Glossary of Financial Terms:

Annual Percentage Rate (APR)
The APR is the cost of your loan expressed as a yearly percentage rate. The law requires that the APR appear in 18-point font on most credit card applications so that it is easily seen.

Annual Percentage Yield (APY)
APY is the amount of interest you will earn on a yearly basis expressed as a percentage. The APY includes the effect of compounding. When comparing different accounts, you should compare the APYs of the savings products, not the interest rates. The higher the APY, the higher the interest you will receive.

Asset
An asset is something valuable that you own.

Attachment
An attachment is a lien against personal property.

Automated Teller Machine (ATM)
An ATM is a computer terminal that can give you money from your account. You may also be able to deposit money into your account at an ATM. You can make deposits and withdrawals 24 hours a day, 7 days a week.

Balance
The amount of money you have in the bank at any given time.

Balance Computation Method
This will determine how your interest is calculated. There are a variety of methods. The most common is the average daily balance.

Bank
A financial institution that is run under federal and state laws and regulations. Banks make loans, pay checks, accept deposits, and provide other financial services.

Bankruptcy
Bankruptcy is a legal declaration of insolvency. Bankruptcy will not fix credit record problems and will be part of your credit history for 10 years. A new law now requires that you get credit counseling before you can file for bankruptcy.

Bonds
When you purchase a bond, you are essentially loaning money to a corporation or to the government for a certain period of time, called a "term." The bond certificate promises the corporation or government will repay you on a specific date with a fixed rate of interest.

Budget
A budget is a step-by-step plan for meeting expenses in a given period of time.

Capacity
One of the Four Cs of loan decision-making, capacity is your present and future ability to meet your payment obligations. This includes whether you have enough income to pay your bills and other debts.

Capital
One of the Four Cs of loan decision-making, capital refers to the value of your assets and your net worth.

Car Lease
A car lease is an agreement between you and the car dealer, manufacturer, or other company that allows you to essentially rent the car for a period of time. You make monthly payments, but the car does not belong to you. If you are allowed to end the lease early, you will likely pay substantial penalties or other fees. When the lease ends, you have to return the car to the dealership.

Car Title
This is a legal document that indicates who owns the car. The bank that lends you the money to pay for the car keeps the title until you pay off the loan.

Certificates of Deposit (CDs)
CDs are accounts where you leave your money for a set period of time called a term, such as six months or one, two, or five years. You usually earn a higher rate of interest than in a regular savings account. The longer you promise to keep your money in a CD, the higher the interest rate. Be sure to think about your cash needs before opening a CD because you will pay a penalty if you withdraw your money early.

Character
One of the Four Cs of loan decision-making, character refers to how you have paid bills or debts in the past. Your credit report is one tool lenders use to consider your willingness to repay your debts.

Check
A check is a written contract between you and your bank. When you write a check, you are asking the bank to take money from your account and give it to someone else.

Check Register
A booklet that comes with your checkbook when you open a checking account in which you write all of the deposits to and withdrawals from your account.

Checking Account
A checking account allows you to write checks to pay bills and buy goods. The financial institution takes the money from your account and pays it to the person or company named on the check. You can also buy goods with the money in your checking account by using a check card. You can deposit money into and withdraw money from your checking account in a number of ways. The financial institution will send you a monthly statement that lists the
deposits and withdrawals you made, the checks you wrote, and the purchases you made with your check card.

Closing costs
Fees associated with buying and settling, or finalizing, your loan.

Club Account
A club account is a type of savings account you join to save money for a special reason, such as holidays or family vacations. Club accounts usually require you to make regular deposits.

Collateral
One of the Four Cs of loan-decision making, collateral is security you provide the lender. Giving the lender collateral means that you pledge an asset that you own, such as your home, to the lender with the agreement that it will be the
repayment source in case you cannot repay the loan.

Credit
Credit is money you borrow to pay for things. It is usually referred to as a loan. You make a promise to pay back the money you borrowed plus some extra. The extra amount is part of the cost of borrowing money.

Credit Card Fees
Following are the most common credit card fees. There might be others. Be sure to read the disclosures with your credit card agreement.

• Annual fee. Some companies charge annual fees for the privilege of using their credit cards. Most cards that offer rewards (for example, airline miles or travel awards) charge a yearly fee.
• Balance transfer fee. You might be charged for moving balances from one credit card to another. This fee is usually a percentage of the balance transferred. It might have a minimum and a maximum limit.
• Cash advance fee. When you access cash through an automated teller machine (ATM) or bank teller using your credit card, you are usually charged a transaction fee. The transaction fee is usually a percentage of the advance. The advance also often carries a higher interest rate than regular purchases, and there usually is no grace period so interest begins accruing immediately.
• Late fee. Payment must be received – not postmarked – on the due date to avoid a late fee. If you are mailing a payment, send it five days before it is due to avoid a late fee. A typical charge is $29 per late payment, and late payments may negatively impact your credit rating.
• Over-the-limit fee. This fee is applied if your outstanding charges exceed your credit limit. The fee is typically $20.

