Personal Finance Glossary

Focusing on investment, money management and marketplace terms

401(k) plan: An employer-based plan whereby employees set aside money for retirement that is sometimes matched by employers

403(b) plan: A retirement account for employees of schools, tax-exempt organizations, and government units

Adjusted balance method: A way to compute finance charges in which creditors add finance charges after subtracting payments made during the billing period

Adjusted gross income: Income minus allowable exclusions (such as IRAs and alimony)

AMEX: The American Stock Exchange, which is one of the organized stock markets in the US

Amount due: When referring to credit, the minimum monthly payment you must make, not the total amount you owe

Annual fee: The annual membership fee, if any, to have a credit card

Annual Percentage Rate (APR): The cost of credit for one year expressed as a percentage

Annual percentage yield (APY): The true or effective rate of interest when compounding is taken into effect.

Annual report: Information about a company that allows a potential investor to make an investment decision. Annual reports are distributed by the company and are generally designed to show the company in a favorable light

Annuity: A contract or agreement whereby money is set aside for a specified period of time, at the end of which you begin receiving payments at regular intervals

Assets: Property that can be used to repay debt, such as stocks and bonds or a car

At The Market: An order to buy or sell a stock at the best price currently available

Automated Teller Machine (ATM): Electronic terminals located on bank premises or elsewhere, through which customers of financial institutions may make deposits, withdrawals, or other transactions as they would through a bank teller

Automatic deductions: Authorized deductions from your checking account, such as for insurance premiums, safe deposit box fees, or other payments

Available credit: The unused portion of the credit for which one is eligible

Average daily balance: A method of computing finance charges in which creditors add your balances for each day in a billing period, and then divide by the number of days in the period

Back-end load: A mutual fund where you pay a commission when you sell your shares

Balance: To reconcile the sums of the debits and credits of an account

Balanced fund: A mutual fund that invests in a mix of stocks and bonds to minimize risks

Bank: A financial institutions that accumulates deposits and channels money into lending activities

Bank statement: The record of checks paid, deposits made, and all other activity on an account

Bankruptcy: Legally insolvent; not capable of paying bills

Bear market: A market characterized by falling prices of 15 percent or more; characterized by pessimism

Bearer bond (coupon bond): A bond not registered by an issuing company

Benefits: Sick pay, vacation time, and other company-provided supplements to income

Billing cycle: The number of days between your last bill and your current bill

Billing error: Any mistake in your monthly statement as defined by the Fair Credit Billing Act

Blank endorsement: The signature of the payee written on the back of the check exactly as it appears on the front of the check

Blue chip stocks: Stocks in the biggest, most established, and consistently profitable companies in the United States

Bond fund: A mutual fund that invests in government, corporate, or tax-exempt bonds with different maturity dates

Bonds: Debt obligations of corporations or the government

Borrower: The person who borrows money or uses another form of credit

Broker: A person who buys and sells stock on an exchange, on behalf of a buyer or investor

Budget: An organized plan whereby you match your expected income to your expected outflow

Bull market: A rising stock market (in both volume and prices), which is characterized by optimism

Business: An organization that produces goods and services. Most businesses try to earn a profit

Call option: The right to buy stock or futures contracts at a fixed price until the expiration date

Callable bond: Bonds that can be recalled, or paid off, before their maturity date

Canceled check: Checks the bank has processed

Capacity: The ability to repay a loan from present income

Capital: Wealth available to produce more wealth; assets of a person or business after liabilities are deducted

Capital gains: Profits from sale of assets, such as stocks, bonds or real estate that are not taxed until the asset is sold

Capital goods: Buildings, tools, machinery and other manufactured items used to produce goods and services

Cardholder agreement: A written contract that sets forth the terms that apply to a credit or charge card account, including the interest rate charged, the method of calculating interest and any annual or transaction fees

Cash advance: A loan taken out by charging an amount of cash to a credit card

Cash flow (positive): The excess of income over and above expenses

Cashier’s check: A check written by a bank on its own funds in exchange for payment by an individual

Certificate of deposit: A time certificate representing a sum of money deposited for a set length of time, such as six months

Certified check: A personal check that the bank guarantees to be good

Character: A trait of creditworthiness indicating a responsible attitude toward paying debts

Charge card: A credit card which requires full payment of the bill each month; no interest is charged

Check card: Also called a debit card it works like a check. It is used to access funds from your checking account

Checkbook register: A record of deposits to and withdrawals from a checking account.

