Financial Glossary

An ACH (Automated Clearing House) transfer is an electronic bank-to-bank payment processed through...

Adjusted gross income is your total gross income minus specific deductions like student loan...

Amortization is the process of paying off a loan through regular installment payments over a set...

The annual percentage rate is the total yearly cost of borrowing money, expressed as a percentage....

An annuity is a financial product sold by insurance companies that provides a series of payments at...

An appraisal is a professional assessment of a property's market value conducted by a licensed...

Asset allocation is the strategy of dividing your investment portfolio among different asset...

A tax audit is a review of your tax return by the IRS or a state tax agency to verify that your...

Auto insurance is a policy that provides financial protection against losses resulting from car...

A balance transfer is the process of moving debt from one credit card to another, usually to take...

Bankruptcy is a legal process that allows individuals or businesses to seek relief from debts they...

A bear market is a period when stock prices fall 20% or more from recent highs, typically...

A beneficiary is a person or entity you designate to receive the proceeds from a financial account,...

A bond is a fixed-income investment where you lend money to a government or corporation in exchange...

A broker is a licensed professional or firm that acts as an intermediary between buyers and sellers...

A budget is a plan that tracks your income and expenses to help you manage your money effectively....

A bull market is a period when stock prices are rising or are expected to rise, typically defined...

A business expense is a cost incurred in the ordinary course of running a business that can...

Capital appreciation is the increase in the value of an asset or investment over time. For example,...

Capital gains are the profits you earn when you sell an asset for more than you paid for it....

Capital gains tax is the tax you owe on profits from selling investments or assets. The rate...

Cash flow is the net amount of money moving in and out of your accounts over a given period....

Cash value life insurance is a type of permanent life insurance that combines a death benefit with...

A certificate of deposit is a savings product offered by banks that pays a fixed interest rate for...

A charge-off occurs when a creditor writes off your debt as a loss after you have failed to make...

A checking account is a deposit account at a bank or credit union that allows frequent deposits and...

The child tax credit is a federal tax benefit that reduces your tax bill for each qualifying child...

Closing costs are the fees and expenses you pay when finalizing a real estate transaction,...

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law that allows you to...

Coinsurance is the percentage of medical costs you are responsible for paying after you have met...

Collateral is an asset that a borrower pledges to a lender as security for a loan. If the borrower...

A collection agency is a company that pursues payment on debts that are past due or in default....

Collision coverage is an auto insurance component that pays to repair or replace your vehicle if it...

A commission is a fee paid to a broker, agent, or salesperson for facilitating a transaction. In...

Compound interest is interest calculated on both the initial principal and the accumulated interest...

Comprehensive coverage is an auto insurance component that pays for damage to your vehicle caused...

A conventional loan is a mortgage that is not insured or guaranteed by a government agency like the...

A copay (copayment) is a fixed dollar amount you pay for a covered healthcare service at the time...

Cost basis is the original value or purchase price of an asset, used to calculate capital gains or...

A cost-of-living adjustment is an increase in income or benefits designed to keep pace with...

A credit bureau is a company that collects and maintains consumer credit information, then sells it...

A credit score is a three-digit number, typically ranging from 300 to 850, that represents your...

Credit utilization is the ratio of your outstanding credit card balances to your total available...

A debit card is a payment card linked directly to your checking account that deducts money...

Debt consolidation is the process of combining multiple debts into a single loan, ideally with a...

Your debt-to-income ratio is the percentage of your gross monthly income that goes toward paying...

A deductible is the amount you must pay out of pocket for covered expenses before your insurance...

A tax deduction is an expense that reduces your taxable income, thereby lowering the amount of tax...

Deferment is a temporary postponement of loan payments granted by a lender, typically for student...

A defined benefit plan, commonly known as a pension, is a retirement plan where your employer...

A defined contribution plan is a retirement plan where you and possibly your employer contribute...

Depreciation is the decrease in value of an asset over time due to wear, age, or obsolescence. In...

Direct deposit is an electronic payment method where your employer or a government agency transfers...

Disability insurance replaces a portion of your income if you become unable to work due to illness...

Discount points, often called mortgage points, are fees paid directly to the lender at closing in...

Diversification is the investment strategy of spreading your money across different asset types,...

A dividend is a payment made by a company to its shareholders, typically from profits, as a return...

Dollar-cost averaging is an investment strategy where you invest a fixed dollar amount at regular...

A down payment is the upfront cash you pay when purchasing a home or other major asset, expressed...

The earned income tax credit is a refundable federal tax credit designed to benefit low- to...

Your effective tax rate is the average rate at which your income is taxed, calculated by dividing...

An emergency fund is money set aside in a readily accessible account to cover unexpected expenses...

An employer match is a contribution your employer makes to your retirement plan based on a...

