Finance dictionary
Glossary
Plain-English definitions, formulas, examples, and decision notes for finance terms used in cards, banking, investing, loans, taxes, insurance, and business finance.
Banking and saving
Investing
Loans and mortgages
Economics
Finance formulas worth knowing
APR comparison
Use APR to compare loan offers because it includes interest plus certain required fees.
APY comparison
Use APY to compare savings accounts because it reflects compounding.
Credit utilization
Current revolving balance divided by credit limit. Lower usage usually looks healthier.
Debt-to-income
Monthly debt payments divided by gross monthly income. Lenders use it to judge repayment capacity.
Gross margin
Revenue minus direct costs, divided by revenue. It shows how much room the business has before overhead.
Runway
Cash balance divided by monthly net cash burn. It shows how many months a startup or business can operate.
APR
Annual percentage rate, including interest and certain loan costs.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
APY
Annual percentage yield, reflecting compounding on deposits.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Expense Ratio
The annual fund fee shown as a percentage of invested assets.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Diversification
Spreading money across assets to reduce concentration risk.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Liquidity
How quickly an asset can be converted into cash without large price impact.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
APR
Annual percentage rate. The yearly cost of borrowing, including interest and certain fees.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
APY
Annual percentage yield. The yearly return on deposits after compounding.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Credit utilization
The share of available revolving credit currently being used.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Grace period
Time between statement close and payment due date when purchases may avoid interest.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Balance transfer
Moving debt from one card or loan to another, often for a promotional APR.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Debt-to-income ratio
Monthly debt payments divided by gross monthly income.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Loan origination fee
A fee charged to create or process a loan, often deducted from funds.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Points
Upfront mortgage fees paid to lower the interest rate.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Escrow
An account often used to collect property taxes and insurance with mortgage payments.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Expense ratio
The annual operating cost of a fund as a percentage of assets.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
ETF
An exchange-traded fund that holds a basket of assets and trades like a stock.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Mutual fund
A pooled investment that typically prices once per trading day.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Index fund
A fund designed to track a market index rather than pick individual winners.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Emergency fund
Cash reserved for unexpected expenses or income disruption.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Amortization
The process of paying down debt through scheduled principal and interest payments.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Compound interest
Interest earned on both original principal and previously earned interest.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Capital gains
Profit from selling an asset for more than its purchase price.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Dividend
A company distribution to shareholders, usually paid in cash or shares.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Inflation
A broad rise in prices that reduces purchasing power over time.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
Refinancing
Replacing existing debt with a new loan, usually to improve rate, term, or payment.
Decision note: connect this term to a real action before using it. For example, compare cost, risk, liquidity, tax impact, or repayment pressure.
How to use this dictionary
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Definitions are designed to connect to examples, product comparisons, and decision tools so readers can move from vocabulary to action.
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