Finance glossary

A US workplace retirement account. You contribute part of your pay before income tax (traditional) or after tax (Roth), often with a matching contribution from your employer, and the money grows without yearly tax on gains.

Example: An employer that matches 50% of contributions up to 6% of pay adds $1,800 a year on a $60,000 salary if you contribute at least $3,600.

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A mortgage whose interest rate is fixed for an initial period and then changes at set intervals in line with a market index. Payments can rise or fall after the fixed period ends.

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Repaying a loan with equal regular payments, each split between interest and principal. Early payments are mostly interest; later ones are mostly principal.

Example: On a $20,000 loan at 7% over 5 years, the $396.02 payment in month 1 is $116.67 interest and $279.36 principal.

Try the Amortization Calculator →Guide: How Loan Amortization Works: Schedule, Formula, Examples

A table showing every payment on a loan, how much of each goes to interest and principal, and the balance left afterwards.

Try the Amortization Calculator →Guide: How Loan Amortization Works: Schedule, Formula, Examples

The yearly cost of a loan including interest and most up-front fees, expressed as a percentage. Because it includes fees, it is the fairer number for comparing loan offers than the interest rate alone.

Example: A $10,000 loan at 8% interest with a $300 fee has an APR above 8%, because you pay the fee but only receive $9,700.

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The yearly return on savings once compounding is included. It is higher than the stated interest rate whenever interest is added more than once a year.

Example: 5% compounded monthly gives an APY of (1 + 0.05 ÷ 12)^12 − 1 = 5.12%.

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A series of equal payments made at regular intervals, such as a pension paid monthly or a fixed savings deposit. The term also names insurance products that pay an income for a set time or for life.

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Anything you own that has money value: cash, savings, investments, property, a car, retirement accounts.

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A large lump sum due at the end of a loan whose regular payments did not repay all of the principal. Common in some business, car and commercial property loans.

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The sales level at which revenue exactly covers costs, so profit is zero. Sell more and you make a profit; sell less and you make a loss.

Example: With $3,000 of monthly fixed costs and $15 profit per unit after variable costs, you break even at 3,000 ÷ 15 = 200 units.

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The profit from selling an investment or property for more than you paid for it. Many countries tax it, often at different rates depending on how long you held the asset.

Example: Shares bought for $4,000 and sold for $5,500 give a capital gain of $1,500 before any fees.

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A savings deposit locked away for a fixed term, such as 6 months or 5 years, at a fixed rate. Withdrawing early usually costs a penalty.

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The fees and charges paid when a home purchase or mortgage is finalised, such as lender fees, appraisal, title insurance, taxes and prepaid interest, on top of the down payment.

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Interest earned on both your original money and the interest already added. Over long periods it makes savings, and debts, grow much faster than simple interest.

Example: $10,000 at 7% a year compounded annually grows to about $19,672 in 10 years, against $17,000 with simple interest.

Try the Compound Interest Calculator →Guide: Compound Interest Formula Explained: Examples and Inflation

A number that summarises your credit history, used by lenders to price loans. In the US the common FICO and VantageScore models run from 300 to 850; paying on time and keeping card balances low help most.

A debt payoff method: pay the minimum on every debt and put all extra money on the debt with the highest interest rate first. It costs the least interest in total.

Try the Debt Payoff Calculator →Guide: Debt Snowball vs Avalanche: Which Pays Off Debt Faster?

Combining several debts into one new loan or balance transfer, ideally at a lower interest rate, so you have one payment instead of many.

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A debt payoff method: pay the minimum on every debt and put all extra money on the smallest balance first, then roll that payment onto the next smallest. It clears individual debts sooner but usually costs more interest than the avalanche.

Try the Debt Payoff Calculator →Guide: Debt Snowball vs Avalanche: Which Pays Off Debt Faster?

Your monthly debt payments divided by your gross monthly income. Lenders use it to judge how much more you can borrow.

Example: $2,000 of monthly debt payments on $6,000 of monthly income is a DTI of 33%.

Try the Debt-to-Income Ratio Calculator →Guide: The 28/36 Rule Explained: Limits, Math and Real DTI Caps

The part of a home or car price you pay up front in cash. The rest is borrowed. A bigger down payment means a smaller loan and, for many mortgages, no mortgage insurance.

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Total income tax divided by total income. It is lower than your marginal rate because lower slices of income are taxed at lower rates.