Equity represents ownership value in an asset after subtracting any debts or liabilities. In...

Escrow is a financial arrangement where a neutral third party holds funds or documents on behalf of...

Estate planning is the process of arranging for the management and distribution of your assets...

The estate tax is a federal tax on the transfer of a deceased person's assets to their heirs. Only...

Eviction is the legal process by which a landlord removes a tenant from a rental property,...

An exchange-traded fund is an investment fund that trades on a stock exchange like an individual...

An excise tax is a tax levied on specific goods, services, or activities, often included in the...

The expense ratio is the annual fee charged by a mutual fund or ETF, expressed as a percentage of...

Fair market value is the price at which an asset would sell in an open and competitive market...

The Federal Deposit Insurance Corporation is an independent government agency that insures deposits...

The federal funds rate is the interest rate at which banks lend money to each other overnight, set...

An FHA loan is a mortgage insured by the Federal Housing Administration, designed to make...

A FICO score is the most widely used credit scoring model, created by the Fair Isaac Corporation....

A fiduciary is a person or organization legally obligated to act in your best financial interest,...

Your filing status is a classification on your federal tax return that determines your standard...

A financial advisor is a professional who helps clients manage their money by providing guidance on...

A first-time homebuyer is generally defined as someone who has not owned a home in the past three...

A fixed-rate mortgage is a home loan with an interest rate that remains constant for the entire...

A flexible spending account is an employer-sponsored benefit that lets you set aside pre-tax...

Forbearance is a temporary agreement between a borrower and lender to reduce or pause loan payments...

Foreclosure is the legal process by which a lender takes possession of a property when the borrower...

The front-end ratio, also known as the housing ratio, is the percentage of your gross monthly...

Full coverage insurance is an informal term for an auto insurance policy that includes liability,...

Gap insurance covers the difference between what you owe on your auto loan or lease and the actual...

Wage garnishment is a legal process where a court orders your employer to withhold a portion of...

The gift tax is a federal tax on the transfer of money or property to another person when you...

A grace period is the amount of time after a payment due date during which you can pay without...

Gross income is the total amount of money you earn before any deductions, taxes, or other...

Gross pay is the total amount of compensation you earn from your employer before any deductions are...

A growth stock is a share in a company expected to grow its revenue and earnings at a rate...

Guaranteed issue refers to an insurance policy or benefit that must be offered to all applicants...

A hardship withdrawal is an early distribution from a retirement plan like a 401(k) taken because...

Head of household is a tax filing status for unmarried taxpayers who pay more than half the cost of...

Health insurance is a type of coverage that pays for medical and surgical expenses incurred by the...

A health savings account is a tax-advantaged account available to individuals enrolled in a...

A HELOC (home equity line of credit) is a revolving line of credit secured by the equity in your...

A high-deductible health plan is a health insurance plan with a higher annual deductible than...

A high-risk driver is someone whom auto insurance companies consider more likely to file a claim,...

Home equity is the portion of your home that you actually own, calculated as the current market...

Homeowners insurance is a policy that provides financial protection for your home and personal...

HSA stands for health savings account, a tax-advantaged savings account paired with a...

Income tax is a tax levied by federal, state, and sometimes local governments on the money you...

An index fund is a type of mutual fund or ETF designed to replicate the performance of a specific...

An individual retirement account is a tax-advantaged account that individuals can open to save for...

Inflation is the gradual increase in the general price level of goods and services over time, which...

The inflation rate is the percentage change in the price level of goods and services over a...

An insurance premium is the amount you pay to an insurance company, typically on a monthly or...

Interest is the cost of borrowing money or the reward for lending it. When you take out a loan, you...

An interest rate is the percentage charged by a lender for borrowing money, or paid by a bank for...

An investment portfolio is the collection of all your financial assets, including stocks, bonds,...

IRA contribution limits are the maximum amounts you can contribute to an individual retirement...

The Internal Revenue Service is the U.S. federal agency responsible for collecting taxes and...

Itemized deductions are specific expenses allowed by the IRS that you can subtract from your...

A joint account is a bank or investment account shared by two or more individuals, each having...

Joint filing, or married filing jointly, is a tax filing status available to legally married...

A jumbo loan is a mortgage that exceeds the conforming loan limits set by the Federal Housing...

A Keogh plan is a tax-deferred retirement plan available to self-employed individuals and...

A late payment occurs when you fail to make at least the minimum required payment on a debt by its...

A lender is a financial institution, bank, credit union, or individual that provides money to a...

In personal finance, a liability is any financial obligation or debt that you owe, such as a...

Liability coverage is the portion of an insurance policy that pays for bodily injury and property...

A lien is a legal claim or hold on an asset, used as collateral to secure a debt. If the debt is...

