Money glossary
Plain definitions of the words on bank statements, loan papers and retirement forms. 175 terms.
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4% ruleA retirement rule of thumb: withdraw 4% of your savings in the first year, then raise that dollar amount for inflation each year after.401(k)A retirement savings plan offered through an employer. Money comes straight from your paycheck, often with an employer match.50/30/20 ruleA simple budget that splits take-home pay into 50% for needs, 30% for wants and 20% for savings and extra debt payments.529 planA state-sponsored investment account for education. Growth is free of federal income tax when withdrawals pay qualified school costs.
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Adjustable-rate mortgageA mortgage whose interest rate is fixed for a starting period, then changes on a schedule based on a market index plus a margin.Adjusted gross incomeYour total income for the year minus a short list of adjustments, like deductible IRA contributions and student loan interest. Many tax rules and programs use it.AmortizationPaying off a loan with equal payments over time, where early payments are mostly interest and later ones are mostly principal.Annual feeA yearly charge some credit cards add to your bill just for having the card, whether you use it or not.APRAnnual percentage rate: the yearly cost of borrowing money, shown as a percentage. It is the number to compare on cards and loans.APYAnnual percentage yield: the yearly return on savings, including the effect of compounding. Use it to compare savings accounts.Asset allocationHow you divide your investments among types like stocks, bonds and cash, based on your goals, timeline and comfort with risk.AssetsThings you own that have money value, like cash, savings, retirement accounts, investments, a home or a car.Authorized userSomeone a credit cardholder adds to their account so they can use the card. An authorized user generally doesn't owe the bill.Automatic stayThe court order that stops most collection actions, lawsuits and foreclosures the moment you file for bankruptcy.
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Balance transferMoving debt from one credit card to another, usually to get a low or 0% promotional APR for a set number of months.Base periodThe stretch of past work your state looks at to decide whether you qualify for unemployment and how much you get.Bear marketA fall of 20% or more in stock prices from a recent high. A smaller fall of 10% or more is usually called a correction.BeneficiaryThe person or group you name to receive an account, a trust or an insurance payout when you die.Bid-ask spreadThe gap between the highest price a buyer will pay and the lowest price a seller will take for a stock or ETF.BondA loan you make to a government or company. It pays you interest and returns your money on a set date, called the maturity date.Brokerage accountAn investment account where you can buy and sell stocks, bonds, ETFs and mutual funds. It has no special tax benefits.
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Canceled debtDebt a lender forgives or settles for less. The IRS generally treats the forgiven amount as taxable income.Capital gainsThe profit when you sell an investment for more than you paid. It is taxed when you sell, in a regular brokerage account.Cash flowThe money coming in minus the money going out over a period, usually a month. Positive cash flow means you spent less than you earned.CD ladderA set of CDs that mature at different times, so part of your money becomes available every few months.Certificate of depositA bank deposit that pays a fixed rate for a set term, like 6 months or 5 years, with a penalty if you take the money out early.Chapter 13 bankruptcyA type of bankruptcy where you repay some or all of your debts through a court-approved plan over 3 to 5 years.Chapter 7 bankruptcyA type of bankruptcy that erases many unsecured debts in a few months, after a trustee sells any property your state doesn't protect.Charge-offWhen a lender stops expecting payment on a debt and writes it off as a loss, usually after about 6 months of missed payments. You still owe it.Child tax creditA federal credit of up to $2,200 per child under 17 for 2026, partly refundable.Closing costsThe fees and prepaid bills you pay to get a mortgage and transfer a home, on top of the down payment.Closing DisclosureA five-page form with the final terms and costs of your mortgage, which the lender must give you at least three business days before closing.COBRAA federal law that lets you keep your employer's health plan after you leave the job or lose coverage, usually for up to 18 months, at up to 102% of the full premium.CollectionsWhen an unpaid debt is handed or sold to a debt collector after missed payments. It can hurt your credit score.Compound interestInterest earned on both your original money and the interest it already earned, so growth speeds up over time.Conforming loan limitThe largest mortgage that Fannie Mae and Freddie Mac can buy, set each year by the FHFA.Contingent beneficiaryThe backup person who receives an account or policy if the primary beneficiary has died before you.Contribution limitThe most you can put into a tax-advantaged account in a year. The IRS sets the limits and often raises them.CosignerA second person who signs a loan and promises to repay the whole debt if the main borrower doesn't.Cost basisWhat you paid for an investment, including reinvested dividends. Your taxable gain or loss when you sell is the sale price minus your cost basis.Credit bureauA company that collects your credit history and sells reports to lenders. The three nationwide bureaus are Equifax, Experian and TransUnion.Credit freezeA free block on your credit report that stops most new lenders from seeing it, which makes it hard for a thief to open accounts in your name.Credit reportA record of your credit accounts, payments, balances and some public records, kept by each of the three credit bureaus.Credit scoreA 3-digit number, usually from 300 to 850, that predicts how likely you are to repay debt on time. Lenders use it to set rates.Credit unionA not-for-profit financial cooperative owned by its members, offering checking, savings and loans much like a bank.Credit utilizationHow much of your available credit card limit you are using, shown as a percentage. Lower utilization usually helps your score.CryptocurrencyDigital tokens whose ownership is recorded on a shared online ledger called a blockchain. They are not issued by any government and are not insured.
