Money glossary

Plain-English definitions of the finance words that show up on your statements, quotes and loan paperwork.

APR

Annual Percentage Rate — the yearly cost of borrowing, including interest and most fees.

APY

Annual Percentage Yield — what you actually earn on savings after compounding.

Compound interest

Interest earned on both your original balance and previously earned interest.

Credit utilization

The percentage of your available credit that you're currently using.

Debt-to-income ratio (DTI)

Your monthly debt payments divided by your gross monthly income.

Emergency fund

Cash reserved for unexpected expenses — job loss, medical bills, major repairs.

Escrow

Money held by a third party until specific conditions are met.

FICO score

The most widely used credit scoring model in the U.S., ranging from 300–850.

HDHP

High-Deductible Health Plan — required to open an HSA.

HSA

Health Savings Account — a triple-tax-free savings vehicle for medical expenses.

Index fund

A fund that mechanically buys every stock in a specified index.

LTV

Loan-to-value ratio — loan balance divided by property value.

Marginal tax rate

The tax rate that applies to your next dollar of income.

PMI

Private Mortgage Insurance — required by lenders when you put less than 20% down.

Roth IRA

A retirement account funded with after-tax dollars that grows tax-free.

Sinking fund

Small monthly savings for a known upcoming expense.

Term life insurance

Life insurance that covers you for a fixed period at low cost.

Underwriting

The process a lender uses to decide whether — and at what rate — to lend to you.

Vesting

The point at which employer-contributed retirement money becomes yours.

Yield

The income return on an investment, expressed as a percentage of price.

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