Checking account: A banking service wherein money is deposited into an account and checks are written to withdraw money as needed

Closed-end credit: A contract for the loan of a specified amount in which the contract issued tells the amount of purchase, the total finance charge, and the amount of each payment

Co-signer: Someone who signs a loan with the borrower and promises to assume the responsibility of repaying the debt in the event that the borrower does not repay it

Collateral: Savings, bonds, insurance policy, jewelry, property or other item that is pledged to pay off a loan or other debt if payments are not made according to the contract; also called security

Commission: Pay based on a percentage of sales

Common stock: A class of stock whereby the person who owns the stock shares directly in the success or failure of the business

Compound interest: Interest paid on the original principal plus the accumulated interest

Consumer: A customer who buys the products or services a business produces

Consumer Price Index (CPI): A special average of many prices of goods and services that people often buy; the CPI is calculated by the US Department of commerce

Convertible bond: A bond that can be be exchanged for common stock at maturity

Cooperative: A type of corporation, like a credit union, that is owned by the people who use its services

Corporate bond: An IOU issued by a corporation in owner to borrow money

Corporation: A business that is owned by stockholders and has rights and responsibilities just like a person

Credit: The privilege of borrowing something now, with the agreement to pay for it later

Credit bureau: A for-profit company that is in the business of accumulating, storing, and distributing credit information

Credit card: A card that allows you to buy items on credit and pay off your debt over time

Credit history: A record of your credit performance

Credit limit: The amount of credit you are authorized to use

Credit report: A written report issued by a credit bureau that contains relevant information about a person’s creditworthiness

Credit scoring system: A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness

Credit union: A democratically owned and controlled not-for-profit financial cooperative that offers a variety of savings and lending services to members

Creditor: Any person to whom one owes money or goods

Creditworthiness: Past and future ability to repay debts

Customer: A person who buys the goods or services produced by a business

Debit card: A plastic card that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers. Use of a debit card results in an immediate transfer of funds

Debt: Money owed

Debt balance: amount still owed on a debt

Debt collector: A person or company hired by a creditor to collect the balance due on overdue accounts

Debt load: The amount of outstanding debt at a particular point in time

Debtor: One who owes money to another

Deductions: Amount subtracted from gross pay

Depreciation: Loss in value of a consumer good during its lifetime often associated with appliances and vehicles

Direct investments: Investments in which the investor holds legal title to a property

Discharged debt: A debt that is no longer owed after declaration of bankruptcy

Discretionary income: Money that is left over when the bills have been paid

Disposable income: The money you have to spend or save as you wish after taxes, social security, and other required and optional deductions have been withheld from your gross pay

Diversification: Holding a variety of securities so an occasional loss in one can be offset by gains in others

Dividends: A distribution of money or stock that a corporation pays to stockholders

Dollar-cost averaging: The process of making regular payments or investing the same amount periodically

Dow Jones Industrial Average: An indicator of 30 industrial stock prices used to measure the general level of stock prices

Down payment: An amount given as security for a loan to ensure that other remaining payments will be made

Drafts: Checks used to withdraw money from an account

Due date: The date payment is due to a creditor

Early withdrawal penalties: Fees charged to depositors who take money from their account before a minimum time period has expired

Earnings per share: A corporation’s after-tax earnings divided by the number of shares of common stock outstanding

Electronic Fund Transfer systems: A variety of systems and technologies for transferring funds electronically rather than by check

Equal Credit Opportunity Act (ECOA): Forbids discrimination in granting credit because of age, sex, marital status, religion, race, color, national origin, or receiving public assistance

Face value: The amount a bondholder will be repaid when the bond matures or is due

Fair Credit Reporting Act: Consumers’ rights are protected when collecting and reporting information when applying for credit, insurance, and employment

Family of funds: A mutual fund account that allows you to choose more than one type of mutual fund and switch back and forth

Finance charge: The percentage charge applied to the daily or monthly balances as described in the credit agreement

Financial advisers: Trained professional planners who give overall investment advice

Financial markets: Markets that direct savings into money-type assets (such as stocks, bonds, and bank accounts) that pay households for the use of their savings. Commercial banks, savings and loans, credit unions, insurance companies, brokerage houses, pension funds, and investment bankers are some of the businesses that are found in financial markets

Fixed expenses: Expenses that remain constant

Fixed interest rate: An interest rate that does not change

Floating a check: The practice of writing a check on insufficient funds and hoping to make a deposit to cover the check before it is cashed

Futures contract: An agreement made today for commodities bought and sold in the future

Futures market: A transaction that allows people to know in advance what they will be paid in the future

General obligation bond: A bond that is backed by the full faith and credit of a governmental unit

Global fund: A mutual fund that purchases international stocks and bonds as well as US securities

