Financial Jargon – Investment Terminology for Beginners

A – Z Glossary

Account or Accounts

An account is a written or printed statement of business dealings or debts and credits, and also of other things subjected to a reckoning or review.  Account may also refer to a sum of money deposited at a bank. This can be in the form of a deposit account, demand (current or Checking) account, personal account or business account. Accounts is also a British term for financial statements.

Advice (Legal, Financial, Insurance or Real Estate)

Legal, Financial, Insurance or Real Estate Advice is where a professional adviser makes recommendations regarding your specific situation. This can be a Lawyer, Certified Financial Professional or Broker. These professionals are held to a higher standard legally and legally are required to place your interests above their own but often suffer from a conflict of interest due to commissions they may receive from the sale of a product.

 Annual Percentage Rate (APR)

Investment TerminologyThe Annual Percentage Rate is the total cost of borrowing including any fees and payments over the entire term of the loan. Since an APR is standardized by law it is easier to compare two different loans if you compare their APR. Credit card companies and mortgage issuers are required to provide APR information before you sign any contract. Although credit card companies can advertise monthly interest rates (i.e. 2% per month) they must also provide the APR.

 Bad Credit

There are several credit scoring systems but one of the most common is called FICO which stands for “Fair, Isaacs & Co.” the company that created the scoring system. FICO scores can range from
a low of 300 to a high of 850. Many credit card companies consider a score of 620 or below is considered “sub-prime” i.e. bad. If your credit score is bad you will have to pay higher interest rates to borrow or you may not be able to obtain credit at all.

Bank Reference

Some Banks (primarily in countries other than the U.S. or for Business Accounts) will ask for a bank reference from your current (previous) bank before opening an account for you.  A bank reference typically states that the bank has been doing business with you,  how long you have been a customer and that you are a customer in good standing.  Occasionally banks have strange and contradictory policies. One Irish bank required a bank reference when opening an account for you but refused to give you one when moving your account to another bank.

Bank Statement

A bank statement is simply a record of the transactions in you bank account during a given period (typically a calendar month). The statement will typically show the opening balance (i.e. the amount in the account at the beginning of the month plus any additions (deposits) minus any withdrawals (or checks written) and a final balance at the end of the month.

Benefit Package

There are several types of benefit packages most full-time employers offer some sort of benefit package in addition to wages or salary. This could include retirement contributions, health insurance, dental insurance, life insurance, a certain number of sick days a year, vacation pay, etc.

Another type of benefit package can be offered by a mortgage lender in an attempt to incentivize  you to take a mortgage with them. A benefit package is most commonly associated with refinancing and can include free closing costs.

Capital Gains Tax (CGT)

You will accrue capital gains taxes when you sell appreciated property whether it is real estate or financial assets such as stocks. Generally, your primary residence is not subject to capital gains tax but other real estate is.

Certified Financial Planner (CFP)

The Certified Financial Planner (CFP) designation is a professional certification mark for financial planners conferred by the Certified Financial Planner Board of Standards in the United States and 22 other organizations outside of the United States. To earn the CFP Board designation, candidates must have a bachelor’s degree or higher from an accredited college or university. Students must master nearly 100 topics on integrated financial planning including General Principles of Finance and Financial Planning, Insurance Planning, Employee Benefits Planning, Investment and Securities Planning, State and Federal Income Tax Planning, Estate Tax, Gift Tax, and Transfer Tax Planning, Asset Protection Planning and Retirement Planning.

Charge Cards and Credit Cards

charge card is a card that allows the cardholder to make purchases which are initially paid for by the card issuer. By using a charge card the buyer creates a debt situation to the card issuer. The cardholder is obligated to repay the debt to the card issuer in full by the due date, usually on a monthly basis, or be subject to late fees and restrictions on further card use. Typically the American Express Green card is a charge card.

