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Finance Glossary
Simple, clear definitions of common financial terms used worldwide.
EMI / Monthly Installment
A fixed monthly payment covering both principal and interest, structured so the loan is fully repaid by the end of the chosen term. Used in mortgages, auto loans, personal loans, and student loans worldwide.
SIP — Systematic Investment Plan
A method of investing a fixed amount regularly (monthly/quarterly) into a market fund, enabling dollar-cost averaging and disciplined long-term wealth creation. You automatically buy more shares when prices are low and fewer when prices are high, smoothing out volatility over time.
Sales Tax / VAT / GST
A consumption tax charged on goods and services. In the US, sales tax is state-levied (0%–10.25%). In the EU and UK, VAT (Value Added Tax) applies at 20%–27%. In Canada, GST/HST applies at 5%–15%. Our Sales Tax Calculator handles all these variants.
CD — Certificate of Deposit
A savings instrument where a lump sum is deposited with a bank for a fixed term at a pre-agreed interest rate. In the US, CDs are FDIC-insured up to $250,000 per depositor per bank. Interest is typically compounded daily or monthly. Early withdrawal penalties apply.
Recurring Savings / DCA
A savings strategy where a fixed amount is automatically invested or deposited at regular intervals (weekly, monthly). Also called Dollar-Cost Averaging (DCA) in investing. Ideal for building an emergency fund or long-term savings habit without needing a lump sum upfront.
401(k) / IRA / Retirement Account
US tax-advantaged retirement savings accounts. 401(k): employer-sponsored, 2025 limit $23,000/year ($30,500 if 50+). Traditional IRA: tax-deductible contributions, taxed at withdrawal. Roth IRA: after-tax contributions, tax-free growth and withdrawals. 2025 IRA limit: $7,000/year.
CAGR — Compound Annual Growth Rate
The rate at which an investment grows from its starting value to ending value, assuming profits are reinvested at the end of each year. Formula: CAGR = (Ending Value / Beginning Value)^(1/Years) – 1. Used to compare investment performance across different timeframes and asset classes.
APR — Annual Percentage Rate
The true annual cost of borrowing, expressed as a percentage. APR includes interest rate plus all fees (origination, processing, insurance). Always compare APRs — not just interest rates — when choosing between loan offers, as APR gives a complete picture of total borrowing cost.
APY — Annual Percentage Yield
The effective annual return on a savings account or CD, accounting for compounding frequency. APY is always equal to or higher than the stated interest rate. A CD with 5% interest compounded monthly has an APY of approximately 5.12%. Use APY to compare savings products accurately.
XIRR — Extended Internal Rate of Return
A method to calculate returns on investments with irregular cash flows — for example, monthly SIP investments made on different dates. More accurate than simple CAGR for periodic investment plans. Used by most investment platforms to show your actual annualized returns.
LTCG / STCG — Capital Gains Tax
Profit from selling an investment asset. In the US: Long-Term Capital Gains (assets held 12+ months) are taxed at 0%, 15%, or 20% depending on income. Short-Term Capital Gains (held under 12 months) are taxed as ordinary income at your marginal rate. Tax-loss harvesting can offset gains.
Withholding Tax / Income Tax
Tax withheld by your employer from each paycheck and remitted directly to the IRS on your behalf. The amount depends on your W-4 filing status and allowances. At year-end, you reconcile actual tax owed vs. withheld — receiving a refund if over-withheld or paying the difference if under-withheld.
Mortgage / Home Loan
A secured loan used to purchase real estate, with the property serving as collateral. US mortgages are most commonly 30-year fixed or 15-year fixed. Key terms: LTV (Loan-to-Value ratio), PMI (Private Mortgage Insurance required if LTV > 80%), points (prepaid interest to lower the rate), and escrow (funds held for property tax and insurance).
Fed Funds Rate / Prime Rate
The Federal Funds Rate is the target interest rate set by the US Federal Reserve for overnight lending between banks. The Prime Rate is typically Fed Funds Rate + 3% and serves as the benchmark for many consumer loans (HELOCs, credit cards, personal loans). Fed rate changes directly impact variable-rate loan costs.
NAV — Net Asset Value
The per-share price of a mutual fund or ETF. NAV = (Total Assets – Liabilities) / Total Shares Outstanding. Calculated at end of each trading day for mutual funds; ETFs trade at market price throughout the day. Returns are measured by how much NAV increases over your holding period.
FDIC / NCUA Insurance
The FDIC (Federal Deposit Insurance Corporation) insures deposits at US banks up to $250,000 per depositor, per institution, per account category. NCUA provides equivalent coverage for credit union deposits. This federal insurance means your savings are fully protected even if the bank or credit union fails.