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401(k) Plan

A 401(k) is a type of retirement savings plan that some employers sponsor to help employees save for retirement. As an employee, you can choose to have a portion of your paycheck — a “contribution” — paid directly into your personal 401(k) account. With most plans, your contribution is pre-tax, meaning you do not pay income taxes on the money contributed, with taxes due only when you eventually withdraw funds during retirement (see also Roth 401(k), which is taxed differently). The money gets invested, typically in mutual funds that you’ve chosen from a list of funds available for your plan. Some employers match part or all of their employees’ contributions as a benefit. 401(k) plans are typically offered by for-profit corporations.

403(b) Tax sheltered annuity plan

A 403(b) tax sheltered annuity plan provides employees of certain non-profit and public education institutions a method of saving for retirement that has tax advantages. Employees make contributions from their income into a retirement plan. The contributions are deducted from the employee's income and, as a result, the contributions are not taxed. Taxes apply when the employee withdraws money from the plan in retirement, with penalties for early withdrawals (typically, withdrawals before age 59 ½ that are not rolled over to an IRA or other qualified retirement plan).

457(b) Plan

A 457(b) Plan is a type of employer-sponsored retirement savings plan offered to some state and federal government workers. Employees who choose to participate make pre-tax contributions to the plan through payroll deduction. Some participants also are eligible for employer contributions.

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Above-the-line deductions

Above-the-line deductions are certain types of deductions that are subtracted from your income before the adjusted gross income is calculated for tax purposes. Examples of above the line deductions include alimony, student loan interest, HSA contributions, and deductible IRA contributions.

Actively managed

When a mutual fund is actively managed, the fund manager studies individual companies, the economy, business trends and other factors to determine which investments to buy or sell.

Actual cash value (ACV)

Actual cash value is the amount an insurance company pays to a policyholder in order to replace a lost, stolen or damaged item with new item of equal value.

Adjusted gross income (AGI)

Adjusted gross income (AGI) is calculated as your gross income from taxable sources minus a few special deductions that are called above-the-line-deductions (because you list them above the line where you write your AGI, on the tax form). AGI has significance because you’re ineligible for many tax benefits once your AGI is above a certain amount.

Adjustable-rate mortgage (ARM)

An adjustable-rate mortgage (ARM) is a type of mortgage with a variable interest rate. With an ARM, the interest rate for the loan can go up or down on predefined dates within a defined range. The new rate is typically based on the level of a reference-lending rate, such as the prime rate or LIBOR, on the date of the rate change.

Allowances

Allowances is a term for a figure calculated on Form W-4, which determines how much income tax is withheld from your paycheck. Each additional allowance reduces the amount of tax withheld from your paycheck. The more allowances you claim, the less tax you will have withheld.

Alternative minimum tax (AMT)

A second federal income tax system that uses a separate set of rules to calculate taxable income, deductions, and taxes due. If your tax as computed under AMT is higher than the “regular” tax, you pay the AMT rate instead.

Annual fees

An annual fee is any fee that is charged on an annual (yearly) basis. An example of an annual fee is the fee that is charged by some credit card companies to their credit card holders, simply for having the credit card.

Annual rate of return

The annual rate of return refers to the rate at which money has been gained (or lost) on an investment per year, over the period in question (which can be more or less than one year). It is typically expressed as a percentage.

Annual percentage rate (APR)

An annual percentage rate (APR) is a standardized way to tell you the interest that you'll pay on a loan, with compounding included.

Annual percentage yield (APY)

The actual interest rate an account or investment pays per year, with compounding included.

Assets

Assets are anything you own that has value. This could include items such as your home, car, cash, stocks, bank accounts and investments.

Asset allocation

Asset allocation refers to the way you divide your money into different types of investments, or asset classes. The main asset classes are stocks, bonds, cash and real estate (some also add commodities). Stocks and bonds are often divided into subcategories, such as U.S. and foreign stocks. Different asset classes have different risks. Your asset allocation should reflect the level of risk you are comfortable taking with your investments.

Asset classes

An asset class is a group of investments with similar characteristics, that behave similarly in the marketplace. Definitions vary, but the primary asset classes that most investors focus on are cash, bonds, stocks and real estate.

Assistantships

An assistantship — usually a teaching assistantship or research assistantship — is a work position awarded to a graduate student that typically pays a small stipend and, in some cases, also covers the cost of tuition.

Auto insurance

When you own a car you also are usually required to purchase auto insurance to pay for financial losses if you cause injuries or damage to property while driving. Auto insurance can also cover the costs of damage to your vehicle in the event of an accident or theft.

Award letter

A financial aid award letter is a letter you receive from post-secondary institution — community college, four-year college or university or trade, career or technical school — that tells you how much in grants, student loans and other types of financial aid you are eligible to receive, based on your application.

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Bankruptcy

Bankruptcy is the legal process by which an individual or business that cannot pay back debts is relieved of some or all of those obligations, and any assets are distributed to creditors. The relief may be a reduction or elimination of the debt, a lengthening of the payment period, or both. Some debts cannot be dismissed in bankruptcy, the most common example being student loans.

Bear market and Bull market

"Bull" and "bear" are investing jargon for "up" and "down" markets, and the general sentiment that goes along with them. It's a bull market when stocks (or bonds, or whatever investment you're referring to) are generally rising over a sustained period of time, and the conditions seem right for them to keep going up in the future. It's a bear market when prices are falling and things look bleak.

Beneficiary

A beneficiary is a person who receives a policy or account payout upon death of the account holder.

Benefits

Benefits are things that employers provide to their employees in addition to their salary/wages. Funding certain benefits is mandatory for employers, including Social Security, unemployment compensation, and workers compensation. Employers offer voluntary benefits to attract and retain their employees. Common voluntary benefits are health insurance, life insurance, retirement plans, and bonuses.

Bootstrapping

Bootstrapping refers to financing the start of a business internally, instead of seeking outside sources of funding.

Bonds

Bonds are securities issued by governments, corporations and institutions to borrow money. As the purchaser of a bond — the investor — you are a “creditor” of the bond issuer. Bonds typically pay a set amount of interest at regular intervals, and return their face value to the bond owner on a fixed date.

Broker

A broker is a person or company that facilitates purchases and sales of real estate, or financial products like insurance or investments (see stock broker). Most brokers are compensated by a sales commission that is paid by the buyer, seller or both.

Brokerage firm

A brokerage firm conducts securities transactions on behalf of customers. Usually a brokerage charges a commission to be the go-between for the buyer and seller. They profit from these commissions. Most brokerage firms allow you to buy or sell a wide variety of securities, including individual stocks and bonds as well as mutual funds that invest in them (including ETFs).

Building credit

Building credit is the process of establishing a good credit history for yourself so that you will be able to get loans at good rates and terms when it comes time to purchase a car or a home.

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Capital gain

Capital gain is the profit you make from the sale of an investment or property — the amount that you receive in excess of what you paid for the asset. If you receive less than what you paid, it’s called a capital loss.

Car insurance

Car insurance covers the cost of both physical damage to your vehicle and liability for injuries or damaged property caused by your car, if you or someone driving your car causes an accident.

Certificate of Deposit (CD)

A Certificate of Deposit (CD) is an interest-paying “time deposit” with a bank or credit union. Unlike a savings account, a CD is for a set time period and fixed interest rate, and you typically pay a penalty or forfeit some interest if you take the money out early.