Though the terms charge card and credit card are often used interchangeably, they are not synonymous. Credit cards are revolving credit instruments that do not need to be paid in full every month. There is no late fee payable so long as the minimum payment is made at specified intervals (usually every thirty days). The balance of the account accrues interest, which may be backdated to the date of initial purchase. Charge cards are typically issued without spending limits (although it is typically marketed as being based on “spending habits” , whereas credit cards always have a specified credit limit that the cardholder may not exceed without paying a penalty.

CHAPS Payment

The Clearing House Automated Payment System or CHAPS is a British company established in London in 1984, which offers same-day sterling fund transfers. A CHAPS transfer is initiated by the sender to move money to the recipient’s account (at another banking institution) where the funds need to be available (cleared) the same working day. Unlike checks, the funds transfer is performed in real-time removing the issue of float or the potential for payments to be purposefully stopped by the sender, or returned due to insufficient funds, even after they appear to have arrived in the destination account. CHAPS transfers are relatively expensive, with banks typically charging as much as £35 for a transfer.


In a “secured loan” situation,  a borrower will pledge specific property as collateral to a lender, to ensure repayment of the loan. The collateral serves as protection for a lender.  If a borrower fails to pay the loan the borrower loses the property to the lender who can then sell the collateral property in an effort to recoup its loses.

Committed Credit Line

A committed credit line is a binding agreement between a lender and the borrower. It  specifies the terms of the line of credit, including interest rate, maximum amount and repayment terms. Once in force the borrower can determine  when (or if)  he is to take possession of the loan amount.  The financial institution is obligated to lend money to the borrower, provided that the borrower continues to meet the conditions. Lenders may or may not require the borrower to pay a fee based on the amount that can be borrowed.

Consumer Price Index

The consumer price index aka. CPI is an series of numbers representing the cost of living where a specific time is chosen to be the starting point. Generally this point is set to 100. From there as prices increase the index is adjusted. Thus if prices rise 10% the index is set to 110.

Contents Insurance

As the name implies, contents insurance is insurance that pays for damage to, or loss of, an individual’s personal possessions. It is also often called “Renter’s insurance.” Many contents insurance policies also provide coverage for personal possessions temporarily taken away from the home by the policyholder. Such as possessions in your car etc. Possessions refers to items that are not permanently attached to the structure of the home. Possessions that are permanently attached to the structure of the home can only be insured via home insurance.

Cooling-Off Period

The Federal Trade Commission’s (FTC’s) Cooling-Off Rule gives you three days to cancel purchases of $25 or more. The Cooling-Off Rule applies to sales at the buyer’s home, workplace or dormitory, or at facilities rented by the seller on a temporary or short-term basis, such as hotel or motel rooms, convention centers, fairgrounds and restaurants. The Cooling-Off Rule applies even when you invite the salesperson to make a presentation in your home. Under the Cooling-Off Rule, your right to cancel for a full refund extends until midnight of the third business day after the sale.

Under the Cooling-Off Rule, the salesperson must tell you about your cancellation rights at the time of sale. The salesperson also must give you two copies of a cancellation form (one to keep and one to send) and a copy of your contract or receipt. The contract or receipt should be dated, show the name and address of the seller, and explain your right to cancel.

 Cost of Living

Cost of living calculations are used to compare the cost of maintaining a certain standard of living in different geographic areas. Geographic differences in cost of living can be measured in terms of purchasing power parity rates. A cost of living calculator will help you compare two cities from around the United States.

Credit Rating

The term “credit rating” generally applies to the credit worthiness of a debtor, primarily businesses or governments. While the term “credit score” more often applies to individuals.  A credit rating is an evaluation made by a credit rating agency such as Standard and Poors (S&P), Moody’s or Fitch. Each agency has its own rating system. S&P ratings range from a high of AAA through AA+, AA, AA-, A+, A- down to C which means “Default imminent with little prospect for recovery” and D which means the company is already in default.

Credit ratings are not based on mathematical formulas. Instead, credit rating agencies use their judgment and experience in determining what public and private information should be considered in giving a rating to a particular company or government. The credit rating is used by individuals and entities that purchase the bonds issued by companies and governments to determine the likelihood that the government will pay its bond obligations.