Government securities: An IOU issued by the US Treasury in order to borrow money. Owners of these IOUs receive fixed interest payments from the Treasury until the IOU is repaid at a given date in the future. Government securities come in three types. Treasury bills are short-term IOUs that are repaid within a year or less. Treasury notes are medium-term IOUs that are repaid within 1-10 years. Treasury bonds are long-term IOUs that are repaid after 10 years or more

Grace period: The period of time from the billing date of your last credit card bill to the due date of your current bill, when you can pay in full without being charged interest

Gross income: All taxable income received, including wages, tips, salaries, interest, dividends, unemployment compensation, alimony and others

Gross pay: The total salary before any deductions are made

Growth funds: Mutual funds that invest in the common stock of established companies as well as in new companies and industries

Growth stocks: Stocks issued by a corporation that will provide future returns rather than income in the short term

High-yield fund: Mutual fund that invests primarily in lower-rated bonds

Income: Money that comes in from property, business or work

Income fund: A mutual fund that specializes in income-producing securities, which consistently pay good dividends

Income statement: A summary of a company’s revenue and costs for a given year

Income stocks: Stocks that have a consistent history of paying high dividends

Individual Retirement Account (IRA): A retirement plan that allows workers to set aside money each year in tax-deferred savings

Inflation: An increase in the general level of prices you pay for goods and services. A popular measure of inflation is the consumer price index

Installment loan: A loan to be repaid in fixed payments that include principle and interest

Interest: Money paid for the use of money; earnings on a savings account

Investment: Outlay of money in the hope of realizing a profit

Investment banker: A business that gives corporations advice on how to raise money and also sells new issues of stocks or bonds

Investment company: A firm that, for a management fee, invests pooled funds of small investors in different types of securities

Investment grade: High-quality bonds

Investment portfolio: A group of collection of investments, including cash, CDs, stocks and more

Investment strategy: A plan that examines potential returns and rates investments according to desirability

Investor services: Companies that provide investors with financial information about companies

Joint account: An account held by two people

Joint endorsement: The signatures, on the back of a check, of both persons named as payees on the front of the check

Junk bonds: Corporate bonds with a low or no investment rating

Late payment fee: A charge added to an account if a required payment is not received by a specific date

Liabilities: Amounts of money that are owed to others

Line of credit: A pre-established amount that can be borrowed on demand

Liquidity: The quality of being easily converted to cash

Listed stock: Stocks that have been approved and listed for trading by one of the organized stock exchanges

Loan: Money loaned out at interest

Long-term investing: Buying stock and then keeping it for many years in an effort to have one’s money grow in step with stock prices generally

Market: The process through which buyers and sellers exchange with one another

Market confidence: Understanding value and quality of a product or service in the planning of purchases. Using decision-making skills in purchasing products or services

Market economy: An economic system whereby both producers and consumers play an active role in determining what is produced and sold and at what price

Maturity: The time when a corporation repays borrowed money

Maturity date: The date on which you must renew a certificate, cash it in, or purchase a new certificate; the date on which a bond’s principal amount must be repaid in full

Minimum monthly payment: The smallest payment you can make to maintain a credit account on current status

Money Market Account: A bank deposit that pays interest and that allows a saver to withdraw money at will, often by writing checks

Money market fund: A combination savings-investment plan in which the deposit holder (brokerage firm) invests your money in a variety of financial instruments

Money order: An order purchased at a post office or financial institution directing another office to pay a specified sum of money to a person or fund named on it

Monopoly: A situation where there is only one producer of a product or service

Municipal bonds: Bond issued by state and local government units. Earnings are tax-free

Mutual fund: A company that pools the money of many investors to buy a large selection of securities that meet the fund’s state investment goals

NASDAQ: The National Association of Securities Dealers Automated Quotation system is an important part of the over-the-counter market. NASDAQ is an electronic marketplace listing prices of more than 5,000 stocks

Negotiable instrument: A document that contains promises to pay monies and is legally collectible

NOW account: Negotiable Order of Withdrawal. Another name for the first checking accounts offered by savings and loans

Net income: A company’s revenue minus its expenses. Net income is also called earnings or profits

New issues market: A market in which a corporation sells new stock to raise money for start-up or expansion. This market is often called the primary stock market

NYSE: The New York Stock Exchange, which is one of the organized stock markets in the US

No-load mutual funds: Mutual funds that do not charge commissions. However, there are annual maintenance charges and service fees

Open-ended credit: Credit wherein the lender places a limit on how much a qualifying customer can borrow during a given period

Option: The right to buy or sell stock at a predetermined price

Over-the-limit fee: A charge imposed on some credit accounts for spending more than your credit limit