Certified Financial Planner

A Certified Financial Planner (CFP) is a financial professional who has received a certification from the CFP Board of Standards that allows them to use the CFP trademark. The certification program includes a competency exam and continuing education in the field of financial planning.

Cash value

Cash value is the saving accumulated in a whole life or other permanent insurance policy that you would receive if you canceled your policy. You can also borrow using your policy’s cash value as collateral.

Claim

A claim is a policyholder’s request for reimbursement for a loss under the terms of an insurance policy. When you get into an accident, you file a claim with your insurance company. This is who, what, when, where, why and how the accident took place.

Closed-end mutual fund

Instead of taking in money continuously from investors, as is the case with an open-ended fund, a closed-end fund raises a lump of cash all at once and issues a fixed number of shares. Those shares are traded on a stock exchange. Then, the manager invests the money, and the value of the fund per share (called the NAV, net asset value) goes up or down depending on how the investments do. The fund’s shares usually do not sell for NAV, as they do with open-ended funds, because pricing is set by current supply and demand for the shares on the exchange on which they are traded.

Closing costs

Closing costs are the expenses that buyers and sellers incur to complete a real estate transaction. These costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report changes.

COBRA

Consolidated Omnibus Reconciliation Act (COBRA) is a federal law that, as one of its provisions, allows people who leave employment to continue their health insurance under the company plan for a limited period of time.

College grants

A college grant is a kind of federal government or state financial aid for higher education. Unlike a student loan, the money doesn’t have to be repaid. To receive a grant, you apply to the federal government agency or state agency responsible for it.

Collision coverage

Collision coverage is a type of car insurance that pays for the damage to your car if it collides with another car or object. If you have a car loan, then your lender likely requires collision insurance.

Codicil

A person can make a will and later make small changes with a document called a codicil. The codicil lists the changes and then reaffirms the rest of the original will document.

Compounding (or compound interest)

Compounding is the gradually-increasing growth that occurs when an account or investment generates earnings that are then left in the account or reinvested. During the next earning period, the earnings are slightly higher, because the amount invested is a bit higher. A common example of compounding is interest-paying savings accounts; by leaving any interest earned in the account, you earn interest on that new money as well as your initial deposit. Over long time periods, compounding has a very large effect on the final account value.

Comprehensive coverage

Comprehensive coverage is a type of car insurance that covers the damages to your car by fire, theft, tornado, hail, water, falling objects, natural disaster and acts of vandalism.

Consolidation

Loan consolidation is the process of refinancing multiple loans under a single loan. Loan consolidation is commonly used for education loans, where borrowers have taken out several different loans to cover the cost of education and want to reduce the number of monthly payments.

Contribution limit

A contribution limit is a restriction on how much money you can put into an account. These limits are usually associated with tax-advantaged accounts such as those used for retirement or education.

Co-insurance

Co-insurance is a method of cost sharing between a health insurance policyholder and the insurance provider. Typically the insured person is responsible for paying a certain percentage of a medical expense and the insurance provider pays the remainder.

Co-payment

A co-payment is a fee that many health insurance plans require individuals to pay for certain medical services or costs, such as doctor’s visit or a prescription medication.

Coverage

Coverage refers to the protection provided to an insurance policy holder by the terms of that policy.

Coverage limit

A coverage limit is the maximum amount of money that an insurance company will pay to a policyholder for a claim.

Credit

Money borrowed to buy something now, with an agreement to pay for it later.

Credit agreement

A credit agreement is a legal contract where a bank or other financial institution arrange to loan an individual certain amount of money for a specified amount of time. The credit agreement outlines all the rules and regulations associated with the contract. This also includes the interest that must be paid on the loan.

Credit bureau

A credit bureau is a company that gathers credit information about consumers, and provides it to lenders.

Credit history

The complete record of your borrowing and repayment performance.

Credit limit

Credit limit is the maximum amount of money that a bank or other lender will lend. For credit cards, it is the maximum amount that a credit card company will allow a card holder to borrow on a single card.

Credit rating

A credit rating is a score given to a company or security that indicates how likely the company is to pay back its debts. Each rating company has its own letter-based scale and method of rating debt (e.g. Moody’s rates bonds on a scale from Aaa to C, with C rated bonds usually being in default — not making interest payments).

Credit report

A credit report helps prospective lenders assess your credit worthiness for a loan. The report contains information about your credit accounts, loans, bankruptcies, and payment history. Your credit report can only be shared with a lender if you give permission.

Credit score

A credit score is a number used by lenders to grade your "creditworthiness" or your ability to pay back money that you borrow. Credit scores are based on your history of borrowing, rather than your income or assets.

Creditor

A person or company who loans money or extends credit to you.

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Death benefits

Death benefits are the amount of money a life insurance policy pays out upon the death of the insured.

Debt collector

A debt collector is the agency that pursues debt payment on debts that an individual or business owes on behalf of a creditor that has not received payment. Debt collectors are paid a percentage of the amount that’s owed or a fee.

Debt relief agency

A debt relief agency is an individual or company that advises people who are considering filing for bankruptcy. Following the 2005 bankruptcy law, debt relief agencies have to follow specific legal requirements and provide debtors with a clear description of the services they provide.

Deductible

An insurance policy deductible is an amount of money that a policyholder agrees to pay out-of-pocket before the insurance coverage kicks in. The amount that you pay monthly for a policy is in part determined by how high a deductible you set. Typically there is no deductible for liability coverage.

Default

Default is when a borrower fails to make scheduled payment of the interest or principal of a loan.

Deferment

A deferment is when a lender grants a temporary suspension of monthly payments, typically also suspending interest for the duration of the deferment.

Defined contribution plan

A company sponsored retirement plan in which each employee may choose to contribute part of their earnings to an individual account in their name.

Depreciation

Depreciation is the gradual reduction in value of assets over time due to wear and tear. Tax and accounting rules require owners of capital assets to factor depreciation in when computing income taxes and reporting the value of assets owned.

Direct deposit

A direct deposit is when the net pay of your paycheck is deposited electronically into your bank account, without the need for a physical paper check.

Direct PLUS Loans

Direct Parent Loans for Undergraduate Students (PLUS) Loans are federal student loans available to parents who can claim their children as dependents. Graduate and professional students also can qualify for Direct PLUS loans.

Disability insurance

Disability insurance is a type of insurance plan that makes regular payments to replace income lost when illness or injury prevents the insured person from working.

Discretionary income

Discretionary income is money you have left over after taxes and all “essential” expenses have been paid.

Discount broker

A discount broker is a brokerage firm with commission rates that are lower than those of a full-service brokerage firm. Discount brokers typically do not provide advice, so are meant for self-directed investors (those who do research and make investing decisions on their own).

Diversification

Diversification means owning a variety of investments, so that you aren't putting all of your eggs in one basket. This approach can help reduce your risk of losses, and allows you to benefit from the many ways of earning money from investing.

Dividend

A dividend is a sum of money that a company regularly pays to its shareholders. The amount paid per share is the same for all shareholders, so the total dividend received depends on how many shares you own. The money comes from the company’s profits or reserves.

Dollar cost averaging

Dollar cost averaging means purchasing an investment (such as shares of a mutual fund) in batches, spread out over a period of weeks or months, rather than all at once. With each batch, you invest the same dollar amount — $500/month, for example.