Credit Report (or Credit History)

A credit report will contain data on you are handling your financial obligations. In the U.S., when a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau. The credit bureau matches the name, address and other identifying information on the credit applicant with information retained by the bureau in its files and generates a report including timeliness of payments, levels of credit extended, etc.  Lenders, such as banks and credit card companies, rely on credit reports to determine who qualifies for a loan, at what interest rate, and what credit limits.

Credit Score

A credit score is a numerical evaluation of a person’s credit history, to represent the creditworthiness of that person. A credit score is primarily based on credit report information typically sourced from credit bureaus. Lenders also use credit scores to determine which customers are likely to bring in the most revenue. Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments may use the same or similar techniques. One type of credit score is the FICO score. 35% of a FICO score is based on payment history, 30% is based on debt, 15% is determined by the longevity of your credit file. 10% is determined by account diversity, i.e. having different types of accounts.  10% of the FICO credit score is determined by credit inquiries which are noted when a company requests some information from a consumer’s credit file.

Credit Search

A credit search occurs when a company requests a copy of someone’s credit report in order to determine their credit worthiness.  A credit search remains on your credit report for 6 months and can have a negative effect. Some types of searches have minimal effect however such as enquiries by employers, people requesting their own report, credit counseling agencies requesting a report, utilities and insurance related requests.

Primarily the credit searches that have a negative impact are those where the applicant is requesting an increase in credit extended to them.

Credit Union

Credit unions offer many of the same financial services as banks, often using a different terminology; common services include: share accounts (savings accounts), share draft accounts (checking accounts), credit cards, share term certificates (certificates of deposit), and online banking. But the major difference between credit unions and banks is their structure. In a credit union, members who have accounts are the owners. Credit unions are “not-for-profit” because they operate to serve their members rather than to maximize profits. But unlike non-profit organizations, credit unions do not rely on donations, and are financial institutions that must turn what is, in economic terms, a small profit (i.e. “surplus”) to be able to continue to serve their members.

Critical Illness Insurance Coverage

Critical illness Insurance was originally designed to provide financial protection should an individual be diagnosed with a specific Critical illness. It was often sold as a “bolt-on benefit” or “rider” to a term insurance policy. Critical illness insurance or critical illness cover is designed to pay a lump sum cash payment if the policyholder is diagnosed with one of the critical illnesses listed in the insurance policy. Typical conditions include cancer, heart attack and stroke. The policy may also be structured to pay out regular income. The policy may require the policyholder to survive a minimum number of days (the survival period) from when the illness was first diagnosed. The survival period used varies from company to company, however, 14 days is the most typical survival period used.

Current Account

A current account is the form of transactional account found in the United Kingdom and is similar to a checking account in the U.S. Traditionally current accounts allow for immediate payment (or withdrawal) while “Savings accounts” required notice prior to withdrawal. In recent years the requirement for notice has been waived or limited so savings accounts have become more like current accounts but may still limit the number of free withdrawals allowed in any given month. Current accounts generally come with checks and/or debit cards to facilitate the withdrawal of funds. Current accounts may also allow borrowing via an overdraft facility.

Current Assets

In accounting, a current asset is an asset which can either be converted to cash or used to pay current liabilities within 12 months. Typical current assets include cash, cash equivalents, short-term investments, accounts receivable, inventory and the portion of prepaid liabilities which will be paid within a year.

Current Liabilities

In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities or long-term liabilities. However, the payments due on the long-term loans in the current fiscal year could be considered current liabilities if the amounts were substantial. The proper classification of liabilities provides useful information to investors and other users of the financial statements. It may be regarded as essential for allowing outsiders to consider a true picture of an organization’s fiscal health.

Debt Consolidation

Debt consolidation entails taking out one loan to pay off several others. This is often done to secure a lower interest rate, lock in a fixed interest rate or for the convenience of servicing only one loan rather than several. Debt consolidation can simply be from a number of unsecured loans into another unsecured loan, or it can involve creating a secured loan against an asset that serves as collateral, most commonly a house to pay off unsecured credit card loans in an effort to lower the interest rate by lowering the risk to the lender.