Over-the-counter (OTC) market: A network of stockbrokers who buy and sell securities of corporations that are not listed on a securities exchange

Overdraft (or NSF not-sufficient funds check): A check written without sufficient money in an account to cover it

Overdraft checking: A line of credit that allows you to write checks or withdraw funds totaling more than your actual balance

Past due: The status of a bill when the minimum payment has not been received by the due date

Penny stock: Stocks that sell for less than $5 per share

Percentage yield: The amount of dividends received per share of stock divided by the stock’s price. The yield is always stated as a percentage

Periodic rate: The interest rate described in relation to a specific amount of time. For example, the Monthly Periodic Rate is the cost of credit per month

Personal Identification Number (PIN): A four-digit code that allows you to make deposits and withdrawals with your ATM (Automated Teller Machine) card

Positive cash flow: When income exceeds the amount needed to cover expenses

Posting date: The date that a purchase, cash advance, fee, service charge or payment is recorded on your charge or credit account

Preferred stock: The type of corporate stock in which dividends are fixed, regardless of the earnings of a company

Previous balance method: A method of computing finance charges in which creditors give you no credit for payments made during the billing period

Price-fixing: An antitrust situation that occurs when competitors agree on prices rather than operate on a competitive basis

Principal: The total amount that is financed or borrowed an on which interest is compounded

Profit: The amount a business earns when the money received from selling its product or service is greater than its costs

Proprietorship: A business owned and managed by one individual who receives all profits and bears all loss

Prospectus: Detailed financial information about a mutual fund company or a company issuing stock

Public corporation: A corporation whose stock is traded openly in stock markets and may be purchased by an individual

Purchasing power: The ability to buy goods and services

Put option: The right to sell stock or futures contracts at a fixed price until the expiration date

Recession: The economy slows down and manufacturers slow production (there are layoffs); an economic downturn of two or more quarters

Registered bond: A bond that is recorded in eh owner’s name by the insuring corporation

Restrictive endorsement: An endorsement that restricts the use of a check

Retail stores: Stores that purchase goods from wholesalers and sell directly to customers

Revolving credit: A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As credit is paid off, it becomes available to use again

Saving: Setting aside income or money for future spending

Savings bond: An interest-bearing certificate purchased at a bank. The face value includes interest and the full amount is paid upon maturity

Secured credit card: A consumer uses savings or other collateral to guarantee the credit card; the limit of credit is based on the amount of collateral available

Securities: A broad range of investment instruments, including stocks, bonds and mutual funds

Service charge: The amount charged borrowers by merchants or banks for servicing or carrying an account or loan

Share account: A savings account at a credit union; the shares are ownership interest in the credit union

Share draft account: A “checking” account offered to members of a credit union. Instead of checks, “drafts” are written against the member’s account

Short-term investing: The continual buying and selling of stock in an effort to have one’s money grow faster than the general level of stock prices

Simple interest: Interest compounded on the principal only

Standard of living: A measure of an individual’s or a family’s quality of life

Stock: Ownership in a corporation; stock can be common or preferred

Stock exchange: One of the organized stock markets with a centralized trading floor. Auction-type trading allows traders to sell stocks to the highest bidder or buy stocks from the lowest supplier

Stock market: A market in which the people trade stocks they already own

Stock split: The division of a stock into a larger number of lower-priced shares

Stockbroker: A broker who accepts orders to buy and sell stock and then transfers those orders to other people who complete them

Stockholder: An owner of a share of stock

Stop payment order: A request that the bank not cash or process a specific check

Taxable income: Adjusted gross income minus deductions

Transaction fee: An extra charge for various credit activities such as using an ATM or receiving a cash advance

Traveler’s checks: Checks issued by a bank or other institution for a specified amount and signed by the buyer, who may use it as cash by signing it again in the presence of a witness, such as a clerk in a store

Unsecured loan: A loan based on a consumer’s promise to pay without savings or other collateral as a guarantee

Unused credit: The amount of credit above what you owe that you could use; a maximum is usually set

Usury laws: Laws setting maximum interest rates that lenders may charge

Variable interest rate: An interest rate that changes up or down on a set schedule based on an economic index such as the prime rate

Yield: The rate of return earned by an investor who holds a security, such as a bond or stock, for a stated period of time

Zero balance: When the outstanding balance is paid and there are no new charges during a billing cycle

Zero-coupon bond: A bond that is sold at a price far below its face value, makes no annual or semi-annual interest payments, and is redeemed for its face value at maturity

The National Consumers League would like to thank the American Express Philanthropic Program for providing funding to enable us to produce this personal finance glossary.