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Debt avalancheA payoff plan where you pay minimums on every debt and put all extra money toward the highest interest rate first.Debt management planA repayment plan set up by a credit counseling agency, where you make one monthly deposit and the agency pays your unsecured debts, often at lower rates.Debt settlementA deal where a creditor accepts less than the full balance, usually after months of missed payments.Debt snowballA payoff plan where you pay minimums on every debt and put all extra money toward the smallest balance first.Debt-to-income ratioYour total monthly debt payments divided by your gross monthly income, shown as a percentage. Lenders use it to judge whether you can take on a new payment.Direct Consolidation LoanA federal loan that combines several federal student loans into one, at the weighted average of their rates rounded up to the nearest one-eighth of a percent.Discount pointsAn optional fee paid at closing to lower a mortgage's interest rate. One point equals 1% of the loan amount.DiversificationSpreading your money across many investments so that one bad company or sector does less damage to the whole.DividendA payment a company makes to its shareholders out of its profits, usually in cash and often every 3 months.Dollar-cost averagingInvesting a fixed amount on a regular schedule, no matter the price, so you buy more shares when prices are low.Down paymentThe cash you pay toward a home's price yourself at closing. A mortgage covers the rest.
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Earned Income Tax CreditA refundable federal tax credit for workers with low to moderate earned income, larger for families with children.Elimination periodThe time you must be disabled before a disability policy starts paying, often 30 to 90 days or more.Emergency fundCash set aside only for surprises like a job loss, a car repair or a medical bill. A common goal is 3 to 6 months of essential costs.Employer matchMoney your employer adds to your retirement plan when you contribute, up to a set percentage of your pay.Escrow accountAn account your mortgage servicer uses to collect part of each payment and pay your property taxes and homeowners insurance for you.Estimated tax paymentsTax you send the IRS yourself during the year, usually in four payments, on income that has no tax withheld, like freelance or gig pay.ETFExchange-traded fund: a basket of investments that trades on a stock exchange throughout the day, like a single stock.Ex-dividend dateThe date from which a new buyer of a stock no longer gets its next dividend. You must own the shares before this date to be paid.ExecutorThe person named in a will to settle an estate: file the will, pay debts and taxes, and hand out property.Expense ratioThe yearly fee a fund charges, shown as a percentage of what you have invested in it. It comes out of the fund automatically.Explanation of benefitsA statement from your health insurer that shows what a provider billed, what the plan paid and what you owe.
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FDIC insuranceUS government protection that repays your deposits if an insured bank fails, up to $250,000 per depositor, per bank, per ownership category.FHA loanA mortgage insured by the Federal Housing Administration that allows a down payment as low as 3.5%.FiduciarySomeone legally required to act in your best interest, put your interests ahead of their own and disclose any conflicts.Field of membershipThe rules for who can join a particular credit union, such as where you live, work, worship or study.Fixed expensesBills that cost about the same amount every month, like rent, a car payment, insurance or a phone plan.Flexible spending accountA workplace account that lets you set aside pre-tax pay for medical costs (or dependent care), usually lost if you don't spend it in the plan year.Form W-4The form you give your employer to set how much federal income tax is withheld from each paycheck.Fraud alertA free note on your credit report that tells lenders to verify your identity before opening new credit in your name.Full retirement ageThe age at which you can get your full Social Security retirement benefit with no reduction. It is 67 for anyone born in 1960 or later.
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Glide pathA target-date fund's schedule for shifting from mostly stocks toward bonds as its target date approaches.Grace periodThe time between the end of a credit card billing cycle and the due date, when new purchases are interest-free if you paid in full.Gross incomeYour total pay before any taxes or deductions are taken out. Salary offers and loan applications usually ask for this number.
