APY
APY is a deposit’s annual percentage yield, expressing one year of interest growth with compounding under stated assumptions.
Read APY definitionFinancial glossary
Clear definitions for the numbers you work with: saving, investing, borrowing, retirement, tax and business. Each term includes a worked example, assumptions, a common misunderstanding and sources. Related calculators are linked where their scope fits.
Saving & investing
Arithmetic vs. geometric return
Arithmetic average return is the simple mean of periodic returns; geometric average return is the constant compounded rate matching their cumulative growth.
Read Arithmetic vs. geometric return definitionBond yield
Bond yield relates a bond’s income or promised cash flows to its price; current yield and yield to maturity measure different things.
Read Bond yield definitionCAGR
CAGR, or compound annual growth rate, is the constant yearly growth rate that would turn a beginning value into an ending value over a specified number of years.
Read CAGR definitionCertificate of deposit (CD)
A certificate of deposit is a time deposit that generally holds money for a specified term under stated interest and withdrawal conditions.
Read Certificate of deposit (CD) definitionCompound interest
Compound interest is interest calculated on both the original principal and interest already added to the balance.
Read Compound interest definitionDollar-cost averaging
Dollar-cost averaging means investing the same amount of money at regular intervals regardless of the current market price.
Read Dollar-cost averaging definitionExpense ratio
An expense ratio is a fund’s annual operating expenses expressed as a percentage of its average net assets.
Read Expense ratio definitionInflation
Inflation is an increase in the general price level over a period, reducing how much a unit of money can buy.
Read Inflation definitionInternal rate of return (IRR)
IRR is a discount rate that makes the net present value of a specified series of cash flows equal to zero.
Read Internal rate of return (IRR) definitionMutual funds and ETFs
Mutual funds and ETFs pool investors’ money into portfolios; their trading and pricing arrangements differ.
Read Mutual funds and ETFs definitionNet present value (NPV)
NPV is the sum of cash inflows and outflows discounted to one valuation date using a stated discount rate.
Read Net present value (NPV) definitionPayback period
The payback period is the time needed for cumulative net cash inflows to recover an initial investment.
Read Payback period definitionReal rate of return
Real rate of return measures how much an investment’s purchasing power changes after adjusting its nominal return for inflation over the same period.
Read Real rate of return definitionReturn on investment (ROI)
ROI expresses an investment’s gain or loss relative to its cost over a stated holding period.
Read Return on investment (ROI) definitionSimple interest
Simple interest is interest calculated on principal without adding prior interest to the interest-bearing amount.
Read Simple interest definitionTime value of money
The time value of money compares cash at different dates by accumulating or discounting it at a specified rate.
Read Time value of money definitionTrading margin and leverage
Trading margin is collateral or account equity supporting a leveraged position; it is different from a business’s gross profit margin.
Read Trading margin and leverage definitionRetirement
401(k)
A 401(k) is a U.S. employer-sponsored retirement plan that lets eligible employees contribute part of their pay to a tax-advantaged retirement account.
Read 401(k) definitionAnnuity
In finance mathematics, an annuity is a series of equally spaced payments; an insurance annuity is a contract that may provide income under specified terms.
Read Annuity definitionDefined-benefit pension
A defined-benefit pension promises a retirement benefit determined by a plan formula, rather than merely the value of an individual investment account.
Read Defined-benefit pension definitionEmployer match and vesting
An employer match is a plan contribution tied to employee contributions; vesting determines how much of an employer-provided benefit the employee owns.
Read Employer match and vesting definitionRequired minimum distribution (RMD)
An RMD is a minimum amount U.S. tax rules require an owner or beneficiary to distribute from certain retirement accounts when applicable.
Read Required minimum distribution (RMD) definitionSocial Security retirement benefits
U.S. Social Security retirement benefits are monthly benefits based on a worker’s covered earnings record, eligibility and claiming age.
Read Social Security retirement benefits definitionTraditional vs. Roth IRA
Traditional and Roth IRAs are U.S. retirement arrangements with different contribution and withdrawal tax treatment.
Read Traditional vs. Roth IRA definitionWithdrawal rate
A withdrawal rate expresses portfolio withdrawals relative to a specified portfolio balance; the denominator and adjustment rule must be stated.
Read Withdrawal rate definitionLoans & debt
Amortization
Loan amortization is the repayment of a loan’s principal through scheduled payments over time, with interest calculated under the loan’s terms.
Read Amortization definitionAnnual percentage rate (APR)
APR is an annualized measure of borrowing cost under a specified disclosure method; for many closed-end loans it includes specified finance charges as well as interest.
Read Annual percentage rate (APR) definitionCapitalized interest
For a loan, interest capitalization occurs when unpaid accrued interest is added to principal, which can increase later interest charges.
Read Capitalized interest definitionDebt consolidation
Debt consolidation combines repayment of multiple debts into a new loan or credit arrangement; it does not itself reduce the amount owed.
Read Debt consolidation definitionDebt snowball vs. avalanche
Debt snowball directs extra repayment to the smallest balance first; debt avalanche directs it to the highest interest rate first, while minimums continue on other debts.
