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Personal Finance Glossary: Understand Key Terms
Money conversations are full of jargon. This A–Z glossary explains the terms you'll see most often in our guides — and on loan, bank and investment paperwork — in plain English.
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A
Amortization — Paying off a loan through regular payments that cover interest and principal over time.
Annual percentage rate (APR) — The yearly cost of borrowing, including interest and certain fees. See our guide to interest rates.
Annual percentage yield (APY) — The yearly return on savings, including compounding.
Asset allocation — How your investments are divided among stocks, bonds and cash.
B
Balance transfer — Moving debt from one credit card to another, often to use a promotional rate.
Budget — A plan for how you'll use your income. See How to Create a Realistic Budget.
Bond — A loan to a government or company that pays interest to the investor.
C
Certificate of deposit (CD) — A savings product that pays a fixed rate for a fixed term.
Collateral — An asset pledged to secure a loan.
Compound interest — Interest earned on both your original money and previously earned interest.
Credit report — A record of your credit accounts and payment history kept by credit bureaus.
Credit score — A number estimating how likely you are to repay debt. See Understanding Your Credit Score.
Credit utilization — Your credit card balances divided by your credit limits.
D
Debt consolidation — Combining multiple debts into one, often with a new loan. See What is a Debt Consolidation Loan?
Debt-to-income ratio (DTI) — Monthly debt payments divided by gross monthly income.
Diversification — Spreading investments to reduce risk.
Down payment — The upfront portion of a purchase price paid in cash, common with homes and cars.
E
Emergency fund — Savings set aside for unexpected expenses. See Emergency Fund: Why You Need One.
Expense ratio — A fund's annual cost as a percentage of your investment.
F
FDIC insurance — Federal protection for deposits at insured banks, generally up to $250,000 per depositor, per bank, per ownership category.
Fixed rate — An interest rate that doesn't change during the loan term.
H
Hard inquiry — A credit check made when you apply for credit; it may slightly lower your score temporarily.
I
Index fund — A fund that tracks a market index, such as the S&P 500.
Installment loan — A loan repaid in fixed, scheduled payments.
N
Net worth — What you own minus what you owe.
O
Origination fee — An upfront fee for processing a loan.
P
Principal — The amount borrowed, or the amount still owed, excluding interest.
Private mortgage insurance (PMI) — Insurance often required on conventional mortgages with less than 20% down.
R
Revolving credit — Credit you can borrow, repay and borrow again, such as a credit card.
Roth IRA — A retirement account funded with after-tax money; qualified withdrawals are tax-free.
S
Secured loan — A loan backed by collateral.
Sinking fund — Money saved gradually for a known future expense.
Soft inquiry — A credit check that doesn't affect your score.
V
Variable rate — An interest rate that can change over time.