Credit union
A non-profit financial institution owned by people who have something in common. You have to become a member of the credit union to keep your money there.

Debit Card
A debit card is similar to an ATM card, but it has more functions. In addition to allowing you to deposit cash into and withdraw money from your checking account at many ATMs, debit cards allow you to make purchases at retail locations that accept credit cards, such as department stores or gas stations. They generally feature either a Visa or MasterCard logo.

Deposit
A deposit is money you add to your account. When you add money to your account, you must fill out a deposit slip. A deposit slip tells the bank how much money you are adding to your account. Depending on what you deposit – cash, a payroll check, or a check drawn on an out-of state bank – you may not have immediate use of the funds. The bank must first make sure there are funds at the originating bank to cover your check. You can ask the bank when you can use the money you deposited.

Deposit Slip
When making a deposit, you fill out a deposit slip to let the teller know how much you are depositing. Deposit slips are included in your checkbook and have your account number printed on them.

Direct Deposit
Direct deposit is a method your employer or a government agency might choose to give you your paycheck or benefits check. Your paycheck or benefits check is electronically transferred and directly deposited into your account. You will not receive the check in the mail. Your payroll or benefits check statement is mailed to your home address. The money is immediately available. Some banks will not charge monthly fees if direct deposit is used.

Diversification
Diversification means you spread the risk of loss in a variety of savings and investment options. It is the concept of "don't put all your eggs in one basket."

Down payment
A set percentage of the cost of the home you want to buy to show the bank and the seller that you are serious about purchasing the house.

Escrow
A separate account where taxes and insurance are held to be paid to the tax authority or insurance company.

Electronic Banking
Using your ATM card to deposit money into and withdraw money from your account is known as electronic banking. Electronic banking uses computers to move money to and from your account instead of using checks and other paper transactions. Electronic banking includes debit card transactions, electronic bill pay, and ATM transactions.

Electronic Bill Pay
Electronic bill pay is a service that automatically takes money from your account each month to pay your bills. For example, if you have a monthly car insurance payment, you can sign up to have it deducted each month.

Equity
Equity is the value of the home minus the debt, usually in the form of a home loan.

Expected Family Contribution (EFC)
EFC is the number that measures your family's financial strength. It is subtracted from the cost of attendance at the school(s) you plan to attend. The EFC determines your eligibility for federal student aid.

Expenses
Items that you must pay for, like housing, food, transportation, utilities, loans, or other bills are considered expenses.

FAFSA (Free Application for Federal Student Aid)
The FAFSA is the first step in the financial aid process. Use it to apply for federal student financial aid, such as the Pell grant, student loans, and college work-study. In addition, most states and schools use FAFSA information to award their financial aid.

Fees
Financial institutions charge different fees for different services. For example, you might be charged a monthly maintenance fee for keeping your account open. In addition, you might also be charged a penalty fee if you misuse your account, for example, by bouncing a check.

Fee Schedule
A bank document that lists the fees you might be charged for certain activities related to a checking account. Some of the most common fees include a monthly service fee, an ATM user fee, an overdraft fee, and a stop-payment fee. You can use the fee schedule to compare the costs of checking accounts at different banks.

Federal Methodology
A formula used to determine your Expected Family Income (EFC) after completing the FAFSA.

Finance Charge
The finance charge is the dollar amount the loan will cost you. It includes items such as interest, service charges, and loan fees.

Fixed expenses
Expenses that do not change from month to month are fixed.

Fixed-Rate Loan
This is a loan that has an interest rate that stays the same throughout the term of the loan. Most installment loans have fixed rates.

Flexible expenses
Expenses that may change from month to month are flexible.

Foreclosure
Foreclosure is a legal proceeding initiated by a creditor to take possession of collateral that secured a defaulted loan.

401(k) and 403(b) Retirement Plans
401(k) plans are retirement plans that some private corporations offer their employees. A 403(b) plan is similar to a 401(k), but is offered to employees of some non-profit organizations. In both types of plans, you choose to deduct part of your paycheck and place it into the investment strategy you design. The plans allow you to choose different types of investments, depending on how much risk you want to take. The money you place into the account lowers your taxable income. The employer usually matches a portion of your contribution, sometimes up to 50 percent. The funds grow tax-free until the money is withdrawn during retirement.