Dividend Re-Investment Plan (DRIP)

A Dividend Re-Investment Plan (DRIP) is a method of automatically using cash from dividends to purchase additional shares of stock directly through a company’s agent, without the costs of a brokerage firm. Some DRIPs also allow you to purchase both your initial shares and additional shares without paying commissions.

Doing Business As (DBA)

A Doing Business As, or DBA, is when an individual or company operates under a business name that is different than its legal name. A DBA filing does not create a new business entity, it just allows an existing one to use a different name.

Down payment

A down payment is the portion of the purchase price of a car or home that you pay in cash; you borrow the rest. Down payments are usually required for home mortgages and auto loans.

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Emergency fund 

An emergency fund is money you save as a financial safety net to cover big expenses that can happen at unpredictable times. This could be for anything from losing your job and needing to cover your living expenses, to having medical bills that aren't covered fully by insurance, to unforeseen expenses such as a home repair or major car repair. An emergency fund protects you from having to borrow using credit cards or other sources, or having to tap retirement accounts which usually triggers taxes and penalties. The right size for your emergency fund depends on your job security and other factors, but for many people is an amount that could cover 3-6 months of living expenses.

Emerging market

Emerging market is the term used by U.S. investors to refer to the economy of a foreign nation that is experiencing rapid industrial growth and development.

Employee Identification Number (EIN)

An Employee Identification Number is used to identify an individual or business entity to the Internal Revenue Service (IRS). It also is known as a Federal Tax Identification Number.

Escrow accounts

An escrow account is a lender-held account into which a homeowner pays money toward property taxes and homeowners insurance in advance. An escrow account is the actual account where the escrow funds are held in trust until the dates the payments are due.

Estate planning

Preparing a plan for managing your property (estate) should you become incapacitated, as well as when you pass away. Some tools for estate planning include wills, powers of attorney, trusts, health care powers, living wills, and joint ownership of assets.

Estate tax

Estate tax is a federal and/or state tax on property transferred from a deceased individual to their heirs. An estate must be worth more than a certain amount of money before any tax is due, so most estates are not subject to this tax.

Estimated tax

Estimated tax is a method of paying taxes that are not covered through paycheck withholding. Payments are made quarterly, on the 15th of April, June, September and January. You may have to make estimated tax payments if you earn income that doesn’t come from paychecks, or not enough is withheld from your paychecks to cover your entire tax bill.

Exchange-Traded Fund (ETF)

An Exchange Traded Fund (ETF) is very similar to a traditional mutual fund, but trades like an individual stock. Most ETFs are index funds.

Exclusions

Exclusions are specified losses that an insurance policy does not cover. When shopping around for insurance, it’s important that you know what is included in and excluded from your policy, so you understand the terms of coverage.

Executor

The person you name in your will to carry out the transfer of your estate when you pass away.

Exemptions

An exemption is an amount of income on which no tax is paid. The total amount of exemptions you can take is based on your tax filing status and number of dependents.

Exempt status

A claim on Form W-4 that allows you to have no federal tax withheld from your paycheck.

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Federal Perkins Loans

Federal Perkins Loans are low-interest federal student loans available to students with financial need.

Federal student loans

Federal student loans are loans that the U.S. Department of Education provides to qualified borrowers to help them cover the cost of post-high school education.

Fellowships

A fellowship can be a grant of money awarded to a graduate student to help pay for education or it can be a position awarded to the student to work within an academic department (usually as a teacher or researcher).

FICO score

FICO is a credit scoring system used by many lenders to grade your ability to pay back money that you borrow. This also is referred to as your creditworthiness.

Financial aid

Financial aid refers to money that helps students finance their higher education. It can include loan programs, grants, scholarships, and work-study programs.

Federal Housing Administration (FHA) loans

FHA stands for Federal Housing Administration and it is a program run by the Department of Housing and Urban Development. While the government does not lend you money directly, the program offers more flexible guidelines for credit scores and debt-to-income ratios, as well as lower down payment requirements. It was created to help first-time homebuyers.

Federal Insurance Contributions Act (FICA) tax

The Federal Insurance Contributions Act (FICA) tax is a tax that funds the Social Security and Medicare programs. If you are an employee, FICA tax is withheld from your paycheck.

Finance charge

Interest and/or fees you pay for the use of credit.

Financial planner

A financial planner is someone who counsels individuals about how to plan for and achieve financial goals. It is a general term, rather than a professional license, and a variety of professionals use the term including stockbrokers, investment advisers, and insurance agents.

Fixed-rate mortgage

A fixed-rate mortgage is a home loan that has the same interest rate for the entire term of the loan.

Flexible spending account

Flexible Spending Accounts (FSAs) are a kind of savings account that employers offer as a benefit to staff to help them pay for medial expenses. FSAs allow individuals to set aside pre-tax dollars for medical expenses and qualified healthcare costs (not all healthcare expenses qualify).

Forbearance

A forbearance is a loan policy that allows you to temporarily suspend or reduce loan payments for a set period of time or to extend the period of time you have to repay a loan.

Foreclosure

The legal process by which a property is sold by the lender and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the borrower is in default for a reason other than the failure to make timely mortgage payments.

Foreign market

Foreign market is the common term used by U.S. investors to refer to the economy or stock exchange of a foreign country.

Form 1099-MISC

The 1099-MISC is a tax form showing total compensation paid to an independent contractor and taxes withheld (there usually aren't any). This form is also used for reporting other types of income such as rent and royalties.

Form 990

A 990 is an IRS form that charitable organizations file each year to report their sources of revenue and uses of funds. It is publicly available from every nonprofit upon request, and many can be downloaded from the website Guidestar.org.

Freelance

Freelancer is a term often used to describe self-employed workers, especially those in creative fields like writing or photography. To freelance is to work as an independent contractor, not as an employee.

Fund manager

A fund manager is a person or group of people that is responsible for executing a mutual fund’s investment strategy and managing its portfolio.

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Garnished wages

When your wages are garnished, money is withheld from your paycheck by your employer and paid to third party.

Gift tax

A federal tax on very large gifts of money or property, that is paid by the individual who makes the gift(s). Up to $13,000 can be given to any number of individuals each year without reporting the gifts, and only after total reported gifts over your lifetime are more than $1 million are any taxes due.

Grace period

A grace period is the amount of time a lender allow for you to make payments without incurring any interest, fees or penalties. Insurance companies also typically provide a grace period after regular payment due dates, during which you can pay your premium without having your policy canceled.

Education grant

An education grant is a sum of money that a student receives to cover the cost of education. A grant does not have to be repaid.

Gross income

Your gross income is your personal income before you take any taxes or deductions out of it. When you start a job, your salary offer usually is stated in terms of gross income.

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Health insurance

Health insurance is an insurance plan that helps individuals cover the high-medical costs associated with injury or illness.

Healthcare power of attorney 

This is a written legal document that authorizes someone else to make medical decisions on your behalf. This becomes valid when you are no able to make or communicate decisions about your own health or medical care.

Hedge funds

Hedge funds are a way of pooling money from a group of investors that is then invested by the manager of the fund.

Home equity loan

A home equity loan borrows against any equity you’ve paid on your home — any portion of your home’s value that you own outright and that isn’t already being used as collateral for a loan.