Example: Paying $9,000 of tax on $75,000 of income is an effective rate of 12%, even if your top bracket is 22%.

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Cash kept in an easy-to-access savings account to cover unexpected costs, such as a job loss or a car repair, without borrowing. A common target is three to six months of essential spending.

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A lump sum Saudi employers pay when employment ends: half a month's wage for each of the first five years and a full month for each year after, reduced if the employee resigns with under ten years' service.

Try the Saudi End of Service Calculator →Guide: How Saudi End of Service Benefit Is Calculated (2026 Rules)

The fixed monthly payment on a loan, used mainly in India and South Asia. It is calculated with the same formula as an amortizing loan payment on a reducing balance.

Try the EMI Calculator →Guide: How EMI Is Calculated: Formula, Example and Flat vs Reducing Rate

An account a mortgage servicer holds to pay your property tax and homeowners insurance. Part of each monthly payment goes into it, so your payment can change when tax or insurance bills change.

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A US mortgage insured by the Federal Housing Administration. It allows a smaller down payment and lower credit scores than many conventional loans, in exchange for mortgage insurance premiums.

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An interest rate that stays the same for the whole loan or deposit term, so the payment or return is predictable.

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A tax added to the price of goods and services at each stage of supply, with businesses reclaiming the tax they pay on inputs. India splits it into central and state parts (CGST and SGST) or an integrated tax (IGST) between states.

Example: 18% GST on ₹1,000 is ₹180: ₹90 CGST and ₹90 SGST within one state.

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The end-of-service payment for UAE private-sector employees: 21 days of basic salary for each of the first five years and 30 days for each year after, capped at two years' wages.

Try the UAE Gratuity Calculator →Guide: UAE Gratuity Calculation (2026): Formula and Examples

Income before tax and other deductions. Salaries, loan applications and debt-to-income ratios are usually quoted on gross income.

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The part of your home you own outright: its market value minus what you still owe on mortgages and other loans secured on it.

Example: A home worth $400,000 with a $260,000 mortgage balance has $140,000 of equity.

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A revolving credit line secured on your home. You can borrow up to a limit during a draw period, usually paying interest only, then repay the balance over a repayment period.

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The general rise in prices over time, which reduces what a fixed amount of money can buy. It is usually measured with a consumer price index.

Example: At 3% inflation a year, something costing $100 today costs about $134 in 10 years.

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The price of borrowing money, or the reward for saving it, as a percentage of the amount per year. It does not include fees; APR does.

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Money you owe: mortgages, car loans, student loans, credit card balances and other debts.

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How long you have to repay a loan. A longer term lowers each payment but increases the total interest you pay.

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The loan amount as a percentage of the property value. Lower LTVs usually get better rates and avoid mortgage insurance.

Example: A $320,000 mortgage on a $400,000 home is an LTV of 80%.

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Investing a large amount all at once rather than in regular instalments. It has more time in the market but more exposure to the timing of a single entry.

Try the SIP Calculator →Guide: SIP vs Lumpsum: Which Is Better? Worked Examples and Risks

The tax rate on your next unit of income: the rate of the highest bracket or slab you reach. Only income inside that bracket is taxed at that rate.

Try the Income Tax Calculator →Guide: US Federal Tax Brackets 2026 and Standard Deduction

Profit as a percentage of cost. It is always higher than the profit margin on the same sale.

Example: Buying for $60 and selling for $100 is a 66.7% markup ($40 ÷ $60).

Try the Markup Calculator →Guide: Profit Margin vs Markup: Formulas and Conversion Table

The smallest amount a credit card issuer accepts each month without a late fee. Paying only the minimum keeps most of the balance accruing interest, so payoff can take years.

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What is left of your pay after income tax, social security contributions and other deductions. For a business, profit after all costs and taxes.

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Everything you own minus everything you owe. Tracking it once or twice a year shows whether your finances are moving forward.

Example: $85,000 of assets and $52,000 of debts is a net worth of $33,000.

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The minimum wealth a Muslim must own, for a full lunar year, before zakat is due. It is set by the value of 87.48 grams of gold or 612.36 grams of silver.

Try the Zakat Calculator →Guide: Zakat on Gold: Nisab in Tola and Grams, 2.5% Rule, Examples

Principal, interest, taxes and insurance: the four parts of a typical monthly mortgage payment. Lenders use PITI, plus mortgage insurance and HOA dues, to work out your housing ratio.

