A B C D E F G I L M N P R S T U V Y
A
Amortization
Paying off a loan in equal instalments where each payment covers that period's interest first and the rest chips away at the balance. Early on, most of the payment is interest; by the end, most of it is principal. Our amortization schedule calculator shows the full payment-by-payment breakdown.
APR
Annual percentage rate. The stated yearly cost of borrowing before compounding is counted: the monthly rate multiplied by twelve, essentially. It's the number lenders advertise because it's the smaller one. See our guide to APR vs APY for why that matters.
APY
Annual percentage yield. What a rate actually does to a balance over a full year once compounding is included. An 18% APR compounded monthly works out to a 19.56% APY. Banks quote savings in APY because it's the bigger, prettier number. The full story is in our APR vs APY guide.
Asset
Anything you own that has value: cash, a house, shares, a pension pot, that car on the drive. Assets minus liabilities equals your net worth, which is why the word turns up on every balance sheet ever written.
Avalanche method
A debt payoff strategy: pay the minimum on everything, then throw every spare pound at the debt with the highest interest rate. Mathematically it's the cheapest way out. You can compare it against the snowball method in our debt payoff planner.
B
Balance transfer
Moving credit card debt from one card to another, usually to get a low or 0% promotional rate. There's typically a transfer fee of a few percent, and the promotional rate expires, so the trick is to clear the balance before it does.
Bear market
A prolonged fall in share prices, conventionally a drop of 20% or more from a recent peak. Unpleasant to live through, but historically temporary. The opposite is a bull market, which nobody complains about.
Bond
A loan you make to a government or company. They pay you regular interest and return the original amount at the end of the term. Bonds are generally steadier than shares, which is why they show up in portfolios as the calming influence.
Break-even
The point where the money coming in equals the money going out, or where an upfront cost has paid for itself. If a change saves you 10 a month and cost 120 to make, the break-even point is twelve months.
Budget
A plan for where your money goes before it goes there. It doesn't need to be complicated. One popular starting point splits take-home pay into needs, wants, and savings, which you can try in our 50/30/20 budget calculator.
C
CAGR
Compound annual growth rate. The single steady yearly rate that would take an investment from its starting value to its ending value over a given number of years. It smooths out the bumps so you can compare investments fairly. Work one out with our CAGR calculator.
Capital gain
The profit from selling something for more than you paid for it: shares, property, whatever. Buy at 100, sell at 150, and the capital gain is 50. Many countries tax it, often at different rates from ordinary income.
Compound interest
Interest earned on interest. Each period's interest joins the balance, so the next period's interest is calculated on a slightly larger pile. Small rates and long timelines do surprising things this way. Our compound interest calculator lets you watch it happen.
Credit score
A number lenders use to guess how likely you are to repay them. It's built from your borrowing history: whether you pay on time, how much of your available credit you use, how long you've had accounts. Higher scores unlock cheaper borrowing.
Credit utilization
The share of your available credit you're actually using. A 300 balance on a card with a 1,000 limit is 30% utilization. Lower is generally better for your credit score, since maxed-out cards make lenders nervous.
D
Debt-to-income ratio
Your monthly debt payments divided by your gross monthly income, expressed as a percentage. Lenders lean on it heavily when deciding how much mortgage you can carry. Check yours with our DTI calculator.
Diversification
Spreading your money across different investments so no single failure sinks you. The point isn't to maximise returns; it's to make sure one bad company, sector, or country can't take the whole portfolio down with it.
Dividend
A slice of a company's profits paid out to its shareholders, usually in cash and usually a few times a year. Not every company pays one. Those that do give you a return even when the share price is going nowhere.
Down payment
The lump sum you pay upfront when buying a home, with the mortgage covering the rest. In the UK we'd call it a deposit. A bigger down payment means a smaller loan, less interest, and often a better rate. Size yours with our down payment calculator.
E
Emergency fund
Cash set aside for the genuinely unplanned: job loss, a broken boiler, the car making that noise. The usual advice is three to six months of essential expenses, kept somewhere boring and instantly accessible. Our emergency fund calculator puts a number on yours.
Equity
The part of an asset you actually own. On a 300,000 house with a 200,000 mortgage, your equity is 100,000. It grows as you pay down the loan or as the asset's value rises. The word also means shares in a company, because finance enjoys reusing words.
Escrow
Money held by a neutral third party until conditions are met. In US mortgages, it's the account your lender uses to collect and pay your property taxes and insurance alongside the loan payment, so the bills get paid whether you remember them or not.
Expense ratio
The annual fee a fund charges, expressed as a percentage of your money in it. A 0.5% expense ratio costs 50 a year on a 10,000 holding. Sounds trivial, compounds into real money over decades. Our fee impact calculator shows exactly how much.
F
FIRE
Financial Independence, Retire Early. The idea of saving aggressively until your investments can cover your living costs, at which point work becomes optional. Run the numbers with our retirement calculator, or try the gentler Coast FIRE variant, where you front-load the saving and let compounding finish the job.
