Glossary

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


A

Account
(see Bank account)
Account fee
The amount charged by a financial institution for the services they provide in managing the account. This may also be called the monthly service fee.
Annual Fee
The fee a credit card company charges a credit card holder to use the card for a year. Or, the fee a lender charges a borrower for the use of a line of credit for a year.
Annual percentage rate (APR)
A measurement used to compare different loans, the APR takes into account a loan’s interest rate, term, and fees to illustrate the total cost of credit expressed as a yearly rate. The lower the APR, the lower the total cost of the loan.

Automated teller machine (ATM)
A specialized computer used by bank customers to manage their money, for example, to get cash, make deposits, or transfer money between accounts.
Available balance
The amount of money in your account that you can use or withdraw. Your available balance may not reflect all transactions that you have made, for example checks you have written that have not yet been paid from your account.

B

Bad check
See Non-sufficient funds (NSF)
Bad credit
A situation in which lenders believe that, due to a borrower’s poor history of repaying his or her debts, further loans to this person would be especially risky.
Balance your checkbook
The process of comparing your monthly checking account statement with your check register to make sure that your records and the bank’s records match. Also called reconciling your account.
Bank
A financial institution that handles money, including keeping it for saving or commercial purposes, and exchanging, investing, and supplying it for loans.
Bank account
A banking service allowing a customer’s money to be handled and tracked. Common bank accounts are savings and checking accounts.
Bank statement
A monthly accounting document sent to you by your bank that lists your account balance at the beginning and end of the month, and all of the checks you wrote that your bank has processed during the month. Your statement also lists other deposits, deductions, and fees, such as service charges.
Bounced check
See Non-sufficient funds (NSF)
Budget
A monthly or yearly spending and savings plan developed by a person, family, or business. A written budget helps people to be better money managers and to prepare for major or unexpected expenses.

C

Canceled check
A customer’s check that the bank has paid and charged against the check writer’s account. Cancelled checks may be returned to the check writer with the monthly bank statement, or they may be kept on film by the bank.
Capital gain
The dollar amount by which an asset’s selling price exceeds its initial purchase price. For example, if you buy a stock for $4 per share and sell it for $7 per share, your capital gain is $3 per share.

Capital loss
The decrease in value of an investment or asset. The opposite of capital gain.

Certificate of deposit (CD)
A bank account in which you agree to keep the money for a specified period of time, usually anywhere from three months to several years. As a result, this account usually offers higher rates of return than a savings account. Money removed before the agreed upon date is subject to an early withdrawal penalty. The account pays interest on the deposit and is FDIC insured. Banks issue an actual certificate for a CD account. If no certificate is issued, the account is known instead as a “time deposit.”

Charge card
Similar to a credit card, except that a charge card requires the card holder to pay off the entire balance monthly. See also Credit card.
Check
A written order instructing the bank to pay a specific amount of money to a specific person or entity. The check must contain a date, payee (person, company, or organization to be paid), amount, and an authorized signature.
Check register
A small notepad you receive when you open a checking account for the purpose of tracking your checks, deposits, and current balance.
Checking account
A bank account that allows a customer to deposit and withdraw money and write checks. Using a checking account can be safer and more convenient than handling cash.
Co-signer
A second person who signs your credit or loan application. Just like the borrower, the co-signer on a loan is equally responsible for repaying the debt. Also called a co-borrower.
Compound interest, Compounding
When a financial institution pays you interest not only on your initial principal (the amount you originally deposited) but also on the interest your deposit has earned over time.

Cost of the loan
The total amount the borrower pays for a loan, including the amount borrowed (or principal), the total interest paid over the term of the loan, and all loan fees.
Credit
When a bank or business allows its customers to purchase goods or services on the promise of future payment. Also used to describe any item that increases the balance in a bank account. Deposits and interest payments are both examples of credits.
Credit card
Any card that may be used repeatedly to borrow money or buy products and services on credit. Credit cards are issued by financial institutions, retail stores, and other businesses. A credit card offers the card holder revolving credit that can be paid monthly with as little as the required minimum payment. See also Charge card.
Credit history
A written record of a person’s use of credit, including applying for credit, and using credit or loans to make purchases. Also called a credit record.
Credit limit
The maximum dollar amount the lender is willing to make available to the borrower according to the agreement between them. For example, if you have a credit card, the credit agreement will usually specify the maximum amount of money you’re allowed to charge.
Credit record
(see Credit history)
Credit union
A non-profit financial institution that is owned and operated entirely by its members. Credit unions provide financial services for their members, including savings and lending. Large organizations may organize credit unions for their members, and some companies establish credit unions for their employees. To join a credit union, a person must ordinarily belong to a participating organization, such as a college alumni association or labor union. When a person deposits money in a credit union, he or she becomes a member of the union because the deposit is considered partial ownership in the credit union.
Creditor
An individual or business that lends money or extends credit.
Currency
Any form of money that is in public circulation, for example, paper bills and coins.