Garnishment
Garnishment is a process granted by a court order by which a lender obtains directly from a third party, such as an employer, part of an employee's salary to satisfy an unpaid debt. Part of the employee's salary is taken out in each pay period until the debt is fully paid.

Grace Period
The grace period is the number of days you have to pay your balance before a creditor starts charging interest. Once you receive you monthly bill, you will have 3 to 4 weeks (with most creditors) to pay your bill interest-free. If your credit card issuer does not provide a grace period, a finance charge might be imposed from the date you use your card or the date the transaction is posted to your account.

Grants
Grants, like scholarships, do not have to be repaid and are offered to a variety of students.

Gross income
The total amount of money you earn, before anything is taken out, is called gross income.

Home Equity Loan
Home equity loans are secured by a property of the borrower. The amount of equity is the value of the property minus the debt. Home equity loans generally can be used for any reason.

Home Purchase Loans
Home purchase loans are made for the purpose of buying a house. These loans are secured by the house you are buying.

Home Refinance Loan
Home refinancing is a process by which an existing home loan is paid off and replaced with a new loan.

Interest
Interest is the amount of money financial institutions charge for letting you use their money. The interest rate can be either fixed or variable. Fixed rate means the interest rate stays the same throughout the term of the loan. Variable rate means the interest rate might change during the loan term, as written in the loan contract.

Income
Money that comes to you from wages, interest, Social Security, tips, or other sources is considered income.

Individual Retirement Account (IRA)
An IRA is a retirement account that lets you save and invest money tax-free until you withdraw it when you retire. You can contribute up to $2,000 a year. There are different types of IRAs, including traditional and Roth IRAs.

Installment Loan
This is a loan that is repaid in equal monthly payments, or installments, for a specific period of time, usually several years.

Investment
A savings option purchased for future income or financial benefit.

Judgment
A court order requiring a debtor to pay money to the creditor. The judgment places a security lien on the debtor's property until the judgment is satisfied (the debt is repaid).

Lien
A lien is a creditor's claim against property to secure repayment of a debt.

Liquidity
Liquidity refers to the ease with which an asset (a thing of value) can be turned into cash without losing its value. For example, cash is the most liquid; a certificate of deposit (CD) may be liquidated, but you pay an early withdrawal penalty; a house might be your least liquid asset because it takes time to sell.

Loan Pre-Approval
Loan pre-approval occurs when a financial institution calculates how much money you can borrow. It is typically a free service and does not obligate you to accept a loan offer from the institution.

Minimum Payment
The minimum payment is the minimum dollar amount that must be paid each month. This is usually 2 to 3 percent of the amount owed and is often based on the balance at the billing date.

Money Market Accounts
A money market account is one that usually pays a higher rate of interest than a regular savings account. Money market accounts usually require a higher minimum balance to earn interest, but they also pay higher rates for higher balances.

Mortgage
A loan or amount of money provided by a financial institution, to buy a house.

Mutual Funds
A mutual fund is a professionally managed collection of money from a group of investors. A mutual fund manager invests your money in some combination of various stocks, bonds, and other products. The fund manager determines the best time to buy and sell the products in the fund. By combining your resources with other investors in a mutual fund, you can diversify even a small investment, which should reduce risk.

Net income
The amount of money you have left after taxes, insurance, social security, or other expenses are deducted from your gross pay is net income.

Opt Out
You have the right to "opt out" of receiving mailed credit card offers. You can tell the credit bureaus not to share your information with lenders and insurers who use the information to decide whether to send you offers of credit or insurance. You can opt out of receiving these prescreened offers by calling 888-5-OPTOUT (567-8688) or visiting www.optoutprescreen.com.

Overdraft
A withdrawal of more money than you have available in your account.

Participation Fee
A participation fee is money that some dealer finance companies might charge you to get a low interest rate.

Pay-Day Loan
Pay-day loans are usually made to people who need money right away and plan to pay it back with their next paycheck.

Penalty APR
The terms of your credit card agreement may provide that the creditor will permanently increase the interest rate on your credit card by a large amount if you do not pay your credit card bill on time. This is called the penalty APR.

Periodic Rate
The periodic rate is an interest rate applied to your balance to calculate the finance charge. For example, the monthly periodic rate for a card with an 18 percent APR is 1.5 percent (18 percent divided by 12 months). If your monthly balance were $1,000, you would multiply it by 1.5 percent to get your monthly finance charge of $15 ($1,000 x 1.5% = $15). The daily periodic rate for the same 18 percent APR is 0.04932 percent (18% divided by 365 days).

Previous Balance
The previous balance is the amount you owed at the end of the previous billing period. Payments, credit, and new purchases during the current billing period are not included. Some creditors also exclude unpaid finance charges.

Principal
Principal is the total dollar amount of purchases made on a credit card, or the balance remaining on a loan, not including interest or other fees.

