Glossary
Glossary
Banking and credit card terms in plain English, each with a worked example and the calculator that goes with it.
A4 terms
- AmortizationPaying off a loan in equal installments that each cover that month's interest and part of the principal, so early payments are mostly interest and later ones mostly principal.
- Annual feeA yearly charge some credit cards bill for having the card, from under $100 to over $600 on premium travel cards; many cards have none.
- APR (annual percentage rate)The yearly cost of borrowing as a percentage: on a credit card, the interest rate on balances you carry; on a loan, the interest rate plus certain fees.
- APY (annual percentage yield)The percentage a deposit earns in a year, counting compounding: the figure banks must quote for savings accounts, money market accounts and CDs.
B2 terms
- Balance transferA balance transfer moves debt from one credit card to another, usually to a card with a 0% or low intro APR, in exchange for a transfer fee of typically 3% to 5% of the amount moved.
- Balance transfer feeThe charge for moving a balance to a credit card, usually 3% to 5% of the amount transferred, often with a $5 minimum, added to the new card's balance.
C7 terms
- Cash advanceCash borrowed against a credit card's limit, at an ATM or bank, usually with a fee of about 5% and a higher APR that starts charging from the same day, with no grace period.
- Cash backA credit card reward paid as a percentage of what you spend, flat (such as 2% on everything) or tiered by category, redeemed as a statement credit, deposit or check.
- CD (certificate of deposit)A bank deposit that earns a fixed APY for a set term, from a few months to five years or more, in exchange for a penalty if you withdraw early.
- Compound interestInterest earned on both the original amount and the interest already added to it, so savings (and debts) grow faster over time than with simple interest.
- Credit limitThe most you can owe on a credit card at once, set by the issuer from your income and credit history; your balances divided by your limits is your credit utilization.
- Credit scoreA number, usually from 300 to 850, that summarizes your credit report to predict how likely you are to repay; lenders use it to decide whether to approve you and at what rate.
- Credit utilizationThe share of your credit card limits you are using, overall and on each card; lower is better for credit scores, and under 30% (ideally under 10%) is the usual guidance.
D1 term
E1 term
F2 terms
- FDIC insuranceFDIC insurance protects deposits at insured banks up to $250,000 per depositor, per bank, for each ownership category, if the bank fails; credit unions have the same cover from the NCUA.
- Foreign transaction feeA charge, often around 3% of the purchase, that some credit and debit cards add when you buy in another currency or from a merchant abroad.
G1 term
H2 terms
- Hard inquiryA lender checking your credit report after you apply for credit; it can lower a score by a few points and stays on your report for two years, while soft inquiries don't affect scores.
- High-yield savings accountAn insured savings account that pays well above the national average APY, usually at online banks, while keeping your money available to withdraw.
I2 terms
- I bondA US savings bond whose rate combines a fixed rate for life with an inflation rate reset every six months, so it keeps pace with inflation; you can buy up to $10,000 a year.
- Intro APRA low or 0% interest rate a credit card charges for a set time after you open it, on purchases, balance transfers or both, before the regular APR applies.
M2 terms
- Minimum paymentA credit card's minimum payment is the least you must pay by the due date to keep the account in good standing, usually 1% of the balance plus interest, or 2% to 4% of the balance, with a floor of about $25 to $40.
- Money market accountAn insured bank or credit union savings account that often pays a higher rate than basic savings and may come with checks or a debit card.
O1 term
P2 terms
- Penalty APRA higher interest rate, often near 30%, that a card can charge after you pay late: on new purchases with 45 days' notice, and on existing balances once a payment is 60 days late.
- Prime rateThe base interest rate banks use for many variable-rate loans and credit cards, set 3 percentage points above the top of the Federal Reserve's federal funds target range.
S3 terms
- Secured credit cardBacked by a refundable deposit, usually equal to its limit, so people with no or damaged credit can get approved and build a history with on-time payments.
- Sign-up bonusA reward, in points, miles or cash back, that a credit card pays new cardholders who spend a set amount within the first few months.
- Statement balanceA credit card's statement balance is what you owed when the billing cycle closed; paying it in full by the due date avoids interest on purchases, while the current balance also includes charges since then.