Home equity loan

A home equity loan borrows against any equity you’ve paid on your home — any portion of your home’s value that you own outright and that isn’t covered with a loan. You use the portion of the home you own as the loan collateral.

Home improvement loan

A home improvement loan is one that you typically take out to fund renovations and other improvements to a home.

Homeowners insurance 

Homeowners insurance, also called “hazard insurance,” is typically required by lenders when you can purchase a home. Its purpose is to provide financial protection in the event there is a fire, theft or wind damage to your property and its contents or if someone gets injured on the property.

Household employee tax / nanny tax

A nanny tax is an employment tax that you are required to pay on behalf of someone that does work in your home, such as a house cleaner or babysitter.

Household inventory

A household inventory is a list of all your personal possessions. Your insurance agent should provide you with a checklist to complete a household inventory when you decide you want coverage.

Housing and Urban Development (HUD)

Housing and Urban Development (HUD) is the abbreviation for the US Department of Housing and Urban Development. It was founded in 1965 to oversee federal programs for better housing and urban renewal.

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Identity theft 

When someone takes your personal identifying information — such as your name, social security number, address, etc. — and uses it to commit a crime or fraud, typically for some kind of financial gain.

Income tax 

This is the annual tax you pay on your earnings that is levied by the Federal government, majority of states, as well as some local governments to pay for the programs and services they fund.

Incontestable clause

An insurance company has a window, usually two years, to discover fraud on an application. After this time period, the insurance company must honor the contract, in most cases. Check your policy for details.

Index fund

An index fund is a type of mutual fund whose investments are set up to track the components of a market index, like the Dow Jones Industrial Average or the Standard & Poors (S&P) 500 index. They can be run at low cost, which has helped many index funds to be successful in out-performing actively managed funds. There are lots of different stock and bond indices for you to choose from when picking an index fund. This can be an index fund for stocks or bonds.

Inflation rate

The inflation rate is the rate at which prices change, usually calculated monthly or annually.

Inheritance tax

A tax on an heir who receives property from a deceased person’ estate. The amount of tax is based on the value of the property in the estate.

Insurance agent

An insurance agent is a professional insurance salesperson who acts for the insurer in negotiating, servicing or writing an insurance policy.

Insurance discount 

Insurance companies offer various insurance discounts to customers who meet certain criteria, such as age-related discounts, past history-related discounts and discounts for buying several types of insurance policies from the same insurance provider.

Insurance policy

An insurance policy is a document that outlines the terms of an insurance contract.

Insurance policy term

An insurance policy term is the total length of time that policy is in effect. When the term expires, you are no longer covered by that policy.

Interest

Interest is what a lender charges you in exchange for giving you a loan. It's a percentage of the total amount of money you owe. As a borrower, you are responsible for paying the lender back both the principal you borrowed plus interest at a rate that is determined as part of your loan.

Interest rate 

An interest rate is the amount of interest you pay, as a borrower, to your lender, such as your bank or mortgage holder.

Internal Revenue Service (IRS) 

Internal Revenue Service (IRS) is the abbreviation for the US Internal Revenue Service. This is the Federal department that is responsible for collecting tax revenue and administering Federal finances on behalf of the US Treasury.

Intestate

When people die without a bill, they are said to be intestate. The person’s property is then distributed according to the laws of the sate where the he or she passed away.

Itemize

An itemized deduction refers to a deduction for an expense you’ve paid that you are legally entitled to deduct when you file income tax. With Itemized deductions, you can reduce the amount of income you pay tax on.

Individual Retirement Arrangement (IRA) 

Individual Retirement Arrangement (IRA) is the abbreviation for Individual Retirement Account, a type of retirement account that is tax-deferred for those who qualify. With an IRA, you can save a defined amount annually with no tax to be paid on the account until you begin to withdraw the money at age 59 ½. If you withdraw the money earlier there is a 10% penalty. Banks, mutual funds, and brokerage firms offer IRAs.

Investment advisor

An investment advisor is an individual or a firm that charges a fee to give investment advice or make investment transactions on behalf of a client. Most investment advisors must register with the Securities and Exchange Commission or their state securities agencies in order to practice.

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Joint ownership

Joint ownership of property between spouses is very common. By putting property in joint ownership, two or more people own an undivided interest in the property. If you and your spouse own property as joint tenants with right of survivorship (JTWROS), the ownership is split 50-50 for estate tax purposes.

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Late fees

A late fee is a fee charged by a creditor when you do not pay your bill by the due date.

Liability 

In the simplest terms, liability means the amount you owe for money borrowed, goods, or services to someone else such as a bank or mortgage holder. When a financial professional assesses your “net worth”, he or she takes into account what are your assets — your wealth — and what are your liabilities — your debts.

Liability coverage

Liability coverage is insurance that protects a person against claims for bodily injury to another person or damage to another person’s property.

Lien 

A lien is a way a lending institution such as a bank or mortgage company secures its loan to a borrower. It is their legal claim against the property to ensure they will be paid if the property is sold.

Line of credit

A line of credit is a pre-established amount that an account holder can borrow from a bank, lender or other financial institution. The borrower can draw down on the line of credit at any time, as long as he or she does not exceed the maximum set in the agreement.

Life insurance

Life insurance guarantees that a designated amount of money is paid to a chosen beneficiary if the insured person dies or lives past a specified age.

Life insurance rider

A life insurance rider is a small insurance policy that modifies the coverage of the main policy. A rider usually adds or excludes coverage or alters benefits.

Limited Liability Corporation (LLC)

A Limited Liability Corporation is a business whose owners have limited liability personal liability for the debt and the activities of the company, but they also have management flexibility and certain tax advantages.

Liquidity

The ability of an asset to be converted into cash quickly without the loss of value.

Load fund

A load fund is a mutual fund that charges the investor a sales commission, usually either at the time of purchase or at the time of sale.

Loan principal

The loan principal is the amount of money you borrow from the lender and which you are required to pay back. Your remaining principal gradually goes down over the term of the loan, as you make payments each month.

Local tax 

A local tax is a tax that may be levied on your income by your city or local government to fund its programs and services.

Loan term

The loan term is the length of the repayment period for the loan. The most common mortgage terms are 15 and 30 years. With a car loan, a normal loan term is three or five years. With a student loan, a normal loan term is a range of 10-35 years.

Long-term care insurance

Long-term Care Insurance (LTCI) covers a person’s health and personal care that isn’t covered by normal health insurance. LTCI may cover home care, nursing and assisted living facilities and other types of care. LTCI policies vary greatly.

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Market capitalization

Market capitalization is the estimate of a company’s total stock market value. It is calculated by multiplying the number of shares by the current price of those shares.

Market index

A market index is set up to help investors track the performance of a market over a long period of time.

Master promissory note

The Master Promissory Note (MPN) is a legal document that some student loan borrowers must complete. It is an agreement the borrower signs to repay the loan and any accrued interest and fees to the U.S. Department of Education. The MPN also explains the terms and conditions of the loan.

Matching contributions 

This refers to contributions a company may choose to contribute to its employees’ retirement accounts, such as a 401(k). The company contribution typically relates to matching a percentage of the employee’s contributions.

Medicare

Medicare is a health insurance provision added to Social Security program. This basic health and medical insurance is for people age 65 or older, under age 65 with certain disabilities and any age with permanent kidney failure, also called end-stage renal failure or disease.

