Glossary of Financial Terms

Savings & Investing

Compound Interest - Interest earned on previously earned interest as well as the principal.

Annual Percentage Yield - The APY is the rate actually earned or paid in one year, taking into account the effect of compounding.

Liquidity - The ability to turn assets into cash rapidly without a penalty.

Annuity - An investment which has a number of future payments for a specified period of time.

Mutual Fund - A fund in which individuals' investments are pooled and the combined total is used by a professional money manager to invest in primarily common stocks.

Consumer Price Index - A measure of the increase or decrease in the costs of goods and services.


Credit & Borrowing

 

Amortization -The process of paying a debt in segments over a set period of time, with a portion of each payment going toward principal, a portion toward interest.

Collateral - Assets pledged to secure the repayment of a loan.

Equity - The difference between the value of a property and what you owe on it.

Escrow - Deposit money held by a third party.

Liability - An actual or potential financial obligation.

Net Worth - Total assets minus total liabilities.

Principal - Portion of a loan payment that goes toward reducing the amount of the debt.

Term - Length of time it will take you to repay your loan if payments are made as scheduled.

Business

Sweep Account - A sweep account is a cash management tool that provides businesses a higher level of earnings without increased personal intervention. With this type of account, idle funds are swept each night from a transaction account into a higher-yielding, overnight investment. A sweep account can offer business customers additional income with no additional effort on their part. This product is not FDIC insured and is subject to risks associated with investments in the stock market.

General

Overdraft Protection - Overdraft protection is a service designed to help customers manage their finances. The first step to activating this special feature is establishing a line of credit. When the checking account balance falls below $0, transfers are made, usually in pre-determined increments, from the credit line to the checking account thus avoiding a charge for non-sufficient funds.

 

For additional glossaries, please visit our Benchmark for Life Financial Answer Center.