Try the Mortgage Calculator →Guide: The 28/36 Rule Explained: Limits, Math and Real DTI Caps

A fee some lenders charge if you repay a loan early or pay off a large part of it ahead of schedule. Your loan agreement says if one applies.

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The amount you borrowed, or the part of it still owed, not counting interest. Extra payments that go to principal reduce future interest.

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Insurance that protects the lender, not you, usually required on US conventional mortgages with less than 20% down. It adds to the monthly payment until you reach enough equity to cancel it.

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Profit as a percentage of the selling price. Gross margin subtracts only the cost of the product; net margin subtracts every cost, including tax.

Example: Selling for $100 something that cost $60 is a 40% margin ($40 ÷ $100).

Try the Profit Margin Calculator →Guide: Profit Margin vs Markup: Formulas and Conversion Table

A tax on real estate charged by local governments, usually a percentage of the assessed value each year. In the US it is often paid through the mortgage escrow account.

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An investment return after inflation. It shows how much your purchasing power actually grew.

Example: A 7% return in a year with 3% inflation is a real return of about 3.9% ((1.07 ÷ 1.03) − 1).

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Replacing an existing loan with a new one, usually to get a lower rate, change the term or take cash out. Closing costs mean it only pays off if you keep the new loan long enough.

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The minimum amount the IRS requires you to withdraw each year from traditional IRAs and most workplace retirement plans once you reach the starting age (73 or 75, depending on birth year, under SECURE 2.0).

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Revenue from advertising divided by what the advertising cost. It measures revenue, not profit, so a ROAS above 1 can still lose money.

Example: $5,000 of sales from $1,000 of ads is a ROAS of 5, often written 5:1 or 500%.

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Gain from an investment divided by what it cost, as a percentage. Annualised ROI adjusts for how long the money was invested.

Example: Investing $2,000 and getting back $2,600 is a 30% ROI.

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A US individual retirement account funded with after-tax money. Investments grow tax-free and qualified withdrawals in retirement are tax-free. Contributions are limited each year and phase out at higher incomes.

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A shortcut for how long money takes to double: divide 72 by the yearly percentage return.

Example: At 8% a year, money doubles in about 72 ÷ 8 = 9 years.

Try the Compound Interest Calculator →Guide: Rule of 72: How Accurate Is It? Table vs Exact Doubling Times

A tax added to the price of goods and some services at the final sale. In the US it is set by states, counties and cities, not the federal government, and prices are usually shown before tax.

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Interest calculated only on the original amount, not on interest already earned: principal × rate × time.

Example: $5,000 at 6% simple interest for 3 years earns $900.

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The US federal pension based on your 35 highest-earning years. Claiming before full retirement age (67 for anyone born in 1960 or later) permanently reduces the monthly benefit; delaying to 70 increases it.

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Investing a fixed amount in a mutual fund at regular intervals, usually monthly. Common in India, it spreads purchases over time so you buy more units when prices are low.

Try the SIP Calculator →Guide: SIP vs Lumpsum: Which Is Better? Worked Examples and Risks

A band of income taxed at one rate. Progressive systems have several brackets, and each rate applies only to the income inside its band.

Try the Income Tax Calculator →Guide: US Federal Tax Brackets 2026 and Standard Deduction

A consumption tax charged at each stage of supply on the value added, with businesses reclaiming the VAT they pay on their own purchases. The standard rate is 20% in the UK, 5% in the UAE and 15% in Saudi Arabia.

Example: £100 plus 20% VAT is £120; a £120 VAT-inclusive price contains £20 of VAT.

Try the VAT Calculator →Guide: How to Calculate VAT: Add, Remove and the VAT Fraction

Tax deducted at source by an employer, bank or payer and paid to the tax authority on your behalf, such as income tax taken from each paycheck. It is credited against your final tax bill.

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An annual Islamic obligation to give 2.5% of zakatable wealth (cash, gold, silver, investments and trade goods) once it has stayed above the nisab for a lunar year.

Example: Zakatable wealth of Rs 2,000,000 held for a full lunar year means zakat of Rs 50,000.

Try the Zakat Calculator →Guide: Zakat on Gold: Nisab in Tola and Grams, 2.5% Rule, Examples