The money glossary

Money terms, explained in plain English.

The words on statements, pay stubs, loan offers and tax forms, each with a short definition, a worked example and the mix-up people most often make.

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50/30/20 rule: The 50/30/20 rule is a budgeting guideline that divides after-tax income into three parts: about 50% for needs, 30% for wants and 20% for savings and debt repayment. It is one rule of thumb to compare against, not a requirement.
401(k): A 401(k) is a retirement savings plan offered by an employer that lets you put part of each paycheck into an individual investment account, either before income taxes or, if the plan allows, as after-tax Roth contributions.

A

Adjustable-rate mortgage (ARM): An adjustable-rate mortgage (ARM) is a home loan whose interest rate can change after an initial period, based on a market index plus a set margin and within any caps the loan sets. Your monthly payment can rise or fall when the rate adjusts.
Amortization: Amortization is the gradual payoff of a loan through regular payments, each split between interest and principal. Early payments carry the largest share of interest; as the balance falls, more of each payment goes to principal until the loan is repaid.
APR (annual percentage rate): APR (annual percentage rate) expresses the cost of borrowing as a yearly percentage. On many fixed-term loans, it reflects the interest rate plus certain fees charged when the loan is made; on a credit card, it is the annualized interest rate.
APY (annual percentage yield): APY, or annual percentage yield, is the percentage a deposit account would earn in a year, based on its interest rate and how often interest compounds. Because federal rules set a standard formula, it allows like-for-like comparisons between accounts.
Asset allocation: Asset allocation is how you divide an investment portfolio among broad categories of assets, such as stocks, bonds, and cash, based on your goal, how long until you need the money, and how much risk you can accept.

B

Balance transfer: A balance transfer moves existing debt, often from another credit card, to a credit card, typically one offering a low promotional APR. A transfer fee usually applies, and a promotional rate usually lasts a limited time; when it ends, the rate can rise.
Bond: A bond is a loan you make to a government, agency, or company. In return, the issuer usually promises to pay interest, called the coupon, on a set schedule and to repay the bond’s face value on a specific date, called its maturity.

C

Capital gains: Capital gains are profits from selling a capital asset, such as stock or fund shares, for more than its adjusted basis, usually what you paid. Gains on assets held more than one year are generally long-term and often taxed at lower rates than short-term gains.
CD (certificate of deposit): A CD, or certificate of deposit, is a savings account at a bank or credit union that holds your money for a set term, often at a fixed interest rate. Taking money out before the maturity date usually means paying a penalty.
Closing costs: Closing costs are the fees and charges paid to complete a mortgage and home purchase, separate from the down payment. They can include appraisal and title fees, government taxes, and prepaid items such as property taxes, homeowners insurance and interest.
Compound interest: Compound interest is interest figured on both the original amount, called the principal, and the interest already added to it. Each time interest is credited, the next round is calculated on a larger balance, so interest can earn interest of its own.
Credit freeze: A credit freeze, also called a security freeze, limits who can see your credit report, so new creditors generally cannot check it and new credit in your name becomes much harder to open. It is free to place and lift.
Credit limit: A credit limit is the maximum balance a card issuer or lender allows on a credit card or other revolving account. The issuer sets it, generally after reviewing your credit history and the income you reported, and can raise or lower it later.
Credit report: A credit report is a record of your credit history, such as your accounts and how you have paid them, along with identifying details like your address. Lenders, insurers, landlords and some employers may use it to make decisions about you.
Credit score: A credit score is a number a scoring model calculates from information in your credit reports to estimate how likely you are to repay money you borrow. Because models and data sources differ, you can have more than one.
Credit utilization: Credit utilization is the share of your credit card limits that your balances are using: reported balances divided by credit limits, times 100. Credit scoring models look at how close you are to being “maxed out,” so utilization can affect your scores.

