Basic financial terms glossary

Credit terms

Doing some homework to understand important jargon may help you navigate credit with more confidence. Here is some credit terminology to help get you started:

• Revolving credit — this type of account doesn't have an end date. You have a credit limit and must make monthly payments toward the balance, like credit cards.
• Installment credit — this is a loan that's repaid over a defined period of time, such as a student or car loan.
• Individual account — an account in which one person is responsible for the terms and payment obligations.
• Joint account — an account in which two people share the responsibility for the terms and payment obligations.
• Authorized user — an authorized user is someone the account owner gives permission to access their account. The account owner, however, is ultimately responsible for payment.
• Credit score — a credit score is a numeric value, between 300-850 that indicates to creditors how likely you are to repay loans, such as an auto or home loan.
• Debt-to-income ratio (DTI) — a comparison of your monthly debts owed vs. your monthly gross income. This is a way lenders decide whether you have the funds needed to make your monthly payments on time and your ability to pay off debt.
• Interest rate — this is the percentage your lender will charge on a loan or credit card.
• Annual percentage rate (APR) — a yearly rate charged for a loan, credit card or earned investment.

Get familiar with your credit situation by pulling a free credit report. Want to know more about what makes up your credit score? Check out the factors that make up your credit score.

Investing^{footnote 1} terms

Brushing up on basic investment terms may help you make more informed decisions when you begin investing. Discover a few terms that may help:

• Cash equivalents — highly liquid assets that pay you interest for holding your money in them, similar to a savings account. They are a low-risk, low-reward investment.
• Bonds^{footnote 2} — bonds are loans investors make to governments or corporations. The bond issuers promise to pay back the investor the full loan amount plus interest. Investors tend to like bonds because they generally give a fixed interest rate.
• Stocks — when you buy a stock, you are purchasing a share of the company. You make money when the stock price goes up and lose money when the stock price goes down. The company may also issue you a dividend, which is the company sharing its profits with shareholders.
• Assets — something you own worth value, such as bonds, stocks or real estate.
• Mutual Funds – investors pool together funds and invest in diversified portfolios like stocks, bonds and other investments split up into shares.

Did you know you might already be an investor? If you’re putting money in retirement accounts (like a 401(k) or IRA), the best next step is to know what you're invested in, and whether it's right for you. Look into your retirement accounts and review your "asset allocation" — a fancy way of saying how your money is split between stocks, bonds and cash equivalents, and in what amounts.

If you're not an investor consider exploring the first steps to investing. Once you understand the different options for investing, you might be more equipped to select which accounts (or a combination of a few) are right for you.

Retirement terms

It’s never too soon to start saving for retirement. Regardless of your age, learning about basic terms might be a good way to begin saving. Here are some concepts to help you start or continue your retirement journey:

• Annuity — a policy issued by an insurance company and purchased by individuals. The insurer will pay an annuity out at a fixed or variable income to the purchaser once or in future payments.
• Social security — benefits given to retired workers and people with disabilities.
• Pension plan — your employer contributes to a pool of funds for your retirement.
• 401(k) — a company-sponsored retirement savings plan offered by businesses. The employer can match employee contributions up to a certain limit in traditional and Roth 401(k) plans.
• 403b — retirement plan offered by nonprofits or public organizations. This plan is for individuals employed with a tax-exempt organization, like those in the education, government and medical fields.
• 457 — this retirement plan is offered to local governmental agencies and nonprofit organizations employees.
• IRA — Individual Retirement Accounts are personal retirement accounts you can contribute to every year that you've earned income.
  • Traditional IRA - pay taxes when you withdraw. Contributions made to any of the four above accounts are on a pre-tax basis, which means you generally pay no taxes on the money you contribute now, but you do pay taxes when you withdraw money in retirement.
  • Roth IRA - pay taxes today. Contributions made to any of the four above accounts are on an after-tax basis, which means you pay taxes on money you contribute today, but generally don't pay tax on the money you withdraw later.

Additional finance terms

Whether it’s investing, building your credit or preparing for retirement, understanding these finance words can be helpful when it’s time to set personal finance goals.

• Debt consolidation — if you have multiple loans or credit card payments, consolidation may allow you to transfer all your debt into a new loan with one monthly payment.
• Beneficiary — a beneficiary is a person, estate, trust or entity an account holder selects to receive their assets or benefits after the account holder or policyholder is deceased.
• Net worth — the value a person or entity is worth by subtracting liabilities from assets.
• Equity — the amount of money a person, business or entity will receive once all the liabilities have been subtracted from total assets.

Have you already been saving? Review your accounts and feel confident in your savings plan. Otherwise, decide what accounts make sense for you and take the first step towards saving for your future today.

Most importantly, start (and keep) saving ASAP — no matter how much. Even a little bit can help make an impact on your retirement. Ready to get real savvy with the numbers? Check out these retirement calculators.