savings glossary

Posted : February 19, 2018
Last Updated : February 19, 2018

savings glossary

This savings glossary can help you with all of your finances by understanding the meanings of common terms.

401(k) Plan: A retirement savings plan established by an employer in which employees set aside a percentage of pay in an account that earns interest. 403(b) Plan: A retirement savings plan similar to a 401(k), but exclusively for employees of public schools and certain tax-exempt organizations.

529 College Savings Plan: An education savings plan operated by a state or educational institution. It’s designed to help families set aside funds to pay for future college costs.

Annual Percentage Yield (APY): The amount of interest you’ll earn on a yearly basis. It’s expressed as a percentage.

Bonds: Loans to corporations or to the government for a certain period of time, called a term. You earn interest on your loan investment, and at the end of the term, your bond matures and can be repaid to you by the company.

Certificate of Deposit (CD): An account in which you leave your money for a set term (e.g., six months or one, two, or five years). You can’t make deposits or withdrawals to the account during this term.

Compounding: Interest paid on money that’s invested, allowing the initial investment to increase over time.

Corporate bonds: Loans to corporations for a certain period of time, called a term.

Diversification: When you spread the risk of loss over a variety of savings and investment options.

EE Bond: EE is a type of bond that’s normally purchased at half its face value and must be held for at least one year before being cashed.

Electronic Transfer Account (ETA): A low-cost savings account that provides federal payment recipients with the opportunity to receive their federal payments through direct deposit.

Equity: The difference between how much your house is worth and how much you owe on your mortgage.

I Bond: A type of bond purchased at face value, which is the amount printed on the bond and must be held for at least one year before being cashed.

Individual Development Account (IDA): A matched savings account in which another organization (e.g., a foundation, corporation, or government entity) agrees to add money to your account to match the money you save in it.

Interest: An amount of money banks or other financial institutions pay you for keeping money on deposit with them.

Investment: A long-term savings option that you purchase for future income or financial benefit.

Money Market Account: An account that usually pays a higher rate of interest, and it usually requires a higher minimum balance to earn interest than a regular savings account does. You can make deposits and withdrawals.

Mutual Fund: 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.

Payroll Deduction Individual Retirement Arrangements (IRA): An employee establishes an IRA (traditional or Roth IRA) with a financial institution and authorizes a payroll deduction for the IRA.

Retirement Investments: Money you invest over a long period of time so that you’ll have money to live on when you’re no longer working.

Roth Individual Retirement Arrangements (IRAs): Contributions to a Roth IRA aren’t tax deductible, while contributions to a traditional IRA may be deductible. The distributions (including earnings) from a Roth IRA aren’t included in income.

Rule of 72: A formula that lets you estimate how long it’ll take for your savings to double in value given a particular interest rate. This calculation assumes that the interest rate remains the same over time.

Statement Savings Account: An account that earns interest. You’ll usually receive a quarterly statement that lists all your transactions – withdrawals, deposits, fees, and interest earned.

Stocks: Parts of a company, called shares. If the company does well, you might receive periodic dividends based on the number of shares you own. Dividends are part of a company’s profits that it gives back to you, the shareholder.

Traditional Individual Retirement Arrangements (IRAs): Contributions to a traditional IRA may be tax deductible, based on the amount of your contribution and your income. The earnings on the amounts in your IRA aren’t taxed until they’re distributed.

Treasury Inflation-Protected Securities (TIPS): Provides protection against inflation, and the interest rate is tied to the Consumer Price Index.

U.S. Savings Bonds: A long-term investment option backed by the full faith and credit of the U.S. government. Savings bonds can be purchased at a financial institution for as little as $25 or through payroll deductions.

U.S. Treasury Securities: Loans to the U.S. government for a certain period of time, called a term. Treasury securities are backed by the full faith and credit of the U.S. government and include Treasury bills (T-bills), notes (T-notes), and bonds (T-bonds).

Variable Annuity: An insurance contract that invests your premium in various mutual fund-like investments.


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