Glossary of Terms: English

The following glossary terms and definitions were adapted from the Consumer Financial Protection Bureau. The definitions were revised based on a collaborative effort by our team.

You can also review these terms and definitions in the following languages:

• Bengali (বাংলা)
• Burmese (မြန်မာ)
• Haitian Creole (Kreyòl ayisyen)
• Hindi (हिंदी)
• Korean (한국인)
• Mandarin (普通话)
• Punjabi (ਪੰਜਾਬੀ)
• Spanish (Español)

A

APR (Annual Percentage Rate)
The interest rate on borrowing money, expressed as a percentage rate (%). An example of an APR is the interest rate you pay on a credit card every month in addition to the price of what you bought using the card. The APR on borrowed money is analogous to the annual rate of return you receive in interest on savings.

Asset
An item with economic value and exchange value, such as cash, a car, stock, securities, or real estate.

B

Bonds
A type of debt. When you buy a bond, you’re lending to the issuer, which may be a government, municipality, or corporation. The issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal — also known as the bond’s face value or par value — when the bond “matures,” or comes due after a set period.

C

Capital gain
The profit that comes from selling an investment for more than you paid for it. For example, if you bought $2,000 of stock in a company and after two years its value was $3,500, your capital gain is $1,500.

Capital loss
The loss that comes from selling an investment for less than you paid for it. For example, if you bought $3,000 of stock in a company and after 14 days its value was $2,500, your capital loss is $500.

Certificate of deposit (CD)
A savings tool from a bank or credit union that has a fixed maturity date and a fixed interest rate.

Collateral
An asset that secures a loan or other debt that a lender can take if you don’t repay the money you borrow. For example, if you get a home loan, the bank’s collateral is typically your house. Collateral is surrendered if the loan isn’t paid off.

Compound interest
When you earn interest on both the money you save and the interest you earn. For example, if you deposit $1,000 in a savings account that earned an annual compound interest rate of 5%, at the end of the first year your account balance will be $1,050 ($1,000 principal + $50 interest earned). In the second year, the interest will be calculated not only on the initial principal of $1,000 but also on the accumulated interest of $50 from the first year for a balance of $1,102.50 ($1,050 principal + $52.50 interest earned).

Consumer Price Index (CPI)
A measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. For example, if the cost of groceries in one year is $100 and in the following year it is $120, there was a 20% increase in the CPI for groceries. Indexes are available for the U.S. and various geographic areas.

Copayment (or copay)
A fixed amount ($20, for example) you pay for a covered health care service in addition to the amount your insurer pays.

Cosigner
An individual who signs a loan, credit account, or promissory note of another person as support for the credit of the primary signer and who becomes responsible for the debt obligation.

Credit
Borrowing money, or having the right to borrow money, to buy something. Usually it means you’re using a credit card, but it might also mean that you got a loan.

Credit limit
A limit set by the credit card company on how much you can charge on the card it issued to you. You can use your credit card to make purchases up to your credit limit. If you spend more than your credit limit, it can affect your credit score.

Credit Report
A summary of your credit activity and current credit situation such as loan paying history and the status of your credit accounts. Lenders use these reports to help them decide if they will loan you money and what interest rates they will offer you. Other businesses might use your credit reports to determine whether to offer you insurance; rent a house or apartment to you; or provide you with cable TV, Internet, utility, or cell phone service. If you agree to let an employer look at your credit report, it may also be used to make employment decisions about you. Credit reports are compiled by three main credit reporting agencies or credit bureaus: Equifax, Experian, and TransUnion. Consumers can request a free copy of your credit report from each credit reporting agency once a year.

Credit score
A number created from a scoring model that uses information from your credit history. It is used by banks to understand your spending and repayment history so that they can make a decision on lending money to you.

Credit union
A cooperative financial institution that is chartered by the National Credit Union Administration (a federal independent agency) or a state government and is owned by its individual members.

Cryptocurrency
Also called “crypto,” it’s a type of encrypted digital currency that generally only exists electronically. (Encryption is a process that protects something from unauthorized access.) There is no physical coin or bill unless you use a service that allows you to cash in cryptocurrency for a physical token. You usually exchange cryptocurrency with someone online, with your phone or computer, without using an intermediary like a bank. Cryptocurrency accounts are not backed by a government. Cryptocurrency values change constantly.

D

Data breach
The unauthorized movement or disclosure of sensitive information to a party, usually outside the organization, that is not authorized to have or see the information. Someone who gets the data might use it for identity theft.

Debit card
A card used to make purchases at businesses (like grocery stores and gas stations) with money in your checking account.