Medigap

Medigap is the common name for additional supplemental insurance that Medicare beneficiaries can purchase through local insurance providers, to help pay for costs that Medicare does not cover.

Merit-based

A merit-based scholarship or grant is a sum of money awarded to student based on his or her good academic performance in school. This type of financial aid does not have to be repaid.

Minimum liability coverage

Minimum liability coverage is a type insurance coverage that protects you against claims for bodily injury to another person or damage to another person’s property.

Modified adjusted gross income

The IRS uses modified adjusted gross income to determine if a taxpayer qualifies for specific deductions, credits or retirement plans, such as a Roth IRA contribution. It is calculated by adding certain items back into your adjusted gross income.

Money market account

A money market account is a combination savings and investment plan in which money deposited into the investment account is used to purchase safe, liquid securities.

Money market fund

A money market fund is a type of mutual fund that the law requires to be invested in low-risk securities, usually short-term debt securities like U.S. Treasury bonds.

Morningstar rating

Morningstar is a company that collects and publishes ratings and other information about mutual funds and other investments.

Mortgage

A mortgage is a loan to finance the purchase of a house or other type of real estate. When you obtain a mortgage, the lender uses the property as collateral for the loan. This is called a “lien.” With a mortgage, you make payments according to the agreed schedule and interest rate.

Mutual fund 

A mutual fund is type of investment where money is pooled from a group of investors and invested in stocks, money markets and/or bonds. When you buy a mutual fund, you buy an interest in a diverse portfolio of securities.

Mutual fund expense ratio

A mutual fund expense ratio is a measure of the costs investors pay for mutual fund management and administration. It is calculated as a percentage of a mutual fund’s total assets.

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Named peril coverage

Named peril coverage is a type of insurance policy that covers only losses that result from causes explicitly listed in the policy.


NASDAQ 

“The NASDAQ" generally refers to the NASDAQ Composite stock index. It's an indicator of the collective value of stocks traded over an electronic system called NASDAQ (which is short for National Association of Securities Dealers Automated Quotation system).

Needs analysis

A needs analysis is a systematic procedure that looks at your overall life insurance and other assets as a portfolio and relates these together to help determine how much insurance you may need. Some versions of needs analysis would also include a review of other types of insurance (car, homeowners, etc.) you have or might need.

Needs-based

A needs-based scholarship or grant is a sum of money awarded to a low or limited income student to help him or her cover the cost of education. This type of financial aid does not have to be repaid.

Net asset value

A mutual fund’s Net Asset Value (NAV) is the value of all the fund’s holdings, minus its liabilities, as measured at the close of the market each day. It is expressed as a value per share.

Net income 

Your net income is how much your actual take-home pay is after taxes and deductions have been taken out.

No-load fund

A no-load fund is a mutual fund that does not charge the investor a commission when shares are purchased or sold.

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Open-ended credit

An agreement to lend the borrower an amount up to a stated limit and to allow borrowing up to that limit again, whenever the balance falls below that limit.

Open enrollment period

An open enrollment period is a specific length of time in the year when employees can make changes to their employer-sponsored insurance and flexible spending account plans.

Origination fee

An origination fee is a fee that you sometimes have to pay when you open an account with a financial institution or service provider. For example, you may have to pay an origination fee when you open a bank account, borrow a loan or open a brokerage account.

Over the limit fee

A fee charged when your balance goes over your credit limit. The Credit CARD Act of 2009 ended the practice of automatically enrolling consumers into over-limit fees and requires that credit card issuers give account holders the option to opt-in to over-limit fees. Without the consumer's consent, they cannot charge over-limit fees. The act also forbids issuers from charging a fee higher than the amount a consumer is over the limit.

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Passively managed

When a mutual fund is passively managed, the fund’s board of directors sets an investment strategy and hires a fund manager to execute that strategy. Passively managed funds usually are set up to mirror the investments included in a stock market index like the Standard & Poor (S&P) 500 or the Russell 2000.

Payoff fee

A payoff fee is a fee that a loan lender may charge a borrower if they pay off a loan balance before the final payment date. Paying the loan off early might not save you any money if your lender requires a high pay off fee.

Personal finance specialist

A Personal Finance Specialist (PFS) is typically a Certified Public Accountant (CPA) who has both tax expertise and financial planning knowledge.

Personal injury protection

Also called medical coverage insurance, Personal Injury Protection (PIP) will pay for medical, hospital and funeral costs for you and all passengers in your car if you are in an accident. This coverage applies regardless of fault. This coverage may also cover lost wages as a result of an accident.

Personal property floater

A personal property floater is a type of insurance coverage that covers a policyholder’s property wherever it may be located. A personal property floater often is used to protect high value items, such as expensive jewelry, artwork and musical instruments regardless of where they are physically located at the time of damage.

Points (mortgage)

Points are a form of pre-paid interest that a homebuyer pays up front, when taking out a mortgage. One point equals 1% of the loan amount.

Portfolio

A collection of investments (securities) all held by the same person or organization.

Power of attorney 

This is a written legal document that authorizes someone else to represent you in personal, legal or financial matters.

Pre-existing condition

A pre-existing condition is an illness, disease or condition an individual has at the time of enrollment in a healthcare plan. Pre-existing conditions can affect whether a plan will cover you or how much your rates will be.

Premium

Premium is a fee you to pay on an insurance policy to stay covered in order to keep your policy up to date. These fees typically can be paid each month, quarterly, or every six months.

Pre-tax 

This refers to deductions from your income that happen before you calculate your income and payroll (Social Security/Medicare) taxes. For instance, contributions to flexible spending accounts (FSAs) are pre-tax. If you earn a $50,000 salary and put $3,000 in an FSA, it's as if you only earned $47,000 when it comes time to figure out both income and payroll taxes.

Price-to-earnings ratio

The price-to-earnings ratio is the most common measurement of how valuable a stock is. It is calculated by dividing the price of a stock by its earnings.

Private mortgage insurance

Private mortgage insurance (PMI) is insurance that protects the lender from loss if a borrower defaults on his or her loan. Conventional lenders require PMI for loans when borrowers finance more than 80% of the home’s value. The borrower is responsible for paying the cost of the insurance until they have adequate equity in the home.

Private student loans

Private student loans are loans provided by non-governmental financial institutions to help qualified borrowers afford the costs of post-high school education.

Property lease 

This is the legal agreement between a landlord and a tenant for a rental property. A lease typically details the amount of the rent, duration of the lease and specific issues about the property, such as the number of roommates who can occupy it or if children or pets are allowed.

Prospectus

A prospectus is a document by which a corporation or other legal entity offers a new issue of securities to the public. A mutual fund prospectus describes the fund’s investment strategy, expenses, method of purchase, and risks in detail.

Publicly traded

When a corporation is publicly traded, it sells shares of ownership on the stock market. Investors buy those shares to become stockholders or shareholders of that company.

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Qualified life event

A qualified life event is a life event that the Internal Revenue Service (IRS) recognizes that has significant tax implications. A qualified life event also is used to determine whether or not employees can make changes to their insurance and flexible spending account plans outside of the annual open enrollment period.

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Rate of return

The gain or loss on an investment over a specified period, usually expressed as a percentage increase (a yield) over the initial investment cost.

