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Glossary
Savings and Investing Terms

 
401(k) Plan - A tax-deferred savings plan that allows an employer to match employee deposits into the account up to 100 percent.

Bear and Bull Markets - In a bear market, prices are low or declining. In a bull market, prices are high or rising.

Blue Chip Stocks - Stock in a company known for its long-established record of making money and paying dividends. (General Electric, IBM, General Motors.)

Bond - A certificate issued by a corporation or government stating the amount of a loan, the interest to be paid and the time for repayment. 

Certificate of Deposit (CD) - A savings instrument issued by a bank for a specific dollar amount, at a fixed interest rate, for a specific time period. Individuals lend money to an institution for a set period of time ranging from a few weeks to several years. The longer the term, the higher the return.

Compound Interest - Interest earned on principal plus interest that was earned earlier.

Credit - Borrowing money now with a promise to pay it back at a later time, generally with interest.

Credit Limit - The maximum amount of credit available on a credit account.

Diversification - The strategy for reducing risk by spreading assets among several investment categories.

Dividend - The distribution of earnings paid to shareholders by corporations.

Dow Jones Industrial Average - The best known U.S. stock index. A price-weighted average of 30 actively traded blue chip stocks. 

FDIC - Federal Deposit Insurance Corporation - An agency of the federal government created to guarantee bank deposits.

Individual Retirement Account (IRA) - A tax-deferred personal account that allows employed individuals to set aside up to $2,000 per year for retirement. There are two types of IRAs, traditional and Roth. Earnings from a traditional IRA are tax deferred until withdrawals begin at age 59½ or later. Funds invested in a Roth IRA are pre-taxed, which means the earnings are tax free upon withdrawal at age 59½ or later.
Insider Trading - The buying or selling of shares of a publicly held company by an “insider” - someone who has material information about the company that is not available to the public.

Liquidity - The ease with which an investment can be converted into cash without loss in value.

Money Market Accounts - Similar to checking accounts but offer a higher interest rate. Typically, a minimum deposit - $1,000 and higher - is required to open a money market account.

Mutual Fund - Operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, futures, currencies or money market securities. These funds offer investors the advantages of diversification and professional management.

NASDAQ - A major national and international stock market that uses computers and telecommunications for the trading of thousands of securities. Investors are able to trade by computer from wherever they are located.

New York Stock Exchange (NYSE) - The oldest and largest stock exchange in the United States that oversees daily trading in more than 2,000 stocks involving millions of shares.

Private Company - A company owned exclusively by an individual, family or small group of people.

Public company - A company whose stock is sold to the general public.

Savings Accounts - Bank and credit union customers deposit their money, essentially lending it to the financial institution. In return, customers earn interest on their deposits.

Securities - A broad range of investment instruments including stocks, bonds and mutual funds.

Securities and Exchange Commission (SEC) - Independent federal agency that governs the securities industry and enforces securities laws.

Stocks - Stock represents ownership interests in a company. Companies issue stock to raise money, usually for start-up costs or to expand operations. Investors who buy stock own a part of the company. 

Stockbroker - Handles the buying and selling of securities.

Tax-deferred - Earnings on an investment remain untaxed until the holder takes possession of them. Examples include IRAs and savings bonds.