.

L

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.

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.

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.

M
m
argin. Cash collateral deposited in case of losses due to foreign exchange trades.

margin call. A broker’s demand for additional funds to be deposited.

maturity date. The predetermined and agreed-on date on which a loan or policy becomes due for settlement.

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.

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.

N
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.

O
o
ffer. 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.

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.

P
p
enalty rate. Also called the 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.

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.

R

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.

S
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.

settlement date. In the context of currency, when the actual exchange of one currency for another takes place.

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.

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.

T

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.

U
unsecured credit card. A credit card that is not secured with collateral. If you have good credit and strong finances, you may qualify for an unsecured card.

V

variable rate. An adjustable rate loan tied to fluctuations of an economic index. For example, a variable rate might be prime plus 1.5%, which means that the loan’s rate will adjust along with the prime 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 stronger interest rates for its account holders.

volatility. A statistical metric for price fluctuations.

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