REIT 

REIT is short for Real Estate Investment Trust, a special type of company that owns real estate assets. They come in three main types. Equity REITs own actual real estate — land and buildings. Mortgage REITs own loans made to real estate investors. Hybrid REITs own both.

Rebalancing investments 

Rebalancing is the process of adjusting your mix of investments back to the proportions that meet your investing goals.

Refinancing 

Refinancing is when you use a new loan that offers a better interest rate to pay off your current loan, to lower the total cost of the loan.

Registered representative

A registered representative — commonly called a stock broker or account executive — works for a brokerage company that is licensed by the Securities and Exchange Commission (SEC) and buys and sells investments on behalf of clients.

Renter’s insurance

Renter’s insurance is an insurance policy that covers renters in the event of property damage or other personal liabilities.

Replacement cost coverage

Replacement cost coverage covers the cost to replace an item with another item of equal material, quality and value if on the same premises and used for the same purpose. Each individual insurance policy includes an exact definition and explanation of replacement cost coverage. They vary depending on the insurance company.

Rollover 

A rollover is when reinvest funds from one investment account to another or transfer the holdings of one retirement plan to another without suffering tax consequences.

Roth 401(k)

A company sponsored retirement plan in which employees contribute a percentage of their salary and those contributions are added on an after-tax basis. Income is reported as taxable income when you file your tax return, but withdrawals made in retirement (after age 59 ½) are tax-free.

Roth IRA 

A Roth IRA is type of Individual Retirement Account that lets the investor benefit from saving for retirement tax-free within defined income limits. It is named after the late Senator William Roth of Delaware, who was the chief sponsor for its legislation.

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Savings bonds 

Savings bonds are interest-paying investments sold and guaranteed by the federal government. After purchase, interest accrues based on the issue date and bond type.

Section 529 college savings plan 

A section 529 college savings plan is a type of investment savings plan operated by the state or an educational institution. It helps families set aside money for college costs in a way that has tax benefits — earnings and growth in the investments are never taxed as long as the money is used for qualified education expenses.

Securities

Securities are types of investments that investors purchase with the intention owning for a period of time. Stocks and bonds are the two main types of securities.

Self-employment tax

Self-employment tax refers to Social Security and Medicare taxes that self-employed individuals must pay on any income earned.

SEP IRA 

A Simplified Employee Pension (SEP) Individual Retirement Arrangement (IRA) is for people who are self-employed or own a small business. With a SEP IRA, you can benefit from saving for retirement with deferred taxes on your savings.

Shareholder

A shareholder, or stockholder, is a person, group of people or institution that owns shares of a publicly traded corporation or a mutual fund.

Small business loan 

Simply stated, this is a loan for a small business. The Small Business Administration (SBA) offers loan programs that help qualified small businesses in the United States obtain loans.

Social Security 

This is the U.S. federal program that provides retirement income, disability income and other financial benefits to those who qualify. The program is funded by the federal Social Security tax.

Socially responsible investing 

Socially responsible investing, or "SRI," means owning investments that are consistent with your moral, ethical, political or religious beliefs. Because these kinds of beliefs are personal in nature, exactly what qualifies as SRI depends on you.

Sole proprietorship

A sole proprietorship is a business entity that is owned and operated by a single person, with no legal separation between them. If you run the business, you are the sole proprietor.

Solo 401(k)

A Solo 401(k) is a retirement plan for a small business owner who does not employ any staff. Sole proprietors and their spouses, if married, can qualify to be covered by this plan.

S&P 500 

The Standard and Poors (S&P) 500 is a stock-market index based on the value of 500 large companies located in the United States. The 500 companies are chosen by a committee at the financial-data company Standard & Poor's.

Stock brokers

Stock broker is the common name for a registered representative — also called an account executive — who works for a brokerage company that is licensed by the Securities and Exchange Commission (SEC) and buys and sells investments on behalf of clients.

Stockholder

A stockholder, or shareholder, is a person, group of people or institution that owns shares of a publicly traded corporation or a mutual fund.

Stock 

When you see "stock" think "owner." Stock is partial ownership in a publicly traded corporation. You share in the profits and, if the company were to ever liquidate or be bought out, you'd get a share of the proceeds.

Stock exchange

A stock exchange is a market where securities — stocks, bonds and other investments — are traded.

Stockholder / shareholder

A stockholder, or shareholder, is a person, group of people or institution that owns shares of a publicly trade corporation.

Stock market index

A stock market index attempts to indicate how a certain portion of the stock market performs. If an index gained 3.5 percent over a certain time period, you know that stocks in that index rose by that much on average (some more, some less).

Sub-chapter S Corporation

A Sub-chapter S Corporations is a type of corporate entity that does not pay any federal income taxes. The company’s income (or losses) are the responsibility of its shareholders, who report the income or loss on their own individual income tax returns.

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Target-date fund

A target-date fund is a type of mutual fund that invests in a diverse mix of investments, typically including stocks, bonds and cash. The investment mix gets more conservative as the fund gets closer to the target date in the fund name. The general idea is for you to pick a fund whose target date is close to your retirement date. It will be invested for growth at first, and stability during the years you’ll need to draw from it.

Tax credit 

A tax credit is something that reduces the amount of tax you owe. It’s a specific dollar amount that you subtract from the amount of taxes you have to pay.

Tax deduction 

A tax deduction is an expense you can legally subtract from your taxable income when you are filing federal taxes. For instance, this might include state and local taxes that you paid, donations to non-profit charities, and the mortgage interest on your home.

Tax-deferred 

A tax-deferred account or investment is one in which you don’t pay taxes until you draw money from the account or sell the investment. Tax deferral is a benefit of all retirement and college savings plans.

Tax exemption 

A tax exemption is a deduction you are legally entitled to take from your taxable income, based on your circumstances, such as how many dependents you have and how old they are.

Tax extension

If you get started late, have a special financial case or need to track down documents, you or your tax professional can file form 4868 — and extension of time to file — to obtain an automatic tax extension. That delays your tax-filing deadline until Oct. 15. You have to file the request by April 15. This does not extend the time to pay your taxes. You may be required to file a similar form with your home state.

Tax liability

Your tax liability is the amount of tax that you are legally obligated to pay.

Tax penalty 

This refers to a federal, state, or local tax financial penalty you would be required to pay if you underpaid your taxes or paid your taxes after the deadline your taxes were due.

Tax refund

A tax refund or a tax rebate is money you receive back when your tax liability is less than the amount of taxes you paid. If you paid too much in tax, you will receive a tax refund.

Taxable income

Taxable income is the amount of income that you earn that is subject to federal and state income tax. This is your adjusted gross income minus exemptions and deductions. Everyone who earns an income has to pay federal income taxes. Some states do not require income taxes, so check with your state.

Term life insurance

As the name implies, term only covers you for a fixed-time period. If you pass away during the term period, your beneficiaries get a cash death benefit. If you live longer than the term period, you have the option to continue your life insurance coverage for an annual, renewable premium, which is generally much higher.

Total bond market fund

A total bond market fund is a mutual fund or exchange-traded fund that tries to mirror the activities of a broad bond index and owns a variety of securities from governments and corporations.

Trade

The purchase or sale of a stock, bond, or other security.

Trustee

A trustee is the person who holds the trust for another person, but does not have the right to benefit from the trust. They can, however, be held accountable and liable for any lost funds, in the event they don't manage the assets responsibly.