Life insurance is a contract between you and an insurance company that pays a death benefit to your...

The lifetime exemption is the total amount you can transfer during your life and at death through...

A line of credit is a flexible loan from a bank or financial institution that allows you to borrow...

Liquid assets are cash or investments that can be quickly and easily converted to cash without...

A loan origination fee is a charge by a lender for processing a new loan application, covering...

The loan term is the length of time you have to repay a loan in full. Common mortgage terms are 15...

The loan-to-value ratio is the amount of your mortgage expressed as a percentage of the property's...

Long-term capital gains are profits from the sale of assets held for more than one year. They...

Your marginal tax rate is the tax rate applied to your last dollar of taxable income, determined by...

Market capitalization, or market cap, is the total value of a company's outstanding shares of...

The maturity date is the date on which a financial instrument, such as a bond, certificate of...

Medicaid is a joint federal and state program that provides health coverage to low-income...

Medicare is a federal health insurance program primarily for Americans aged 65 and older, as well...

The Medicare tax is a payroll tax that funds the Medicare health insurance program. Employees and...

The minimum payment is the smallest amount you must pay on a debt each month to remain in good...

Modified adjusted gross income is your adjusted gross income with certain deductions added back in,...

A money market account is a type of savings account offered by banks and credit unions that...

Your monthly payment is the amount you pay each month toward a loan or other financial obligation....

A mortgage is a loan used to purchase real estate, where the property itself serves as collateral....

Mortgage insurance is a policy that protects the lender if you default on your home loan. It is...

The mortgage rate is the interest rate charged on a home loan, which directly determines the cost...

A mutual fund is a pooled investment vehicle that collects money from many investors to buy a...

The amount of money you earn after all taxes, deductions, and expenses have been subtracted from...

The actual amount of money deposited into your bank account after all payroll deductions including...

The total value of everything you own (assets) minus everything you owe (liabilities). Assets...

A type of auto insurance required in some states where your own insurance company pays for your...

A traditional IRA contribution made with after-tax dollars that cannot be deducted from your...

A designated period each year when you can sign up for, change, or cancel your health insurance and...

A one-time charge from a lender for processing a new loan application. It covers the cost of...

The most you will have to pay for covered healthcare services in a plan year. Once you hit this...

A situation where you spend or withdraw more money than is available in your bank account,...

Hours worked beyond the standard 40-hour workweek for non-exempt employees under the Fair Labor...

Earnings from activities in which you are not actively involved on a day-to-day basis. Common...

Taxes withheld from employee paychecks and paid by both employers and employees to fund Social...

A financial charge imposed for violating the terms of a financial agreement or tax regulation....

A retirement plan funded by an employer that provides a guaranteed monthly income to employees...

A daily allowance paid to employees to cover meals, lodging, and incidental expenses while...

An unsecured loan from a bank, credit union, or online lender that can be used for almost any...

Personal Injury Protection is a type of auto insurance that pays for medical expenses, lost wages,...

Upfront fees paid to a mortgage lender at closing to reduce the interest rate on your loan, also...

The collection of all your financial investments, including stocks, bonds, mutual funds, ETFs, real...

A preliminary commitment from a lender indicating how much they are willing to lend you for a...

An amount subtracted from your gross pay before income taxes and sometimes payroll taxes are...

The amount you pay regularly, usually monthly, to maintain an insurance policy. Your premium is...

A fee charged by some lenders if you pay off your loan before the scheduled end date. These...

The original amount of money borrowed on a loan or the remaining balance that has not yet been...

Insurance that protects the lender (not you) if you default on a conventional mortgage where your...

The legal process through which a deceased person's will is validated and their assets are...

A tax system where higher income is taxed at higher rates through a series of escalating brackets....

An annual tax levied by local governments based on the assessed value of real estate you own....

The process of dividing a cost proportionally based on the amount of time each party is...

A withdrawal from a Roth IRA or Roth 401(k) that is completely tax-free and penalty-free. To...

An employer-sponsored retirement plan that meets IRS requirements and qualifies for favorable tax...

A lender's guarantee that a specific interest rate will be available to you for a set period,...

A tax assessed on real property by local governments, often used interchangeably with property tax....

The process of realigning the proportions of assets in your investment portfolio to match your...

The process of replacing an existing loan with a new one, usually to secure a lower interest rate,...

A Real Estate Investment Trust is a company that owns, operates, or finances income-producing real...

Money earned from renting out property you own, such as a house, apartment, or commercial space....

The minimum amount you must withdraw annually from tax-deferred retirement accounts like...

Money received during retirement from sources such as Social Security, pensions, 401(k) and IRA...

A measure of the profit or loss generated by an investment relative to its cost, expressed as a...