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Hard inquiryA credit check made when you apply for credit, like a card, loan or mortgage. It can lower your score a few points for a while.Hardship programA temporary arrangement from a lender or card issuer that lowers your rate, payment or fees after a setback like a job loss or medical bill.High-yield savings accountA savings account that pays a much higher interest rate than a typical bank savings account, often offered by online banks.Home equityThe part of your home you own outright: its value minus what you still owe on the mortgage.Hospital financial assistanceA hospital program that lowers or erases medical bills for patients who qualify by income. Nonprofit hospitals must have one.
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I bondA US savings bond whose rate combines a fixed rate with an inflation rate that resets every 6 months.Income-driven repaymentA federal student loan repayment plan that sets your monthly payment from your income and family size instead of from what you owe.Independent contractorA worker who is in business for themselves and paid without tax withheld, often reported on a Form 1099-NEC. They pay their own self-employment tax.Index fundA mutual fund or ETF that tries to match a market index by holding the investments in it, rather than picking winners.InflationThe rise in prices over time, which means each dollar buys a little less each year.Installment agreementAn IRS payment plan that lets you pay a tax bill in monthly payments. Interest and a reduced penalty keep adding up until it is paid.Insurance deductibleThe amount you pay yourself on a covered loss or medical bill before your insurance starts to pay.IntestateDying without a valid will. Your state's law then decides who inherits your property.IRAIndividual retirement account: a tax-advantaged retirement account you open yourself at a bank or brokerage, separate from your job.Irregular incomePay that changes in amount or timing from month to month, like gig work, freelancing, tips, commission or seasonal jobs.Itemized deductionsSpecific expenses, like mortgage interest, state and local taxes and charity, that you can list and subtract from income instead of taking the standard deduction.
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LiabilitiesDebts you owe, like credit card balances, student loans, car loans, a mortgage or medical bills.Liability coverageInsurance that pays for injuries or damage you cause to other people, up to your policy's limits.Lifestyle creepWhen spending rises to match each raise, so your income grows but your savings don't.Loan EstimateA standard three-page form a lender must give you within three business days of a mortgage application, showing the rate, payment and closing costs.
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Marginal tax rateThe tax rate on your next dollar of income. It is the rate of the highest tax bracket your taxable income reaches.Minimum paymentThe smallest amount you must pay on a credit card or loan by the due date to keep the account in good standing.Money market accountA bank deposit account that pays interest like a savings account and may include checks or a debit card. It is FDIC insured.Money market fundA mutual fund that holds short-term debt and cash. It aims to stay stable but is an investment, not an insured deposit.Mutual fundA fund that pools money from many investors to buy stocks, bonds or other assets, priced once a day after the market closes.
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NCUA insuranceFederal deposit insurance for credit unions, run by the National Credit Union Administration and backed by the full faith and credit of the United States.Net asset valueWhat one share of a fund is worth: the value of everything the fund owns, minus what it owes, divided by its number of shares.Net priceWhat college really costs you: the full cost of attendance minus grants and scholarships.Net worthEverything you own minus everything you owe. It is a snapshot of your finances on one day.
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Offer in compromiseAn agreement that lets some people settle an IRS tax debt for less than the full amount, when the IRS agrees it can't expect to collect more.Open enrollmentThe yearly window when you can sign up for, drop or change health insurance and other benefits for the coming year.Origination feeA one-time fee a lender charges for making a loan, usually a percentage of the amount borrowed and often taken out of the money you receive.
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Pay yourself firstA saving habit where a set amount moves to savings on payday, before you pay bills or spend anything.Payable on deathA beneficiary added to a bank account (payable on death) or investment account (transfer on death) so it passes straight to that person when you die.Payday alternative loanA small loan from a federal credit union, designed as a cheaper option than a payday loan, with a maximum APR of 28%.Payday loanA small, short-term, high-cost loan, often $500 or less, that is due in one payment on your next payday along with a fee.Pell GrantFederal grant money for undergraduates with financial need. It usually doesn't have to be repaid.Pending transactionA purchase or deposit that has been approved but not fully processed, so it can still change or drop off before it posts.Power of attorneyA legal document that lets someone you choose, called an agent, make financial or health decisions for you.PrincipalThe amount you borrowed, or the part of your balance that is still owed, not counting interest.Private mortgage insuranceInsurance a lender usually requires on a conventional mortgage with less than 20% down. You pay for it, but it protects the lender if you stop paying.ProbateThe court process that confirms a will, pays an estate's debts and hands out what is left to the heirs.