Turnover rate

The turnover rate is a measure of the percentage of a mutual fund’s holdings that are replaced each year. Turnover rate also can be used to refer to the change of holdings in other investment vehicles.

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Umbrella insurance

Insurance that supplements basic car and property liability coverage by increasing reimbursement limits and covering more types of risks that were not included under basic coverage plans.

Unemployment 

Unemployment refers to the financial benefit paid by the federal government for a specific period of time that assists people who are unemployed and looking for work.

Underwriting

Underwriting is the process of evaluating the risks of insuring an individual and using the information to set premium pricing for insurance policies. Insurance underwriters are employed by insurance companies to help price life insurance, health insurance, property/casualty insurance and homeowners insurance.

Uninsured or under-insured coverage

Uninsured or under-insured coverage is a type of car insurance that pays for your injuries when another driver is legally liable in an accident, but unable to pay because of no insurance or not enough insurance.

Use it or lose it rule

The use it or lose it rule is an Internal Revenue Service (IRS) regulation on flexible spending accounts that requires enrollees to use and submit claims for their FSA funds by an annual deadline. And unused funds remaining after the deadline are forfeit to the IRS.

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W-2 form 

The W-2 form is a form showing total compensation paid to an employee during a calendar year, as well as total taxes withheld and other deductions. It must include the employee's total gross earnings, Social Security and Medicare earnings, as well as the amount of federal and state taxes that were withheld for the employee.

W-4 form 

Employees complete a W-4 form to tell their employers how much should be withheld from their salaries for federal taxes.

W-9 form 

The W-9 form is called a “Request for Taxpayer Identification Number and Certification.” It is used to verify your Taxpayer Identification Number (TIN), usually your social security number if you are an individual or a specific TIN you may have if you are a small business.

Whole life insurance

Whole life insurance provides coverage for your whole or entire life. You might consider whole life insurance if you want your loved ones to receive a large payment at your death, even if they no longer depend on your income. There are several types of whole life insurance such as traditional whole life, universal and variable universal life insurance.

Will 

This is a legal document that specifies how your assets and estate should be managed and distributed after you die.

Withholding 

Withholding refers to the amount you choose to have held back for income taxes from your paychecks.

Workers compensation

Workers compensation is an insurance program that pays benefits to workers and their families for injury, illness, loss of income or death that occurs as a result of a job.

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Yield

Yield is the percentage of increase in the value of your savings due to earned interest. An annual percentage yield (APY) is the actual interest rate on the account pays per year, compounding included.

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Above-the-line deductions
Above the line deductions are certain types of deductions that are subtracted from your income before the adjusted gross income is calculated for tax purposes. Examples of above the line deductions include alimony, student loan interest, HSA contributions, and deductible IRA contributions.

Actively managed
When a mutual fund is actively managed, the fund manager studies individual companies, the economy, business trends and other factors to determine which investments to buy or sell.

Actual cash value (ACV)
Actual cash value is the amount an insurance company pays to a policyholder in order to replace a lost, stolen or damaged item with new item of equal value.

Adjusted Gross Income (AGI)
Adjusted gross income (AGI) is calculated as your gross income from taxable sources minus a few special deductions that are called above-the-line-deductions (because you list them above the line where you write your AGI, on the tax form). AGI has significance because you’re ineligible for many tax benefits once your AGI is above a certain amount.

Adjustable-rate mortgage (ARM)
An adjustable-rate mortgage (ARM) is a type of mortgage with a variable interest rate. With an ARM, the interest rate for the loan can go up or down on predefined dates within a defined range. The new rate is typically based on the level of a reference-lending rate, such as the prime rate or LIBOR, on the date of the rate change.

Allowances
Allowances is a term for a figure calculated on Form W-4, which determines how much income tax is withheld from your paycheck. Each additional allowance reduces the amount of tax withheld from your paycheck. The more allowances you claim, the less tax you will have withheld.

Alternative minimum tax (AMT)
A second federal income tax system that uses a separate set of rules to calculate taxable income, deductions, and taxes due. If your tax as computed under AMT is higher than the “regular” tax, you pay the AMT rate instead.

Annual fees
An annual fee is any fee that is charged on an annual (yearly) basis. An example of an annual fee is the fee that is charged by some credit card companies to their credit card holders, simply for having the credit card.

Annual rate of return
The annual rate of return refers to the rate at which money has been gained (or lost) on an investment per year, over the period in question (which can be more or less than one year). It is typically expressed as a percentage.

Annual percentage rate (APR)
An annual percentage rate (APR) is a standardized way to tell you the interest that you'll pay on a loan, with compounding included.

Annual percentage yield (APY)
The actual interest rate an account or investment pays per year, with compounding included.

Assets
Assets are anything you own that has value. This could include items such as your home, car, cash, stocks, bank accounts, and investments.

Asset allocation
Asset allocation refers to the way you divide your money into different types of investments, or asset classes. The main asset classes are stocks, bonds, cash and real estate (some also add commodities). Stocks and bonds are often divided into subcategories, such as U.S. and foreign stocks. Different asset classes have different risks. Your asset allocation should reflect the level of risk you are comfortable taking with your investments.

Asset classes
An asset class is a group of investments with similar characteristics, that behave similarly in the marketplace. Definitions vary, but the primary asset classes that most investors focus on are cash, bonds, stocks, and real estate.

Assistantships
An assistantship — usually a teaching assistantship or research assistantship — is a work position awarded to a graduate student that typically pays a small stipend and, in some cases, also covers the cost of tuition.

Auto insurance
When you own a car you also are usually required to purchase auto insurance to pay for financial losses if you cause injuries or damage to property while driving. Auto insurance can also cover the costs of damage to your vehicle in the event of an accident or theft.

Award letter
A financial aid award letter is a letter you receive from post-secondary institution — community college, four-year college or university or trade, career or technical school — that tells you how much in grants, student loans and other types of financial aid you are eligible to receive, based on your application.

Above-the-line deductions
Above the line deductions are certain types of deductions that are subtracted from your income before the adjusted gross income is calculated for tax purposes. Examples of above the line deductions include alimony, student loan interest, HSA contributions, and deductible IRA contributions.

Actively managed
When a mutual fund is actively managed, the fund manager studies individual companies, the economy, business trends and other factors to determine which investments to buy or sell.

Actual cash value (ACV)
Actual cash value is the amount an insurance company pays to a policyholder in order to replace a lost, stolen or damaged item with new item of equal value.

Adjusted Gross Income (AGI)
Adjusted gross income (AGI) is calculated as your gross income from taxable sources minus a few special deductions that are called above-the-line-deductions (because you list them above the line where you write your AGI, on the tax form). AGI has significance because you’re ineligible for many tax benefits once your AGI is above a certain amount.

Adjustable-rate mortgage (ARM)
An adjustable-rate mortgage (ARM) is a type of mortgage with a variable interest rate. With an ARM, the interest rate for the loan can go up or down on predefined dates within a defined range. The new rate is typically based on the level of a reference-lending rate, such as the prime rate or LIBOR, on the date of the rate change.

Allowances
Allowances is a term for a figure calculated on Form W-4, which determines how much income tax is withheld from your paycheck. Each additional allowance reduces the amount of tax withheld from your paycheck. The more allowances you claim, the less tax you will have withheld.