Decision in Principle

(See agreement in principle)

Decreasing Term Insurance (Assurance)

Also know as mortgage insurance because the key feature is that the level of protection reduces over the term to roughly reflect the balance of the outstanding mortgage.  This is a variation of term-life insurance which pay off a mortgage on the death of the primary borrower. Thus leaving the widow with free and clear home ownership.  This type of insurance is usually more expensive that straight term insurance based on the amount of coverage because the amount of coverage  decreases based on the mortgage value but the premium stays the same. Often a better deal would be a 25 or 30 year term insurance policy.

Default [Loan]

In finance, default occurs when a debtor has failed to meet his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment. Default may occur if the debtor is either unwilling or unable to pay his or her debt. This can occur with all debt obligations including bonds, mortgages, loans, and promissory notes. Default essentially means a debtor has not paid a debt which he or she is required to have paid. While “Insolvency” means that a debtor is unable to pay his or her debts and “Bankruptcy” is a legal finding that imposes court supervision over the financial affairs of those who are insolvent or in default.

Deposit Account

A deposit account is a savings account, current account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank’s books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to the customer. Some banks charge a fee for this service, while others may pay the customer interest on the funds deposited.


Derivatives are financial products that are “derived” from another financial product. The derivative itself is actually just a contract. For example, a stock is a primary product, it represents ownership of a portion of a company. A stock-option on the other hand is a derivative product. It is a contract to buy or sell the underlying stock at a certain price, at a certain time under specified conditions.

Direct Debit

A direct debit or direct withdrawal is a financial transaction in which one person is able to withdraw funds from another person’s bank account. The payee instructs his or her bank to collect (i.e., debit) an amount directly from the payer’s bank account. Before the payer’s banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). After the authorities are set up, the direct debit transactions are usually processed electronically. Direct debits are typically used for recurring payments, such as credit card and utility bills, where the payment amounts vary from one payment to another.

Direct Deposit

Direct deposit also known as Direct credit is a banking term that describes a deposit of money straight from the source into a bank account, by electronic funds transfer, or other means where the payment is initiated by the payer not the payee. The money is transferred directly to the recipient bank through a payment system. Direct deposits facilities are often a feature of online banking systems.


A disclaimer is generally any statement intended to specify or limit the scope of rights and obligations that may be exercised and enforced by parties in a legally recognized relationship. A disclaimer may specify mutually agreed and privately arranged terms and conditions as part of a contract; or may specify warnings or expectations to the general public. The presence of a disclaimer in a legally binding agreement does not necessarily guarantee that the terms of the disclaimer will be recognized and enforced in a legal dispute. There may be other legal considerations that render a disclaimer void either in whole or part.

Discount Rate

The discount rate can mean the interest rate a central bank charges member institutions that borrow reserves from it, for example for the use of the Federal Reserve’s discount window.


In investing the Drawdown on an account is the amount of loses that occur before gains reappear. For instance if your investment account starts at $10,000 and you have a 10% gain bringing it up to $11,000 and then you have a 12% loss  ($1320) bringing the account value to $9680 and then another 10% gain followed by another and another. The drawdown would be $1320.

Efficient Market Hypothesis

The efficient markets hypothesis (EMH) is an economic theory that holds that market prices fully reflect all available information. In other words, you can not gain any advantage over the market because it already “knows” everything because there are enough participants each inputting his own little “vote” based on his knowledge and capital. The EMH is unable to explain how legendary investors like George Soros, Warren Buffet and Peter Lynch can beat the market consistently.
There is an old economists’ joke… An economist and an engineer are walking down the street. They turn a corner and see a $100 bill lying on the ground, and as the
engineer reaches down to pick it up, the economist says, ‘Don’t bother – if it were a real $100 bill, someone would already have picked it up’. This is the efficient market hypothesis.

Federal Reserve System (FED)

The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act. The Federal Reserve System’s structure is composed of the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils.