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Rate capA limit on how much an adjustable-rate mortgage's interest rate can change at one adjustment or over the life of the loan.RebalancingMoving your investments back to the mix of stocks, bonds and cash you chose, after market moves have pushed it off target.RefinancingReplacing an existing loan with a new one, usually to get a lower interest rate, a lower payment or a different term.Refundable tax creditA tax credit that is paid to you as a refund when it is bigger than the tax you owe.Repayment Assistance PlanThe newest federal income-driven student loan plan: 1% to 10% of your adjusted gross income, minus $50 a month per dependent, with a $10 minimum.Required minimum distributionThe smallest amount the IRS requires you to withdraw each year from traditional retirement accounts, starting at age 73.Risk toleranceHow much loss you can accept, in money and in nerves, in exchange for the chance of higher returns.RolloverMoving money from one retirement account to another, such as an old 401(k) to an IRA, without paying tax on it.Roth IRAAn IRA funded with money you already paid tax on. Growth and qualified withdrawals in retirement are tax-free.Rule of 72A shortcut to estimate how long money takes to double: divide 72 by the yearly growth rate.
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Safe harbor ruleThe IRS rule that you won't owe an underpayment penalty if you paid at least 90% of this year's tax or 100% of last year's, whichever is smaller.SALT deductionThe itemized deduction for state and local income or sales taxes plus property taxes, limited to $40,400 for 2026.Savings rateThe share of your income you save instead of spend, written as a percent.Schedule CThe IRS form where a self-employed person reports business income and expenses to figure net profit.Secured credit cardA credit card backed by a cash deposit you make up front, usually equal to your credit limit. It is a common first card for building credit.Security depositMoney a landlord holds when you sign a lease, to cover damage or unpaid rent, and returns when you move out, minus allowed deductions.Self-employment taxSocial Security and Medicare tax for people who work for themselves. It is 15.3% on 92.35% of net profit, on top of income tax.SEP IRAA retirement account a business owner funds for themselves and any eligible employees, up to 25% of pay or a yearly dollar cap.Severance payMoney an employer may pay when it ends your job, often in exchange for signing an agreement.Sign-up bonusExtra rewards a credit card pays when you open the account and spend a set amount within the first few months.Sinking fundMoney you set aside a little at a time for a known future cost, like car insurance, holidays or a new laptop.SIPC protectionProtection for brokerage customers if the brokerage firm fails and their investments or cash are missing, up to $500,000, including $250,000 in cash.SMART goalA goal that is specific, measurable, achievable, relevant and time bound, so you can turn it into a monthly plan.Social Security creditsUnits you earn by working and paying Social Security tax. You need 40 credits to qualify for retirement benefits.Soft inquiryA credit check that does not affect your score, like checking your own credit or a lender sending you a preapproved offer.Solo 401(k)A 401(k) for a business owner with no employees other than a spouse, where you contribute both as the employee and as the employer.Special Enrollment PeriodA window outside yearly open enrollment when you can sign up for or change health insurance because of a qualifying life event, like losing coverage or having a baby.Split direct depositA payroll setting that sends part of each paycheck to one account, such as savings, and the rest to another.Standard deductionA flat amount the IRS lets you subtract from your income before tax is figured, if you do not itemize deductions.Statute of limitationsThe deadline, set by each state, for a creditor or collector to sue you over a debt.StockA small piece of ownership in a company. Its price rises and falls with how investors value the business.Student Aid IndexThe number the FAFSA produces from your family's finances. Schools use it to decide how much need-based aid to offer.
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Take-home payThe money that actually lands in your bank account after taxes and payroll deductions come out of your paycheck.Target-date fundOne fund that holds a mix of stocks and bonds and slowly shifts toward bonds as the year in its name gets closer.Tax bracketA range of income taxed at a certain rate. US federal income tax has 7 brackets, from 10% to 37%.Tax creditAn amount subtracted directly from the tax you owe, so a $1,000 credit lowers your tax by $1,000.Tax withholdingIncome tax your employer takes out of each paycheck and sends to the IRS for you, as a prepayment of your yearly tax.Tenant screening reportA report landlords use to decide whether to rent to you. It can include your credit, rental history and eviction records.Tiered Standard PlanA fixed-payment federal student loan plan whose length, 10 to 25 years, depends on how much you owe.Time horizonHow long you plan to keep money invested before you need to spend it.Total compensationEverything a job gives you in a year, including salary, bonus, retirement match and benefits, minus costs like your share of health premiums.Traditional IRAAn IRA where contributions may be tax-deductible now, and withdrawals in retirement are taxed as income.Treasury billA short-term loan to the US government, lasting 4 to 52 weeks. You buy it below face value and get the full face value at maturity.
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Validation noticeThe notice a debt collector must send that names the creditor, itemizes the amount and gives you 30 days to dispute.Variable expensesCosts that change from month to month, like groceries, gas, dining out and electricity.VestingThe rules for when your employer's contributions to your retirement plan become fully yours to keep if you leave the job.