D

Debt avalanche: The debt avalanche is a payoff method that sends extra money to the debt with the highest interest rate while you keep making minimum payments on the rest. With a steady budget and unchanged rates, it generally costs less interest than other payoff orders.
Debt consolidation: Debt consolidation means rolling several debts into one new loan or credit account so you make a single payment. It can simplify repayment, but the total cost depends on the new rate, fees, and repayment term, and the debt itself remains.
Debt snowball: The debt snowball is a payoff method that sends any extra money to your smallest balance first while you keep making minimum payments on every other debt. Once that debt is gone, the money you were paying on it moves to the next smallest.
Debt-to-income ratio: Debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income, multiplied by 100. Lenders use it as one way to gauge whether you can manage the payments on new borrowing, and their limits vary.
Deductible: A deductible is the amount you pay toward a covered loss or covered care before your insurance starts paying. On home or renters insurance it generally applies to each claim; on a health plan it usually applies over a coverage period, often a year.
Diversification: Diversification is spreading your money across different investments, such as many companies, industries, and types of assets, so that a loss in any single holding has a smaller effect on your overall portfolio.
Dollar-cost averaging: Dollar-cost averaging is investing a fixed dollar amount at regular intervals, whatever the market is doing, so each purchase buys more shares when prices are low and fewer when prices are high.
Down payment: A down payment is the part of a home’s purchase price you pay upfront, with the rest borrowed through a mortgage. It is often described as a percentage of the price, such as 5% or 20%.

E

Effective tax rate: Effective tax rate is your total tax divided by an income amount, shown as a percentage. Because the same tax can be divided by taxable income or by total income before deductions, the rate means little until you name which income you used.
Emergency fund: An emergency fund is savings kept for costs you did not plan for, such as a car repair or medical bill, and for essential bills if your income drops or stops. It sits apart from everyday spending money so it is there when needed.
Employer match: An employer match is money your employer adds to your workplace retirement account when you contribute, following a formula in the plan, such as 50 cents for every dollar you put in on the first 6% of your pay.
Escrow: Escrow usually refers to a mortgage escrow account: money your lender or servicer collects with each monthly payment and uses to pay property taxes and homeowners insurance for you. Some places call it an impound account.
ETF (exchange-traded fund): An ETF (exchange-traded fund) is a pooled investment fund whose shares trade on a stock exchange throughout the day at market prices, much like shares of a single company, while the fund itself holds a portfolio of stocks, bonds, or other assets.
Expense ratio: An expense ratio is the percentage of a fund’s average net assets that goes each year toward its operating expenses, such as management fees, administrative costs, and, in some funds, marketing and distribution fees.

F

FDIC insurance: FDIC insurance is federal protection for deposits at FDIC-insured banks. If an insured bank fails, eligible deposits are covered up to $250,000 per depositor, per insured bank, for each account ownership category, including principal and accrued interest.
Fraud alert: A fraud alert is a flag on your credit report asking businesses to confirm that an application really comes from you before they open new credit in your name. An initial alert lasts one year and can be renewed; it is free.

G

Grace period: A grace period on a credit card is the time between the end of a billing cycle and the payment due date. If your card has one, paying the statement balance in full by then generally means no interest on the purchases it covers.
Gross income: Gross income is the total you earn before any taxes or other deductions come out of it. On a pay stub it is the starting figure, gross pay, which is usually larger than the amount that reaches your bank account.

H

Hard inquiry: A hard inquiry is a lender’s check of your credit report after you apply for credit, such as a credit card or a loan. It can lower your credit scores, and others who pull your report can see it.
High-yield savings account: A high-yield savings account is a savings deposit account that pays a higher interest rate than many standard savings accounts. The name describes the rate, not a special account type: the rate is usually variable, and the account works like other savings deposits.
HSA (health savings account): An HSA (health savings account) is an account you own for paying qualified medical expenses with federal tax advantages. To contribute, you generally need coverage under a high-deductible health plan and no other disqualifying health coverage.

I

Identity theft: Identity theft is the misuse of your personal or financial details, such as your name, Social Security number or a card number, by someone you did not authorize, often to make charges, open accounts or claim money in your name.
Index fund: An index fund is a mutual fund or exchange-traded fund (ETF) that tries to match the return of a specific market index, such as a broad U.S. stock index, by holding all or a representative sample of the investments in that index.
Insurance premium: An insurance premium is the amount you pay, often monthly or yearly, to keep an insurance policy in force. It is due even in a year with no claims and is separate from any deductible you pay when you use the coverage.

L

Lifestyle inflation: Lifestyle inflation is the gradual rise in everyday spending that can follow a rise in income, so a raise or a better-paid job leaves little extra for savings or other goals. It is also called lifestyle creep.