Financial Ombudsman Service (FOS)

The Financial Ombudsman Service in the UK can deal with complaints from consumers about most financial matters including, for example: banking, insurance, mortgages, pensions, savings and investments, credit cards and store cards, loans and credit, hire purchase and pawnbrokering, financial advice, stocks, shares, unit trusts and bonds. The consumer must first give the business they are unhappy with the opportunity to look into the complaint itself – before the ombudsman service can make a decision on the dispute. The business has 8 weeks to resolve the complaint. If they do not resolve it within 8 weeks or the consumer is not happy with the response then they can refer the complaint to the ombudsman service.

Financial Services Authority (FSA)

The Financial Services Authority (FSA) is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury, although it operates independently of government. It is structured as a company limited by guarantee and is funded entirely by fees charged to the financial services industry. Its main office is based in Canary Wharf, London, with another office in Edinburgh.

Financial Services Compensation Scheme (FSCS)

The Financial Services Compensation Scheme is a “statutory fund of last resort” in the United Kingdom, set up under the Financial Services and Markets Act 2000 to compensate customers of “authorised financial services firms” in the event of their insolvency. It consolidated previous compensation schemes into one combined scheme. The scheme covers deposits, insurance policies, insurance brokering, investments, mortgages and mortgage arrangement.

Forex Pips

Pips are the smallest increment that a price can change. In Forex, most major currency pairs are priced to four decimal places.  So the  smallest change is simply the last decimal point – for most pairs this is the  equivalent of 1/100 of one percent, or one basis point.

Guaranteed Premiums

In a life insurance  policy your premium will not increase during the term of your coverage.

Homeowners Insurance

Home insurance, also commonly called hazard insurance or homeowner’s insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes. It is an insurance policy that combines various personal insurance protections, which can include losses occurring to one’s home, its contents, loss of its use (additional living expenses), or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy territory. It requires that at least one of the named insureds occupies the home.

Hire Purchase (Rent to Own)

Hire purchase is a contract, in which persons agrees to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom. It is also called closed-end leasing. In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price (usually a nominal sum) or return the goods to the owner. In Canada and the United States, a hire purchase is called an installment plan; other analogous practices are described as closed-end leasing or rent to own.

Independent Financial Adviser (IFA)

The term “Independent Financial Adviser” was coined to describe the advisers working independently for their clients rather than representing an insurance company or bank. The term is commonly used in the United Kingdom where IFAs are regulated by the Financial Services Authority (FSA) and must meet strict qualification and competence requirements.

Individual Retirement Account (IRA)

An Individual Retirement Account is a form of retirement plan, provided by many financial institutions, that provides tax advantages for retirement savings in the United States as described in IRS Publication 590, Individual Retirement Arrangement (IRAs). There are several types of IRA including, Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs and Self-Directed IRAs.

Individual Savings Account (ISA)

An Individual Savings Account (ISA) is a financial product available to residents of the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status. Money is contributed from after tax income and not subjected to income tax or capital gains tax within a holding or upon withdrawal. Cash and a broad range of investments can be held and there is no restriction on when or how much money can be withdrawn. Funds can not be used as security for a loan. It is not a pension product but can be a useful complement to a pension for retirement income, particularly when it is desirable to draw down capital at a faster rate than permitted in a pension.


Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money. Economists generally agree that inflation is caused by growth of the money supply. A chief measure of price inflation is the inflation rate, which is the annualized percentage change in the Consumer Price Index over time.

Inflation Calculator

An inflation calculator is a formula based application that uses the consumer price index to determine the amount of inflation between two points in time. Some inflation calculators are based on Bureau of Labor Statistics annual inflation data and work fine for long periods of time. Others are based on monthly inflation data and thus are preferable for shorter periods of time.

Income Protection Policy

Income Protection Insurance (IPI) is an insurance policy, available principally in the United Kingdom and Ireland, paying benefits to policyholders who are incapacitated and hence unable to work due to illness or accident.  The policies do not pay out if the policyholder becomes unemployed for a reason other than illness or accident.

