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Words To Know

Vocabulary - Start Saving

401k

A provision for retirement savings that enables an employee to invest a percentage of (pre-tax) income, often matched by the employer, into an account where it will not be taxed until withdrawn, withdrawals before a specified date typically incurring a penalty; (also) an account of this type.

Automatic Savings Plan

A direct deposit from your paycheck directly into your savings account, a number of dollars designated by the payee.

Bond

A certificate representing the purchaser’s agreement to lend a business or government money on the promise that the debt will be paid — with interest — at a specific time. 

Certificate of Deposit (CD)

A bank deposit that commits you to leave the principal and accumulating earnings for a certain amount of time in order to earn a fixed rate of interest. 

Checking Account

A bank account that allows you to transfer money you've deposited to a payee by writing checks or using a check or debit card to make purchases.

Credit Union

A state or federally chartered not-for-profit financial cooperative that provides financial services to its member-owners, who have met specific employment, residence, or other eligibility requirements.

Equity

Stock ownership in a corporation. Estate The assets and debts that a person leaves at death.

Interest Rate

The percentage of what you borrow that you pay in interest in a credit arrangement. In a savings account or CD, the interest rate is the percentage of your principal, or what you deposited, that you earn.

Simple Interest

Interest calculated periodically on loan principal or investment principal only, not on previously earned interest.

Compounding

Calculating interest on both principal and previously earned interest. 

Individual Retirement Account (IRA)

An investment with specific tax advantages. A traditional IRA defers taxes on earnings until withdrawal and, under certain circumstances, allows the deduction of some contributions from current taxable income. A Roth IRA requires after-tax contributions only, but allows tax-free withdrawals under certain rules.

Money Market Fund

A type of mutual fund that buys very short-term bonds and other loans in an effort to maintain its value at $1 per share.

Mortgage

A long-term loan to buy real estate, that is, land and the structures on it.

Mutual Fund

An investment tool that pools the money of many shareholders and invests it in a diversified portfolio of securities, such as stocks, bonds, and money market assets. 

Refinance

The process of paying off one loan with the proceeds from a new loan using the same property as security. Homeowners usually refinance to reduce their monthly mortgage payment or to draw equity that has built up over a period of time.

Retirement Plan

Plan provided by an employer or a self-employed individual for an employee's or self-employed individual's retirement. Because of the tax advantages, most retirement plans are designed to insure a present deduction to the employer while the employee is permitted to avoid recognizing the income until he has actually or constructively received it.

Savings Accounts

A financial institution deposit account that pays interest and allows withdrawals.