Private mortgage insurance (PMI)
An amount added to the mortgage payment, in some cases, that guarantees the loan will be paid for by the mortgage insurance company if the homeowner defaults, or fails to pay the mortgage

Reconciliation
When you get your monthly checking account statement, there will usually be a difference between the statement balance and your check register balance. These differences occur because:

• There may be some transactions on the bank statement that you missed.
• There may be some transactions in your check register that were made too late to be recorded on the bank statement.

Reconciling your checking account helps you find the reasons for the differences.

Refund Anticipation Loan
Refund anticipation loans are short-term loans secured by your income tax refund. Although the business preparing your income tax return will give you the money, you are actually receiving a loan from a bank or finance company.

Rent-to-Own Service
Rent-to-own services let you use an item for a period of time by making monthly or weekly payments. If you want to purchase the item, the store will set up a plan for you to rent it until you pay enough to own it.

Repossession
Repossession is the seizure of collateral that secured a loan in default.

Risk versus Return
This means that the more risk you take in your investment, the higher the expected return on that investment. However, there is also a higher risk that you might lose the entire amount you owe.

Savings
A type of deposit account in which you put money for long-term future purposes like college or emergencies.

Scholarship
A scholarship is money for college that you will not be expected to repay. Scholarships sponsored by colleges are often designated for students who satisfy certain criteria or other factors. Other outside scholarships may be available to students whose parents work for a particular company or to students who are eligible for scholarships sponsored by church or civic organizations.

Secured Loan
A secured loan is one where the borrower offers collateral for the loan.

Security deposit
Money you give to the landlord when you sign the lease. The lease must state what the security deposit will be used for, and whether or not it is given back to the renter when he or she moves out.

Signature Card
A signature card is a form you complete and sign when you open an account. This is the contract that identifies you as the owner of the account. Your signature is used to verify your signature on checks and withdrawals. Signing the signature card also means that you accept the fees, terms, and conditions of the account.

Spending
Using money to pay bills, or to pay for entertainment, goods, or services is called spending.

Statement Savings Account
A statement savings account is an account that earns interest. If you have a statement savings account, you will usually receive a quarterly statement that lists all of your transactions

Stocks
When you buy stocks (shares), you become part owner of the company. If the company does well, you might receive periodic dividends. Dividends are part of a company's profits given back to you when you own stock in the company. If the company does poorly, you might lose your money.

Substitute Check
This is an electronic image of your check that has the same standing as the actual check. Banks now use electronic checks instead of waiting to receive the paper check.

Title Loan
A title loan is a short-term (usually one month) loan that allows you to use your car as collateral to obtain money.

Transaction
When you write a check, deposit or withdraw money, use your check card, or have checks direct deposited into your account, the bank calls this a "transaction."

Universal Default
Your credit card interest rate can be raised to the highest possible rate if you are late on any other account. For example, if you have five credit cards and you are late on one, the interest rate for the other four cards may be increased by a large amount.

Unsecured Loan
An unsecured loan is not backed by collateral. Credit cards are examples of unsecured loans.

U.S. Savings Bonds
Savings bonds are one type of Treasury Security. They are a long-term investment option backed by the full faith and credit of the U.S. government. Purchasing these bonds is an easy way to save small amounts of money, and they are often purchased for a child's education; however, they may be used for any purpose. Savings bonds can be purchased at a financial institution for as little as $25 or through payroll deductions.

U.S. Treasury Securities
U.S. Treasury securities are debt instruments. When you purchase a Treasury security, you are loaning money to the government. Treasury securities are backed by the full faith and credit of the U.S. government, which means the government guarantees interest and principal payments will be made on time. Treasury securities include:

• Savings bonds, which can earn interest for up to 30 years, but can be cashed after six months.

Utilities
Services of living, including electricity, water, gas, phone, cable TV, internet access.

Variable-Rate Loan
This is a loan that has an interest rate that might change during the period of the loan. The loan agreement or contract will tell you if and how the rate may change.

Withdrawal
A withdrawal is the process of taking money from your bank account. You do this by writing a check, using an ATM, or giving a teller a withdrawal slip. A withdrawal slip looks similar to a deposit slip, except you are taking money out rather than adding money to your account. You need to be sure you do not withdraw more money than you have in your account. If you do, you will be overdrawn – or "bounce" a check – and be charged a fee.

• Treasury bills, which mature in one year or less from their issue date.
• Treasury notes, which mature in more than a year, but not more than 10 years from the issue date.
• Treasury bonds, which mature in more than 10 years from the issue date. Treasury bills, notes, and bonds are transferable, which means you can buy or sell them in the securities market. You can buy Treasury bills, notes, and bonds for a minimum of $1,000.