Investment Terminology or Jargon

Words related to the finance, investment, and the insurance industry.

LegalZoom Review

Unlike simple do-it-yourself forms, LegalZoom Reviews include a personal review of your work after you create your legal document.  In addition to hundreds of automated checks, their document reviewers check the answers you provide for completeness, spelling, grammar, proper residency, full names and addresses, etc.

Line of Credit

A line of credit may take several forms, such as overdraft protection, demand loan, special purpose loan, term loan, revolving credit card account, etc. It is effectively a source of funds that can readily be tapped at the borrower’s discretion. Interest is paid only on money actually withdrawn. (However, the borrower may be required to pay an unused line fee, often an annualized percentage fee on the money not withdrawn.) Lines of credit can be secured by collateral, or may be unsecured.


In finance, a loan is a debt evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. In a loan, the borrower initially receives an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time usually with interest. Typically, the money is paid back in regular installments, or partial repayments where each installment is the same amount.

London Interbank Offered Rate (LIBOR)

The London Interbank Offered Rate is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks. It is usually abbreviated LIBOR. It is the primary benchmark, along with the Euribor, for short term interest rates around the world.

London Interbank Bid Rate (LIBID)

The London Interbank Bid Rate (LIBID) is a bid rate, i.e. the rate at which a bank is willing to borrow from other banks. Whilst the LIBOR is the rate at which a bank will lend.  The British Bankers’ Association sets LIBOR rates, but there is no corresponding official LIBID fixing. Conventional wisdom used to assert that a LIBID rate could be calculated by subtracting a fixed amount (often given as ⅛th of 1%) from the prevailing LIBOR rate, however this is no longer the case as bid/offer spreads have tightened in recent years. Additionally, it cannot be the case that the LIBOR / LIBID spread is always ⅛th of 1% for all maturities and all currencies all the time.

Long-Term Liabilities

Long-term liabilities are liabilities with a future benefit over one year, such as notes payable that mature longer than one year.

Marginal Cost

Marginal cost is the cost of producing just one more item. Once a company has covered the cost of fixed items like rent, equipment, administration, overhead and selling expenses, the cost of producing “just one more” is relatively low. Assuming you can sell them all, the optimal number of items to produce is up to the point where you have to add more equipment, space or labor etc. When you reach the maximum you can produce with current resources the marginal cost will “stair-step” up and you need to evaluate whether it is still profitable to produce at those increased costs.

Monetary Policy Committee

The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets for two and a half days every month to decide the official interest rate in the United Kingdom (the Bank of England Base Rate). It is also responsible for directing other aspects of the government’s monetary policy framework, such as quantitative easing. The Committee comprises eight members, along with the Governor of the Bank of England and is responsible primarily for keeping the Consumer Price Index (CPI) measure of inflation close to a target set by the government.

Non-Disclosure Agreement (NDA)

A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), confidential disclosure agreement (CDA), proprietary information agreement (PIA), or secrecy agreement, is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a contract through which the parties agree not to disclose information covered by the agreement. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protects nonpublic business information.

Non Disclosure

Non disclosure can occur when information that should have been shared wasn’t. For instance failure to tell a life insurance company about a preexisting medical condition.

Normal State Retirement Age

In the U.K.  the normal state retirement age is considered to be 65.


An ombudsman is a person who acts as a trusted intermediary between two parties. The typical duties of an ombudsman are to investigate constituent complaints and attempt to resolve them, usually through recommendations (binding or not) or mediation. Ombudsmen sometimes also aim to identify systemic issues leading to poor service or breaches of people’s rights. At the national level, most ombudsmen have a wide mandate to deal with the entire public sector, and sometimes also elements of the private sector (for example, contracted service providers).

Payment Protection Insurance

Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is  insurance that enables consumers to cover repayment of loans and credit card debts if the borrower dies, becomes ill or disabled, loses a job, or faces other circumstances that may prevent them from earning income to service the debt. It is not to be confused with income protection insurance, which is not specific to a debt but covers any income. PPI is widely sold by banks and credit-card providers.  Payment protection insurance can be purchased to insure all kinds of consumer loans including car loans, loans from finance companies, and home mortgage borrowing. Credit card agreements may include a form of PPI cover as standard.

