Glossary

Banking and credit card terms in plain English, each with a worked example and the calculator that goes with it.

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Amortization: Amortization is paying off a loan in equal installments that each cover that month's interest and part of the principal, so early payments are mostly interest and later ones mostly principal.
Annual fee: An annual fee is a yearly charge some credit cards bill for having the card, from under $100 to over $600 on premium travel cards; many cards have none.
APR (annual percentage rate): APR (annual percentage rate) is the yearly cost of borrowing as a percentage: on a credit card, the interest rate on balances you carry; on a loan, the interest rate plus certain fees.
APY (annual percentage yield): APY (annual percentage yield) is the percentage a deposit earns in a year, counting compounding: the figure banks must quote for savings accounts, money market accounts and CDs.

Balance transfer: A balance transfer moves debt from one credit card to another, usually to a card with a 0% or low intro APR, in exchange for a transfer fee of typically 3% to 5% of the amount moved.
Balance transfer fee: A balance transfer fee is the charge for moving a balance to a credit card, usually 3% to 5% of the amount transferred, often with a $5 minimum, added to the new card's balance.

Cash advance: A cash advance is cash borrowed against a credit card's limit, at an ATM or bank, usually with a fee of about 5% and a higher APR that starts charging from the same day, with no grace period.
Cash back: Cash back is a credit card reward paid as a percentage of what you spend, flat (such as 2% on everything) or tiered by category, redeemed as a statement credit, deposit or check.
CD (certificate of deposit): A CD (certificate of deposit) is a bank deposit that earns a fixed APY for a set term, from a few months to five years or more, in exchange for a penalty if you withdraw early.
Compound interest: Compound interest is interest earned on both the original amount and the interest already added to it, so savings (and debts) grow faster over time than with simple interest.
Credit limit: A credit limit is the most you can owe on a credit card at once, set by the issuer from your income and credit history; your balances divided by your limits is your credit utilization.
Credit score: A credit score is a number, usually from 300 to 850, that summarizes your credit report to predict how likely you are to repay; lenders use it to decide whether to approve you and at what rate.
Credit utilization: Credit utilization is the share of your credit card limits you are using, overall and on each card; lower is better for credit scores, and under 30% (ideally under 10%) is the usual guidance.

Deferred interest: Deferred interest is a promotion, common on store cards, where interest builds up quietly and is charged back to the purchase date if the balance isn't paid in full by the end of the promotion.

Early withdrawal penalty: An early withdrawal penalty is what a bank charges for taking money out of a CD before it matures, usually stated as a number of days' or months' interest, such as 90 days' interest.

FDIC insurance: FDIC insurance protects deposits at insured banks up to $250,000 per depositor, per bank, for each ownership category, if the bank fails; credit unions have the same cover from the NCUA.
Foreign transaction fee: A foreign transaction fee is a charge, often around 3% of the purchase, that some credit and debit cards add when you buy in another currency or from a merchant abroad.

Grace period: A credit card's grace period is the time between the end of a billing cycle and the payment due date, at least 21 days, during which new purchases charge no interest if you paid the last statement in full.

Hard inquiry: A hard inquiry is a lender checking your credit report after you apply for credit; it can lower a score by a few points and stays on your report for two years, while soft inquiries don't affect scores.
High-yield savings account: A high-yield savings account is an insured savings account that pays well above the national average APY, usually at online banks, while keeping your money available to withdraw.

I bond: An I bond is a US savings bond whose rate combines a fixed rate for life with an inflation rate reset every six months, so it keeps pace with inflation; you can buy up to $10,000 a year.
Intro APR: An intro APR is a low or 0% interest rate a credit card charges for a set time after you open it, on purchases, balance transfers or both, before the regular APR applies.

Minimum payment: A credit card's minimum payment is the least you must pay by the due date to keep the account in good standing, usually 1% of the balance plus interest, or 2% to 4% of the balance, with a floor of about $25 to $40.
Money market account: A money market account is an insured bank or credit union savings account that often pays a higher rate than basic savings and may come with checks or a debit card.

Origination fee: An origination fee is a one-time charge for making a loan, often 1% to 10% of the amount on personal loans, usually deducted from the money you receive and included in the loan's APR.

Penalty APR: A penalty APR is a higher interest rate, often near 30%, that a card can charge after you pay late: on new purchases with 45 days' notice, and on existing balances once a payment is 60 days late.
Prime rate: The prime rate is the base interest rate banks use for many variable-rate loans and credit cards, set 3 percentage points above the top of the Federal Reserve's federal funds target range.

Secured credit card: A secured credit card is backed by a refundable deposit, usually equal to its limit, so people with no or damaged credit can get approved and build a history with on-time payments.
Sign-up bonus: A sign-up bonus is a reward, in points, miles or cash back, that a credit card pays new cardholders who spend a set amount within the first few months.
Statement balance: A credit card's statement balance is what you owed when the billing cycle closed; paying it in full by the due date avoids interest on purchases, while the current balance also includes charges since then.

Treasury bill: A Treasury bill (T-bill) is short-term US government debt, maturing in 4 to 52 weeks, sold at a discount to its face value; the difference is your interest, which is exempt from state and local income tax.

Variable APR: A variable APR is an interest rate that moves with an index, usually the prime rate: the card or loan adds a fixed margin to the index, so the APR rises and falls with it.