Fixed rate
An interest rate that stays the same for an agreed period, or for the whole life of the loan. You give up the chance of rates falling in exchange for knowing exactly what you'll pay. I find the certainty is usually worth it, but that's a preference, not a law.
G
Grace period
The window after a bill or statement date during which you can pay without being charged interest or a late fee. On credit cards, paying the full statement balance within the grace period means the borrowing was effectively free that month.
Gross income
Your income before tax and other deductions come off. It's the big number on the job offer and the small print everywhere else. Most affordability rules and lending decisions are based on gross income, even though you never actually see it.
I
Index fund
A fund that simply buys everything in a market index, like the S&P 500 or FTSE 100, instead of paying someone to pick winners. You get the market's return, minus a usually tiny fee. Dull by design, and effective for the same reason.
Inflation
The general rise in prices over time, which means each pound buys a little less than it used to. At 3% inflation, something costing 100 today costs 103 next year. It's the quiet tax on cash under the mattress. Our inflation calculator shows what it does to your money over time.
Interest
The price of money. When you borrow, it's what you pay for the privilege; when you save or lend, it's what you're paid for waiting. Always quoted as a percentage rate over a period, and the rest of this glossary is largely footnotes to it.
L
Liability
Anything you owe: mortgage, car loan, credit card balance, the tenner you borrowed from a friend. Liabilities are the other half of the net worth calculation, subtracted from your assets.
Liquidity
How quickly something can be turned into spendable cash without losing value in the process. A current account is highly liquid. A house is not, however valuable it is. Emergency funds want liquidity; long-term investments can afford to give some up.
M
Minimum payment
The smallest amount a credit card issuer will accept each month, often a small percentage of the balance. Paying only the minimum keeps the account in good standing while barely touching the debt. Our credit card payoff calculator shows just how long minimum payments take, and it isn't cheerful reading.
N
Net income
What actually lands in your account after tax and deductions: take-home pay, in other words. It's the number your budget should be built on, since it's the only money you can actually spend.
Net worth
Everything you own minus everything you owe. It can happily be negative early on, especially with student loans in the mix, and the direction of travel matters more than the number. Add yours up with our net worth calculator.
Nominal return
An investment return before inflation is taken into account. A 7% nominal return during 3% inflation isn't really 7% in terms of what you can buy. To see what's left after inflation, use our real return calculator.
P
Payoff date
The date a debt reaches zero at your current payment rate. It moves closer with every extra payment, which is most of the fun of overpaying. Any of our loan calculators will estimate one for you.
PMI
Private mortgage insurance. A monthly charge US lenders add when your down payment is under 20%, protecting them, not you, if you default. It usually goes away once you've built enough equity. Our guide on what PMI is and how to remove it covers the details.
Principal
The original amount borrowed or invested, as opposed to the interest that grows on top of it. On a loan, every payment splits between interest and principal, and only the principal portion actually shrinks the debt.
R
Real return
An investment return after inflation. It answers the only question that matters: can I buy more with this money than I could before? A 7% return during 3% inflation is roughly a 3.9% real return. Our real return calculator does the exact maths.
Refinancing
Replacing an existing loan with a new one, usually to get a lower rate or change the term. There are often fees involved, so the question is whether the monthly saving repays the cost before you move or the loan ends. Our refinance calculator finds that break-even point.
ROI
Return on investment. Profit divided by what you put in, as a percentage. Spend 1,000 and get back 1,200, and your ROI is 20%. It ignores time, which is its main weakness, and why CAGR exists. Our ROI calculator handles both.
S
Savings rate
The percentage of your income you save rather than spend. In FIRE circles it's the single most important number, because it sets both how fast you save and how little you need to live on. See where yours puts you with our savings rate calculator.
Simple interest
Interest calculated only on the original amount, never on accumulated interest. 1,000 at 5% simple interest earns exactly 50 a year, every year. Rare in the wild but useful as a baseline, which is what our simple interest calculator is for.
Sinking fund
Money set aside gradually for a known future expense: the annual insurance bill, Christmas, a replacement car. Unlike an emergency fund, you know it's coming; the sinking fund just spreads the cost so it never feels like an emergency.
Snowball method
A debt payoff strategy: pay minimums on everything, then attack the smallest balance first, regardless of rate. It costs slightly more in interest than the avalanche method but delivers quick wins that keep people going. Compare both in our debt payoff planner.
T
Term
The agreed length of a loan, deposit, or insurance policy. A 25-year mortgage has a 25-year term. Longer terms mean smaller monthly payments but more total interest, which is the trade-off at the heart of most borrowing decisions.
U
Underwater
Owing more on an asset than it's currently worth, most often a house after prices fall or a car straight after driving it home. Also called negative equity. It only becomes a real problem if you need to sell before the numbers recover.
V
Variable rate
An interest rate that can move up or down over the life of the loan or account, usually tracking a central bank rate or the lender's own whims. Cheaper than a fixed rate when rates fall, painful when they rise, and unknowable in advance either way.
Y
Yield
The income an investment produces each year as a percentage of its price. A share costing 100 that pays 4 in dividends has a 4% yield. It measures the cash thrown off, not the change in the investment's value, so it's only ever half the picture.