Although the policy is purchased by the consumer/borrower, the benefit paid in the event of a claim goes to the company that extended credit to the consumer.

Personal Loan

A personal loan is an unsecured loan, which means that the lender relies strictly on the borrower’s promise to pay it back and does not hold title to any collateral. Due to the increased risk involved, interest rates for unsecured loans tend to be higher. Typically, the balance of the loan is distributed evenly across a fixed number of payments; penalties may be assessed if the loan is paid off early. Unsecured loans are often more expensive and less flexible than secured loans, but suitable if the borrower wants a short-term loan (one to five years).

Power of Attorney

A power of attorney (POA) or letter of attorney is a written authorization to allow one to act on another’s behalf in private affairs, business, or some other legal matter. The person authorizing the other to act is the principal, grantor, or donor (of the power). The one authorized to act is the agent or attorney or, in some common law jurisdictions, the attorney-in-fact. Formerly, a power referred to an instrument under seal while a letter was an instrument under hand, but today both are signed by the donor, and therefore there is no difference between the two. POAs can be limited to perform specific functions such as closing on a real estate transaction or “durable” meaning that they continue even it the grantor is incapacitated (until their death).


A premium is the amount paid for an insurance policy. The premium can be paid monthly, quarterly or annually. A premium can also be an extra gift thrown in to sweeten a deal or to “pay a premium” could indicate that you paid top dollar.

Prime Rate

Prime rate or prime lending rate is a term applied in many countries to a reference interest rate used by banks. The term originally indicated the rate of interest at which banks lent to favored customers, i.e., those with good credit, though this is no longer always the case. Some variable interest rates may be expressed as a percentage above or below prime rate. In the U.S., the prime rate runs approximately 3 percentage points above the federal funds rate, the interest rate that banks charge to each other for overnight loans made to fulfill reserve funding requirements: (federal funds rate) + (3%) = (prime rate). The Federal funds rate plus a much smaller increment is frequently used for lending to the most creditworthy borrowers today, as is LIBOR, the London Interbank Offered Rate. The Federal Open Market Committee (FOMC) meets eight times per year wherein they set a target for the federal funds rate. Other rates, including the prime rate, derive from this base rate.

Privacy Statement

A privacy statement is a declaration included in websites to disclose how any collected information will be used by the site.

Quantitative Easing

Quantitative Easing (Q.E.) is when the Federal Reserve buys paper debt and holds it as reserves. In QE1 it was “junk” mortgage backed securities. It could also be Treasury obligations (T-Bills, T-Bonds and -Notes) from the member banks. Generally the sale is handled at an “auction” for the banks by “primary dealers”  like Morgan Stanley.

Quote (Insurance or Mortgage)

A quote is a good faith estimate that details the provider, costs and benefits associated with a mortgage or insurance product.

Return on Investment (ROI)

ROI is used to measure the performance of an investment in order to compare the efficiency of several different investments. To calculate  ROI, the net gain from an investment (Total Received minus Total Cost) is divided by the total cost of the  investment.  The result can be expressed as a percentage or a ratio.
The  ROI formula is:

\large ROI= \frac{(Total Investment Return - Investment Cost)}{ Investment Cost}

Return on investment is a simple easy to use metric. If an investment doesn’t  have a positive ROI the investment should obviously be avoided but it can also be used to compare investment opportunities. However ROI does not take into consideration so you can’t simply choose the investment opportunity with the highest ROI. You must make some allowance for risk.

Roth IRA

A Roth IRA (Individual Retirement Arrangement) is a special type of retirement plan under US law that is generally not taxed, provided certain conditions are met. The tax law of the United States allows a tax reduction on a limited amount of saving for retirement. The Roth IRA’s main difference from most other tax advantaged retirement plans is that, rather than granting a tax break for money placed into the plan, the tax break is granted on the money withdrawn from the plan during retirement.