D

Debit card
A card linked to a checking account that can be used to withdraw money and make deposits at an ATM and to make purchases at merchants. When you use a debit card, the money will be deducted from the linked checking account.
Debt
Money, goods, or services you owe to others.
Deposit
To put money into your account.
Deposit envelope
A printed envelope provided by a financial institution. Customers place cash and checks for deposit into the envelope and record information about the deposit on the outside of the envelope.
Deposit slip
A printed form supplied by a financial institution. Customers list the amounts and types of funds (such as checks and bills) they are depositing and include the slip with their deposit.
Discretionary expense
The purchase of goods or services which are not essential to the buyer, or are more expensive than necessary. Examples include entertainment and restaurant meals.
Dividend
If a company does well financially, its board of directors may decide to pay a small amount of its profits, called a dividend, directly back to its shareholders. Dividends are usually cash, but may also take the form of stock or other property.

E

Earning power
The amount of money a person is able to make from his or her work.
Earnings
(see Income)
Economy
Activities related to the production of goods and services in a particular geographic region, such as a country, state, or county.
Endorse
To sign the back of a check, authorizing the check to be exchanged for cash or credit.
Establishing credit
Giving lenders the trust and confidence to make loans to you based on a good history of paying your debts.
Expense
For individuals, an expense is a cost of living for example rent or groceries. For businesses, an expense is any cost resulting from the money-making activities of the business.

F

Federal Deposit Insurance Corporation (FDIC)
An agency of the federal government that insures all bank deposits up to $250,000 per person.
Federal Reserve
An independent governmental agency established by Congress to organize and regulate banking throughout the United States.
Fees
Charges for services by a financial institution or lender.
Finance charge
The amount of money a borrower pays to a lender for the privilege of borrowing money, including interest and other service charges.
Fixed cost, Fixed expense
For an individual, a fixed cost is an expense that stays the same each month, such as rent or a car payment. For a business, a fixed cost is an expense that does not vary depending on production or sales levels, such as an equipment lease or property tax.
Flexible expense
An expense that you can control or adjust, for example, how much you spend on groceries, clothes, or long distance phone calls.

G

Good credit
A situation in which lenders are willing to make loans to an individual, due to his or her good history of repaying debts.

I

Income
For an individual, income means the amount of money received during a period of time, including money received in exchange for labor or services, from the sale of goods or property, or as profit from financial investments. For a business, income is (all the money brought in) minus cost of sales, operating expenses, and taxes, over a given period of time.
Installment credit, Installment loan
A loan that is repaid to the lender in equal amounts, over a fixed period of time.

Interest
The amount of money paid by a borrower to a lender in exchange for the use of the lender’s money for certain period of time. For example, you earn interest from a bank if you have a savings account and you pay interest to a lender if you have a loan.
Interest rate
The amount of interest paid per year divided by the principal amount (that is, the amount loaned, deposited, or invested). For example, if you paid $500 in interest per year for a loan of $10,000, the interest rate is 500 divided by 10,000, or five percent (5%).
Investing
Purchasing something of value (for example, stocks or real estate) with the goal of earning money over time if the value increases.

Investment
Property or another possession acquired for future financial return or benefit.

Investment account
An account offered by a financial institution or investment company for the purpose of investing.

J

Joint account
A bank account owned by two or more people who are equally responsible for the account.

L

Late fee
The charge or fee that is added to a loan or credit card payment when the payment is made after the due date.
Lender
A business that makes money available for others to borrow.
Loan
An agreement between a borrower and a lender, where the borrower agrees to repay money with interest over a period of time.

