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The following definitions may be accessed throughout this site by single-clicking any word underlined in dashes. Other helpful sites providing definitions of financial terms include:

Disclaimer: Nothing on this website should be construed as authoritative financial advice. Your circumstances are unique and you may want to consult a financial advisor. The authors of this website are not financial planners.


Annual Percentage Rate allows you to evaluate the cost of the loan in terms of a percentage. If your loan has a 10% rate, you’ll pay $10 per $100 you borrow annually.

Annual Percentage Yield is the true rate of return of an investment in one year, taking into account the effect of compound interest.

When you buy a bond, you’re lending your money to a company or a government entity so it can grow. The company or agency selling the bond promises to pay you interest and to return your money on a date in the future.

Capital Gains Tax
A capital gain is when the sale price of an asset is higher than the initial purchase price. The capital gains tax takes a percentage of all realized capital gains. A capital gain is said to be ‘realized’ when the asset is sold. An unrealized capital gain is an asset that has increased in value, but has not been sold.

When interest is capitalized, the outstanding (unpaid) interest on your student loan account is added to the principal balance. When this happens, you are essentially paying interest on top of interest.

When you buy a Certificate of Deposit (CD), you promise that you’re going to keep your money in the bank for a certain amount of time. There are penalties for withdrawal of funds prior to the maturity date.

If a loan or credit card is deemed ‘uncollectable’, it may be charged off. This has a very negative affect on your credit score.

Interest you earn based on your balance plus the interest that you already accrued. It is basically earning interest on top of interest. Many types of savings accounts compound yearly or quarterly.

Debt-to-Income Ratio
This is a percentage figure comparing your total monthly payments on debts to your monthly income.

A temporary postponement on federal student loans. Deferments are granted if you meet the specific criteria for each type (i.e. Unemployment or Economic Hardship).

Fair Credit Reporting Act
A federal law that protects consumers from false or deceptive credit reporting.

The Federal Deposit Insurance Corporation is backed by the US Government and insures money kept in for-profit banks. Generally, deposits up to $100,000 per account are insured, meaning you cannot lose this money even if the bank closes.

Federal Student Loans
Loans that are guaranteed by the federal government. Includes Stafford, Parent PLUS, and Grad PLUS loans. These loans have a fixed interest rate, as well as deferment and forbearance options.

A forbearance may be granted at the lender’s discretion to temporarily postpone or reduce student loan payments.

Inflation is the growth in the cost of products and services, also called the cost of living increase. The rate of inflation changes, and can range from 4% to 8% a year.

Interest is the additional amount you will pay to a lending institution to borrow money. In terms of savings, interest is the additional amount you will earn for having your money in a bank account or other savings vehicle.

Simple Interest
Interest paid only on the ‘principal’ or the amount originally borrowed, and not on the interest owed on the loan.

Compound Interest
Interest calculated, not only on the principal, or the amount originally borrowed, but also on the interest that has accrued, or built up, at the time of the calculation.

An Individual Retirement Account is an investment vehicle for retirement, usually set up through a financial services company or bank.

Minimum Payment
The minimum monthly payment required on a credit card or loan. For credit cards, this is typically 2% of your balance (changes month to month).

Money Market Accounts
These accounts tend to offer higher interest rates than savings accounts, but lower rates of return than other savings vehicles (e.g. bonds, mutual funds).

Mutual Funds
A mutual fund is a pool of money (fund) run by a professional or group of professionals who have experience in picking investments.

Principal is the amount borrowed or invested before interest is calculated. When loan interest is capitalized, it is added to the principal balance.

Promissory Note
A document you sign that indicates a promise to repay a loan under agreed-upon terms.

Rate of Return
A percentage figure that measures how money grows in any savings vehicle.

Return on Investment, a percentage figure that measures how money grows in any savings vehicle.

Rule of 72
A neat trick to calculate how much money you can make off of the interest of an investment. Divide 72 by the interest rate of your account and the result is the number of years it will take to double your investment.

Simplified Employee Pension, a retirement savings account for small businesses and for self-employed people (people who have their own businesses).

A Savings Incentive Match Plan for Employees (SIMPLE) account is a type of retirement savings account for employees offered by employers. An employer may match employee contributions in a SIMPLE.

When you buy stock in a company, you share in its ownership. Stock is purchased units called ‘shares’. Your share of the company depends on how many shares of the company’s stock you own.

The federal government pays the interest that accrues on the subsidized portion of federal loans during the in-school period, grace period, and periods of deferment.

Total Cost of Borrowing
When you take out a loan, it is important to know the Total Cost of Borrowing. This will be the total monetary amount you will pay over the life of the loan and includes principal, fees, and interest.

Truth in Lending
A statement that discloses all of the terms and conditions of a loan. Also called a Disclosure Statement.

The borrower is responsible for interest that accrues on any unsubsidized loan.

An employer-sponsored retirement savings plan that is tax deferred.

An employer-sponsored retirement savings plan very similar to a 401(k) (see above), but this plan is offered by non-profit employers.

Disclaimer: Nothing on this website should be construed as authoritative financial advice. Your circumstances are unique and you may want to consult a financial advisor. The authors of this website are not financial planners.