Alternative minimum tax (AMT)
A second federal income tax system that uses a separate set of rules to calculate taxable income, deductions, and taxes due. If your tax as computed under AMT is higher than the “regular” tax, you pay the AMT rate instead.

Annual fees
An annual fee is any fee that is charged on an annual (yearly) basis. An example of an annual fee is the fee that is charged by some credit card companies to their credit card holders, simply for having the credit card.

Annual rate of return
The annual rate of return refers to the rate at which money has been gained (or lost) on an investment per year, over the period in question (which can be more or less than one year). It is typically expressed as a percentage.

Annual percentage rate (APR)
An annual percentage rate (APR) is a standardized way to tell you the interest that you'll pay on a loan, with compounding included.

Annual percentage yield (APY)
The actual interest rate an account or investment pays per year, with compounding included.

Assets
Assets are anything you own that has value. This could include items such as your home, car, cash, stocks, bank accounts, and investments.

Asset allocation
Asset allocation refers to the way you divide your money into different types of investments, or asset classes. The main asset classes are stocks, bonds, cash and real estate (some also add commodities). Stocks and bonds are often divided into subcategories, such as U.S. and foreign stocks. Different asset classes have different risks. Your asset allocation should reflect the level of risk you are comfortable taking with your investments.

Asset classes
An asset class is a group of investments with similar characteristics, that behave similarly in the marketplace. Definitions vary, but the primary asset classes that most investors focus on are cash, bonds, stocks, and real estate.

Assistantships
An assistantship — usually a teaching assistantship or research assistantship — is a work position awarded to a graduate student that typically pays a small stipend and, in some cases, also covers the cost of tuition.

Auto insurance
When you own a car you also are usually required to purchase auto insurance to pay for financial losses if you cause injuries or damage to property while driving. Auto insurance can also cover the costs of damage to your vehicle in the event of an accident or theft.

Award letter
A financial aid award letter is a letter you receive from post-secondary institution — community college, four-year college or university or trade, career or technical school — that tells you how much in grants, student loans and other types of financial aid you are eligible to receive, based on your application.

Capital gain
Capital gain is the profit you make from the sale of an investment or property – the amount that you receive in excess of what you paid for the asset. If you receive less than what you paid, it’s called a capital loss.

Car insurance
Car insurance covers the cost of both physical damage to your vehicle and liability for injuries or damaged property caused by your car, if you or someone driving your car causes an accident.

Certificate of Deposit (CD)
A Certificate of Deposit (CD) is an interest-paying “time deposit” with a bank or credit union. Unlike a savings account, a CD is for a set time period and fixed interest rate, and you typically pay a penalty or forfeit some interest if you take the money out early.

Certified Financial Planner
A Certified Financial Planner (CFP) is a financial professional who has received a certification from the CFP Board of Standards that allows them to use the CFP trademark. The certification program includes a competency exam and continuing education in the field of financial planning.

Cash value
Cash value is the saving accumulated in a whole life or other permanent insurance policy that you would receive if you canceled your policy. You can also borrow using your policy’s cash value as collateral.

Claim
A claim is a policyholder’s request for reimbursement for a loss under the terms of an insurance policy. When you get into an accident, you file a claim with your insurance company. This is who, what, when, where, why and how the accident took place.

Closed-end mutual fund
Instead of taking in money continuously from investors, as is the case with an open-ended fund, a closed-end fund raises a lump of cash all at once and issues a fixed number of shares. Those shares are traded on a stock exchange. Then, the manager invests the money, and the value of the fund per share (called the NAV, net asset value) goes up or down depending on how the investments do. The fund’s shares usually do not sell for NAV, as they do with open-ended funds, because pricing is set by current supply and demand for the shares on the exchange on which they are traded.

Closing costs
Closing costs are the expenses that buyers and sellers incur to complete a real estate transaction. These costs may include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report changes.

COBRA
Consolidated Omnibus Reconciliation Act (COBRA) is a federal law that, as one of its provisions, allows people who leave employment to continue their health insurance under the company plan for a limited period of time.

College grants
A college grant is a kind of federal government or state financial aid for higher education. Unlike a student loan, the money doesn’t have to be repaid. To receive a grant, you apply to the federal government agency or state agency responsible for it.

Collision coverage
Collision coverage is a type of car insurance that pays for the damage to your car if it collides with another car or object. If you have a car loan, then your lender likely requires collision insurance.

Codicil
A person can make a will and later make small changes with a document called a codicil. The codicil lists the changes and then reaffirms the rest of the original will document.

Compounding (or compound interest)
Compounding is the gradually-increasing growth that occurs when an account or investment generates earnings that are then left in the account or reinvested. During the next earning period, the earnings are slightly higher, because the amount invested is a bit higher. A common example of compounding is interest-paying savings accounts; by leaving any interest earned in the account, you earn interest on that new money as well as your initial deposit. Over long time periods, compounding has a very large effect on the final account value.

Comprehensive coverage
Comprehensive coverage is a type of car insurance that covers the damages to your car by fire, theft, tornado, hail, water, falling objects, natural disaster, and acts of vandalism.

Consolidation
Loan consolidation is the process of refinancing multiple loans under a single loan. Loan consolidation is commonly used for education loans, where borrowers have taken out several different loans to cover the cost of education and want to reduce the number of monthly payments.

Contribution limit
A contribution limit is a restriction on how much money you can put into an account. These limits are usually associated with tax-advantaged accounts such as those used for retirement or education.

Co-insurance
Co-insurance is a method of cost sharing between a health insurance policyholder and the insurance provider. Typically the insured person is responsible for paying a certain percentage of a medical expense and the insurance provider pays the remainder.

Co-payment
A co-payment is a fee that many health insurance plans require individuals to pay for certain medical services or costs, such as doctor’s visit or a prescription medication.

Coverage
Coverage refers to the protection provided to an insurance policy holder by the terms of that policy.

Coverage limit
A coverage limit is the maximum amount of money that an insurance company will pay to a policyholder for a claim.

Credit
Money borrowed to buy something now, with an agreement to pay for it later.

Credit agreement
A credit agreement is a legal contract where a bank or other financial institution arrange to loan an individual certain amount of money for a specified amount of time. The credit agreement outlines all the rules and regulations associated with the contract. This also includes the interest that must be paid on the loan.

Credit bureau
A credit bureau is a company that gathers credit information about consumers, and provides it to lenders.

Credit history
The complete record of your borrowing and repayment performance.

Credit limit
Credit limit is the maximum amount of money that a bank or other lender will lend. For credit cards, it is the maximum amount that a credit card company will allow a card holder to borrow on a single card.

Credit rating
A credit rating is a score given to a company or security that indicates how likely the company is to pay back its debts. Each rating company has its own letter-based scale and method of rating debt (e.g. Moody’s rates bonds on a scale from Aaa to C, with C rated bonds usually being in default – not making interest payments).

Credit report
A credit report helps prospective lenders assess your credit worthiness for a loan. The report contains information about your credit accounts, loans, bankruptcies, and payment history. Your credit report can only be shared with a lender if you give permission.

Credit score
A credit score is a number used by lenders to grade your "creditworthiness" or your ability to pay back money that you borrow. Credit scores are based on your history of borrowing, rather than your income or assets.

Creditor
A person or company who loans money or extends credit to you.