Self Employed

In the United States, any person is considered self-employed for tax purposes if that person is running a business as a sole proprietorship, independent contractor, as a member of a partnership, or as a member of a limited liability company that does not elect to be treated as a corporation. In addition to income taxes, these individuals must pay Social Security and Medicare taxes in the form of a SECA (Self-Employment Contributions Act) tax.

Selling Securities Short

In finance, short selling (also known as shorting or going short) is the practice of selling securities or other financial instruments, with the intention of subsequently repurchasing them (“covering”) at a lower price. In the event of an interim price decline, the short seller will profit, since the cost of repurchase will be less than the proceeds received upon the initial (short) sale. Conversely, the short seller will incur a loss in the event that the price of a shorted instrument should rise prior to repurchase.


A stock represents partial ownership of a company. A single stock share in a modern corporation represents a very tiny fractional ownership. Most large companies have at least millions of shares and often billions, so one share might represent ownership  of one billionth of the company and entitle you to one billionth of the earnings which are distributed as dividends. As a partial owner you are also entitled to a vote on major corporate decisions. The weight of your votes are based on  the number of shares you own.

Tax Credits

A tax credit is a sum deducted from the total amount a taxpayer owes to the government. A tax credit may be granted for various types of taxes, such as an income tax, property tax, or VAT. It may be granted in recognition of taxes already paid, as a subsidy, or to encourage investment or other behaviors. Tax credits are preferable to tax deductions because tax credits can result in a refund even when no tax is due where a deduction will only reduce a tax down to zero.

Tax Return

Tax returns in the United States are reports filed with the Internal Revenue Service (IRS) or with the state or local tax collection agency containing information used to calculate income tax or other taxes due. Tax returns are generally prepared using forms prescribed by the taxing authority. A tax return provides information so that the taxation authority can check on the taxpayer’s calculations, or can determine the amount of tax owed if the taxpayer is not required to calculate that amount.

Term Life  Insurance (Assurance)

Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.

Terms of Use

Terms of service (commonly abbreviated as ToS or TOS) are rules which one must agree to abide by in order to use a service. Terms of Service can also be referred to as Terms of Use or sometimes merely a Disclaimer, especially regarding the use of websites.

Certain websites are noted for having carefully designed terms of service, particularly eBay and PayPal, which need to maintain a high level of community trust because of transactions involving money. Terms of service can cover a range of issues, including acceptable user behavior online, a company’s marketing policies, and copyright notices.


Underwriting refers to the process that a financial service provider such as an insurance company uses to assess the risk associated with a particular customer in relation to their product. An Underwriter is the person who performs this risk analysis. Insurance underwriters evaluate the risk and exposures of potential clients. They decide how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them. In banking, underwriting is the detailed credit analysis preceding the granting of a loan.

Unsecured Loan

In finance, “unsecured debt” refers to any type of debt or general obligation that is not collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment. In the event of the bankruptcy of the borrower, the unsecured creditors will have a general claim on any remaining assets of the borrower after the specific pledged assets have been assigned to the secured creditors.

Unemployment Rate

Unemployment (or joblessness) occurs when people are without work and actively seeking work. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force. One of the indicators used in determining whether a recession exists is a relatively high unemployment rate. See Unemployment Data for more information.

Waiver of Premium

Waiver of premium is insurance for insurance. A common rider on a life insurance policy is a premium waiver, which waives future premiums if the insured becomes disabled.

Yield (finance)

In finance, the term yield describes the amount of cash that returns to the owners of a security. Normally it does not include the price variations which would result in difference of the total return. Yield in stocks applies to dividends, while on fixed income instruments such as bonds or notes, the yield would be the result of interest payments. All financial instruments compete with each other in the market place. Yield is one part of the total return of holding a security. A higher yield allows the owner to recoup his investment sooner. Capital gains would be another part of the total return.

This article uses some material from Wikipedia, which is released under the Creative Commons Attribution-Share-Alike License 3.0.

Image courtesy of Sujin Jetkasettakorn /