M

Marginal tax rate: Marginal tax rate is the percentage of tax on your next dollar of taxable income, set by the highest federal income tax bracket your taxable income reaches. It applies only to the income inside that bracket, not to everything you earn.
Minimum payment: A minimum payment is the smallest amount a credit card issuer requires you to pay by the due date each billing cycle. Paying it on time meets that cycle’s requirement, but any balance left unpaid can keep accruing interest.
Money market account: A money market account is an interest-bearing deposit account at a bank or credit union, sometimes with checks or a debit card. As a deposit, it can be federally insured, unlike a money market mutual fund, which is an investment.
Mortgage points: Mortgage points, also called discount points, are a fee paid at closing in exchange for a lower interest rate. One point costs 1% of the loan amount, and how much it lowers the rate depends on the lender, the loan and the market.

N

Net income (take-home pay): Net income, or take-home pay, is what is left of your gross pay after taxes and other payroll deductions, such as benefit premiums and retirement contributions. It is the amount you actually receive on payday.
Net worth: Net worth is everything you own, at its current value, minus everything you owe, measured on a single date. Assets such as cash, investments and property go on one side; debts such as loans and card balances go on the other.

O

Overdraft fee: An overdraft fee is a charge a bank or credit union may add when it pays a transaction that your account does not have enough money to cover. The account goes negative, and you owe both the shortfall and the fee.

P

Phishing: Phishing is a scam in which someone poses as a trusted company, agency or person, usually by email or text, to trick you into revealing passwords, account numbers or Social Security numbers, or into clicking a harmful link.
PMI (private mortgage insurance): PMI (private mortgage insurance) is insurance that protects the lender, not you, if you stop making payments on a conventional mortgage. You might be required to buy it when your down payment is less than 20% of the purchase price.
Principal: Principal is the amount you borrowed and have to pay back, separate from the interest a lender charges. On a loan with regular payments, part of each payment reduces principal and part covers interest.

R

Rollover: A rollover is moving money from one retirement plan or IRA into another, such as from a former employer’s 401(k) into an IRA, so that it generally isn’t taxed as a cash withdrawal.
Roth IRA: A Roth IRA is an individual retirement account funded with money you have already paid tax on. Contributions aren’t deductible, but qualified withdrawals, including the investment earnings, are tax-free.

S

Secured credit card: A secured credit card is a credit card backed by a cash deposit, with a credit limit that often matches the deposit. You make purchases and pay the bill as with any credit card, and reported on-time payments can help build a credit history.
Sinking fund: A sinking fund is savings built up in regular deposits for one known future cost, such as a yearly insurance premium, car registration or holiday gifts, so the full amount is ready by the due date.
Standard deduction: The standard deduction is a flat amount, set by your filing status, that reduces the income your tax is figured on when you do not itemize. For 2026 it is $16,100 for single filers and $32,200 for married couples filing jointly.
Statement balance: A statement balance is the total you owed on a credit card when a billing cycle closed, as shown on that cycle’s statement. It is a snapshot; your current balance keeps changing as purchases, payments and credits post.

T

Tax bracket: A tax bracket is a range of taxable income taxed at a single rate. Federal income tax uses seven brackets, from 10% to 37% for 2026, and each layer of your ordinary income is taxed at the rate of the bracket it falls in.
Tax credit: A tax credit is an amount subtracted directly from the tax you owe, lowering it dollar for dollar. Most credits can reduce your tax only to zero, but a refundable credit can be paid to you even when you owe no tax.
Tax deduction: A tax deduction is an amount subtracted from your income before tax is calculated, lowering your taxable income. What it saves depends on the rate those dollars would have been taxed at, so it is worth less than its face amount.
Traditional IRA: A traditional IRA is an individual retirement account in which contributions may be tax-deductible and the money, including earnings, generally isn’t taxed until you withdraw it.

V

Vesting: Vesting is how you gain ownership of money your employer puts into your retirement plan account. Your own paycheck contributions are always 100% vested, but employer contributions, such as a match, may become fully yours only after a set period of service.

W

Withholding: Withholding is the federal income tax your employer takes out of each paycheck and pays to the IRS on your behalf as a prepayment of your yearly tax. The amount depends on your pay and the information you give on Form W-4.

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