Read Debt snowball vs. avalanche definitionDebt-to-income ratio (DTI)
DTI compares required monthly debt payments with gross monthly income, using a consistent definition of included obligations.
Read Debt-to-income ratio (DTI) definitionFixed vs. variable interest
A fixed interest rate stays unchanged for its specified fixed period; a variable or adjustable rate can reset according to the contract.
Read Fixed vs. variable interest definitionInterest-only and balloon loans
An interest-only payment covers periodic interest without reducing principal; a balloon payment is a larger lump sum due under the loan’s repayment structure.
Read Interest-only and balloon loans definitionPrincipal and interest
Principal is the outstanding amount borrowed; interest is the charge for using that money over time.
Read Principal and interest definitionHousing & property
Cap rate vs. cash-on-cash return
Cap rate compares property net operating income with a stated property value; cash-on-cash return compares pretax cash flow after debt service with cash invested.
Read Cap rate vs. cash-on-cash return definitionDown payment
A down payment is the portion of a purchase price paid upfront rather than funded by the base purchase loan.
Read Down payment definitionHome equity and HELOC
Home equity is property value minus debt secured on it; a HELOC is revolving credit secured by the home, while a home equity loan usually advances a lump sum.
Read Home equity and HELOC definitionLoan-to-value ratio (LTV)
LTV compares a loan balance with a stated property value; combined LTV includes the relevant loans secured by the same property.
Read Loan-to-value ratio (LTV) definitionMortgage escrow
A mortgage escrow account holds collected funds so a servicer can pay specified property expenses, commonly taxes and insurance, on the borrower’s behalf.
Read Mortgage escrow definitionMortgage points
Discount points are upfront mortgage charges connected to a lower interest rate; one point equals 1% of the loan amount.
Read Mortgage points definitionPrivate mortgage insurance (PMI)
PMI is insurance that protects the lender against certain losses if a borrower defaults on a conventional mortgage; it does not insure the borrower’s equity.
Read Private mortgage insurance (PMI) definitionRefinance break-even
A simple refinance break-even is the time for assumed payment savings to recover refinancing costs; a full economic comparison also considers balances and cash-flow timing.
Read Refinance break-even definitionTax & income
Estate tax vs. inheritance tax
An estate tax concerns a deceased person’s taxable estate or transfer, while an inheritance tax generally depends on what a beneficiary receives and applicable beneficiary rules.
Read Estate tax vs. inheritance tax definitionGross pay vs. net pay
Gross pay is earnings before paycheck deductions; net pay is the amount remaining after the deductions applied to that paycheck.
Read Gross pay vs. net pay definitionMarginal vs. effective tax rate
A marginal tax rate applies to an additional amount of taxable income; an effective tax rate divides a stated tax amount by a stated income measure.
Read Marginal vs. effective tax rate definitionSales tax vs. VAT
Retail sales tax is generally collected on taxable retail sales; VAT is a consumption tax collected through a credit mechanism across taxable stages of supply.
Read Sales tax vs. VAT definitionTax deduction vs. tax credit
A tax deduction reduces the income used to calculate tax; a tax credit reduces the calculated tax, subject to the credit’s rules.
Read Tax deduction vs. tax credit definitionBusiness & pricing
Break-even point
The break-even point is the sales volume or revenue at which total revenue equals the included fixed and variable costs.
Read Break-even point definitionCommission
A commission is compensation calculated from an agreed measure of sales or transactions under a stated payment rule.
Read Commission definitionContribution margin
Contribution margin is revenue minus variable costs, showing the amount available to cover fixed costs and then profit.
Read Contribution margin definitionDepreciation
Depreciation allocates a tangible asset’s depreciable cost over its estimated useful life; it does not directly measure market value or set aside cash.
Read Depreciation definitioneCPM
eCPM expresses advertising cost or revenue per 1,000 impressions; the reporting viewpoint and impression denominator must be specified.
Read eCPM definitionLease residual value
A lease residual is the contract’s assumed value of the asset at lease end; it helps determine the amount recovered through lease payments.
Read Lease residual value definitionMarkup vs. margin
Markup expresses gross profit as a percentage of cost, while gross profit margin expresses the same profit as a percentage of selling price.
Read Markup vs. margin definitionEveryday money
Budget and savings rate
A budget plans income and uses of money over a period; a savings rate expresses an explicitly defined saving amount relative to an explicitly defined income base.
Read Budget and savings rate definitionEmergency fund
An emergency fund is money reserved for unexpected expenses or income disruption rather than routine planned spending.
Read Emergency fund definitionExchange rate
An exchange rate states how many units of one currency exchange for one unit of another, with direction, date and pricing basis specified.
Read Exchange rate definitionPercentage vs. percentage points
Percentage points measure the arithmetic difference between percentage rates; percentage change measures the difference relative to a starting value.
Read Percentage vs. percentage points definitionDefinitions explain concepts; the linked calculators show how assumptions affect results. Sources and the date of the definition and arithmetic check appear on each term page. Read our methodology and review status.