M

Minimum balance
A specific amount of money required by a financial institution in order to open or maintain a particular account. In some cases, a financial institution may charge the account holder fees, or even close an account, if the minimum balance is not maintained.
Minimum payment
The least amount of money to be repaid on a loan or credit card in order to keep the account in good standing.
Money Market account
A savings account which is FDIC-insured. Many money market accounts offer the same features as checking accounts, although the number and type of transactions may be somewhat more limited. Money market accounts are generally very safe investments which return a relatively low interest rate. They are most appropriate for temporary storage of cash.

Money order
A document issued by a post office, bank, or convenience store ordering payment of a specific sum of money to an individual or business. There is generally a small charge for purchasing a money order.

Mutual fund
A type of investment where an investment company sells shares to the public and then invests the money in a group of investments such as stocks and bonds.

N

Non-sufficient funds (NSF)
The lack of enough money in an account to pay a particular check or payment. Also known as insufficient funds. A check with insufficient funds may be returned unpaid to the person cashing it. This has a negative impact on the check writer’s history of handling his or her account, and may prevent opening of future accounts. The bank generally charges the checking account holder a fee for overdrawing the account. See also Overdraft.

O

Online banking
A service that allows you to handle banking activities by computer, using the Internet.
Outstanding balance
The amount still owed on a bill, loan, or credit line.
Overdraft
When there is not enough money in an account to cover a transaction and the bank pays it on your behalf, creating a negative balance in the account that you need to repay.

Overdraft protection
Offered by many banks, overdraft protection is a service that automatically transfers money from a linked account that you select, such as a savings or credit account, when you don’t have enough money in your checking account to pay your transactions.

P

Payee
The person, company, or organization to whom a check is written: a person or company who is to receive money.
Payor (or Payer)
The person or company from whose account the money is to be taken to pay a check: a person or company who pays money.
Penalty, Penalty fee
A fee charged for the violation of a rule in a financial agreement.

Personal identification number (PIN)
A secret combination of letters or numbers you use to gain access to your account through an electronic device such as an ATM.
Principal
The total amount of money borrowed, loaned, invested, etc., not including interest or service charges.

R

Reconcile
The process used to determine if the balance in your account register matches the balance reported by the bank on your account statement. Also called balancing your account.
Register
A small notepad you receive when you open a bank account for the purpose of tracking your deposits, withdrawals, and current balance.
Risk
The measurable likelihood of loss, or less-than-expected return, on an investment or a loan.
Routing number
The nine-digit number on the bottom left hand corner of your checks, to the left of your account number. The routing number identifies the bank that issued the check. Every bank in the United States has at least one routing number.
Rule of 72
A way to estimate the time or interest rate you would need to double your money on an investment. For example, if you have an investment that’s earning 8% per year, 72 divided by 8 equals 9. This means it would take about nine years for your original investment to double.

S

Sales tax
A tax charged by the state or city on the retail price of an item, collected by the retailer.
Savings account
A bank account that allows a customer to deposit and withdraw money and earn interest on the balance.
Savings account register
A small notepad you receive when you open a savings account for the purpose of tracking your deposits, withdrawals, and current balance.
Service fees
(see Fees)
Share price
The price of one share of stock.

Shareholder
One who owns shares of stock in a corporation or mutual fund. Also called a stockholder.

Simple interest
Interest that is calculated only on the principal sum, that is, the amount of money that was originally deposited. (By contrast, compound interest is when a financial institution pays you interest not only on your initial principal but also on the interest your deposit has earned over time.)

Spending limit
(see Credit limit)
Statement
(see Bank statement)
Stock
Certificate of ownership in a company.

T

Term
A period of time over which a loan is scheduled to be repaid. For example, a home mortgage may have a 30-year term, meaning it must be repaid within 30 years.
Treasury
The U.S. Treasury is the department of the U.S. government that handles financial-related functions such as managing federal finances, collecting taxes, producing currency and coins, and supervising national banks.

U

Unpaid balance
The amount that is still owed on a loan or credit card debt.

V

Value
Having worth, desirability, or usefulness.

W

Withdraw
To take money out of an account.
Withdrawal slip
A printed form supplied by a financial institution onto which the customer writes the amount of money to be taken out.