A type of credit that allows you to borrow repeatedly up to a set limit, repay, and borrow again....

An add-on provision to a standard insurance policy that provides additional benefits or coverage at...

Your willingness and ability to endure fluctuations in the value of your investments. Risk...

The transfer of funds from one retirement account to another without incurring taxes or penalties....

The process of moving money from a traditional IRA or 401(k) into a Roth IRA. You pay income taxes...

An individual retirement account funded with after-tax dollars where your investments grow tax-free...

A fixed amount of compensation paid to an employee on a regular schedule, typically expressed as an...

A deposit account at a bank or credit union that earns interest on your balance. Savings accounts...

A government-issued debt security that you buy at face value and earns interest over time. US...

The percentage of your income that you save or invest rather than spend. Financial experts commonly...

Self-employment tax is the Social Security and Medicare tax that self-employed individuals must pay...

A loan backed by collateral, meaning the lender can seize a specific asset if you fail to repay....

The Social Security and Medicare taxes paid by individuals who work for themselves, including...

A Simplified Employee Pension IRA that allows self-employed individuals and small business owners...

Profits from selling an asset held for one year or less, which are taxed at your ordinary income...

Interest calculated only on the original principal balance of a loan or deposit, not on previously...

A savings strategy where you set aside money regularly for a specific planned expense, such as a...

A federal program that provides retirement income, disability benefits, and survivor benefits to...

The portion of FICA tax that funds the Social Security program. Employees pay 6.2% of their gross...

A certificate of financial responsibility that your auto insurance company files with your state to...

A fixed dollar amount that reduces the income on which you are taxed, available to all taxpayers...

A share of ownership in a publicly traded company. When you buy stock, you become a partial owner...

The collection of exchanges and markets where stocks, bonds, and other securities are bought and...

Money borrowed to pay for higher education expenses including tuition, room and board, books, and...

Compensation paid to employees in addition to their regular salary or hourly wages. Examples...

A range of income taxed at a specific rate within a progressive tax system. The US federal income...

A dollar-for-dollar reduction in the amount of tax you owe, which is more valuable than a deduction...

An expense that you can subtract from your taxable income, which reduces the amount of income...

The total amount of tax you owe to federal, state, and local governments for a given tax year. Your...

The forms filed with the IRS and state tax agencies that report your income, deductions, credits,...

The amount of federal, state, and local income tax that your employer deducts from each paycheck...

An investment or account where taxes on earnings are postponed until the money is withdrawn,...

Income or an investment that is not subject to taxation. Municipal bond interest is typically...

An investment strategy where you sell securities at a loss to offset capital gains taxes on other...

The portion of your gross income that is subject to federal and state income taxes after all...

Life insurance that provides coverage for a specific period, typically 10, 20, or 30 years. If you...

A one-time insurance policy purchased during a real estate transaction that protects against...

The complete cost of purchasing and owning an asset over its entire lifespan, including the...

An individual retirement account where contributions may be tax-deductible and investments grow...

A legal arrangement where one party (the trustee) holds and manages assets on behalf of another...

An extra liability insurance policy that provides coverage beyond the limits of your homeowners,...

Auto insurance coverage that pays for your injuries and damages when the at-fault driver does not...

The process by which a lender or insurer evaluates the risk of providing coverage or approving a...

Auto insurance coverage that protects you if you are involved in an accident with a driver who has...

A type of permanent life insurance with flexible premiums and an adjustable death benefit. Part of...

A loan or credit obligation that is not backed by collateral. Credit cards, medical bills, personal...

A mortgage loan program guaranteed by the US Department of Veterans Affairs, available to eligible...

A stock that appears to be trading at a lower price relative to its fundamental value, as measured...

Costs that change from month to month based on your usage or choices, such as groceries, dining...

A home loan with an interest rate that adjusts periodically based on a benchmark index. Also known...

The process by which you earn the right to keep employer contributions to your retirement plan or...

A statistical measure of how much an investment's price fluctuates over time. High volatility means...

A tax form that employers must send to each employee and the IRS by January 31 of each year. It...

The Employee's Withholding Certificate that you fill out when starting a new job or when your...

Compensation paid to an employee based on an hourly rate multiplied by the number of hours worked....

A type of permanent life insurance that provides coverage for your entire lifetime as long as...

An electronic transfer of funds between banks or financial institutions, typically used for large...

The portion of an employee's earnings that an employer sends directly to the government as a...

Insurance that provides benefits to employees who are injured or become ill as a result of their...

The income generated by an investment expressed as a percentage of its price or face value. For...

A graph that plots the interest rates of bonds with equal credit quality but different maturity...

A budgeting method where every dollar of income is assigned a specific purpose, so income minus all...

A bond that does not make periodic interest payments. Instead, it is sold at a deep discount to its...