“Promoting Financial Responsibility Through Community-Based Education”
Dictionary of Saving and Investing Terms
Annual Percentage Yield (APY): APY is the amount of interest you will earn on a yearly basis expressed as a percentage.
The APY includes the effect of compounding.
Bonds: When you purchase a bond, you are essentially loaning money to a corporation or to the government for a certain
period of time, called a term. The bond certificate promises the corporation or government will repay you on a specific date
with a fixed rate of interest.
Certificates of Deposit (CDs): CDs are accounts where you leave your money for a set period of time, such as six months,
one, two, or five years, called a term. The longer you promise to keep your money in a CD, the higher the interest rate.
Club Account: A club account is a type of savings account you “join” to save money for a special reason, such as holidays
or family vacations. Club accounts usually require you to make regular deposits.
Diversification: Diversification means you spread the risk of loss in a variety of savings and investment options.
401(k) and 403(b) Retirement Plans: 401(k) plans are retirement plans that some private corporations offer their
employees. A 403(b) plan is similar to a 401(k), but is offered to employees of some nonprofit organizations. In both plans
money is taken directly from your paycheck and placed in different investment options that you choose. The funds grow tax-
free until the money is withdrawn during retirement.
Equity: When referring to a home, equity is the difference between how much the house is worth and how much you owe on
Investment: A savings option purchased for future income or financial benefit.
Individual Retirement Account (IRA): An IRA is a retirement account that lets you save and invest money tax-free until
you withdraw it when you retire. You can contribute up to $2,000 a year.
Liquidity: Liquidity refers to the ease with which an asset can be turned into cash w