Debt consolidation
Consolidation means that your various debts, whether they are credit card bills or loan payments, are rolled into a new loan with one monthly payment. If you have multiple credit card accounts or loans, consolidation may be a way to simplify or lower payments. But a debt consolidation loan does not erase your debt. You might also end up paying more by consolidating debt into another type of loan.

Deductible
The amount of expenses the insured must pay before the insurance company will contribute toward the covered item. For example, the amount you pay for covered health care services before your insurance plan starts to pay is your deductible.

Direct deposit
Money electronically sent to your bank account, credit union account, or prepaid card. Direct deposit is a faster way to receive your money than getting a physical check.

Dividend
A portion of a company’s profit paid to shareholders.

Down payment
Initial cash payment made when something is bought on credit, such as a home or vehicle. The down payment reduces the amount of money that is borrowed. You will pay less interest if you have a larger down payment.

F

FAFSA – Free Application for Federal Student Aid
The Free Application for Federal Student Aid form is used to determine how much a student and his or her family are eligible to receive in federal financial aid. The FAFSA may also be used to determine a student’s eligibility for state and school-based aid and may influence how much private aid a student receives. The FAFSA has to be filed every year for the next school year.

Fixed expenses
Expenses, like bills, that must be paid each month and generally cost the same amount. Some fixed expenses, like a utility bill, may also be variable because the amount changes each month depending on usage.

Form W-2: Wage and Tax Statement
Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts, if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee.

Form W-4: Employee’s Withholding Allowance Certificate
A form that the employee completes and the employer uses to determine the amount of income tax to withhold.

G

Grace period
The number of days you have to pay your bill in full before finance charges start. Without this period, you may have to pay interest from the date you use your card or when the purchase is posted to your account.

Gross income
Total pay before taxes and other deductions are taken out.

I

Identity theft
Using your personal information — such as your name, Social Security number, or credit card number — without your permission.

Inflation
Inflation occurs when the prices of goods and services increase over time.

Interest
A fee charged by a lender, and paid by a borrower, for the use of money. A bank or credit union may also pay you interest if you deposit money in certain types of accounts.

Interest rate
A percentage (%) of a sum borrowed that is charged by a lender or merchant for letting you use its money. A bank or credit union may also pay you an interest rate if you deposit money in certain types of accounts.

Investment
Something you spend your money on that you expect will earn a financial return (money) in the future.

M

Money order
A money order can be used instead of a check. You can buy a money order to pay a business or other party, such as a landlord.

Mortgage
Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.

Mutual fund
A company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

N

Net income
Amount of money you receive in your paycheck after taxes and other deductions are taken out; also called take-home pay.

O

Overdraft
An overdraft occurs when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway. It can include a fee in addition to the transaction amount. Some banks offer overdraft protection.

P

Phishing scam
When someone tries to get your personal information through an email or text message, often by impersonating a business or government agency. Usually done by hackers or scammers through the Web or email, this can be thought of as “fishing for confidential information”.

Principal
In the lending context, principal is the amount of money that you originally received from the lender and agreed to pay back on the loan with interest. In the investment context, it is the amount of money you contribute with the expectation of receiving income.

R

Rate of return
The profit or loss on an investment expressed as a percentage. For example, if you invest $1,000 in stocks and sell it for $1,200 after one year, the rate of return is 20%.

Redlining
A term used for an illegal practice where people living in a certain area or neighborhood are not given the same access to loans and other credit services as people in other areas or neighborhoods on the basis of race, color, national origin, or some other prohibited reason.

S

Secured credit card
Credit card that typically requires a cash security deposit. The larger the security deposit, the higher the credit limit. Secured cards are often used to build credit history. A secured credit card works just like a credit card. It will appear on credit reports.

Stock
A type of investment that gives people a share of ownership in a company.

T

Tax credit
A dollar-for-dollar reduction in a tax. It can be deducted directly from taxes owed. Tax credits can reduce the amount of tax you owe or increase your tax refund, and some credits may result in a refund even if you don’t owe any tax. Tax credit examples include Earned Income Tax Credit and Child and Dependent Care Credit.

Tax deduction
An amount (often a personal or business expense) that can be deducted from taxable income so that there is no tax to be paid on that amount.

U

Unsecured loan
A loan (such as most types of credit cards) that does not use property as collateral. Lenders consider these loans to be more risky than secured loans, so they may charge a higher rate of interest for them. If the loan is not paid back as agreed, the lender can also start debt collection, can file negative information on your credit report, and might sue you.

W

Withholding (“pay-as-you-earn” taxes)
Money that employers withhold from employees’ paychecks. This money is deposited for the government and is credited against the employees’ tax liability when they file their returns. Employers withhold money for federal income taxes, Social Security and Medicare taxes, and state and local income taxes in some states and localities.