Resources · Financial Terms and Definitions

Finn's Money Dictionary

Banking basics · Retirement accounts · Investments · Annuities · Taxes & rules · Life insurance

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Banking basics

CD: A certificate of deposit: you leave money at a bank for a set term (for example, 12 months) in exchange for a fixed interest rate. Taking money out early usually means a penalty. FDIC-insured.
Checking Account: An everyday bank account for paying bills, using a debit card and receiving deposits. It usually earns little or no interest and is FDIC-insured up to $250,000 per depositor, per bank, per ownership category.
Money Market Account: A bank savings account that usually pays a bit more interest than regular savings and may allow a few checks or debit transactions each month. FDIC-insured. (Not the same as a money market fund, which is an investment.)
Savings Account: A bank account for money you don't need day to day. It earns some interest, may limit withdrawals, and is FDIC-insured up to the same limits as checking.

Retirement accounts

401k: A retirement plan offered through an employer. Money comes straight out of your paycheck, often before taxes, and many employers add a match. Taxes are usually paid when you withdraw, and withdrawals before age 59½ may face a penalty. Many plans also offer a Roth option.
403b: A retirement plan similar to a 401(k), offered by public schools, nonprofits, hospitals and some government employers.
IRA: An Individual Retirement Account you open yourself. Contributions to a traditional IRA may be tax-deductible, the money grows tax-deferred, and withdrawals are taxed as income. Early withdrawals (before 59½) may face a penalty.
Retirement Age: The age you plan to stop working. For Social Security, you can claim as early as 62 with a reduced benefit; full retirement age is 67 for anyone born in 1960 or later. Medicare eligibility usually starts at 65.
Roth IRA: An IRA funded with money you've already paid tax on. In return, the growth and qualified withdrawals are tax-free (generally after age 59½ and once the account has been open five years). There are income limits to contribute, and the original owner never has to take required minimum distributions.

Investments

Bonds: A loan you make to a company or government. It pays you interest and returns your money at a set date (maturity). Bond prices can rise or fall, especially when interest rates change.
Brokerage Account: A regular investment account for buying stocks, bonds, mutual funds and more. There's no special tax break and no age rules for withdrawals; you generally pay tax on interest, dividends and gains.
Mutual Funds: A pool of money from many investors that a professional manager invests in a mix of stocks, bonds or other assets. It spreads your money out but comes with fees, and its value can go up or down.
Stocks: A share of ownership in a company. Stock prices go up and down with the company and the market, so you can gain or lose money.

Annuities

Allocations: How you divide your annuity money among its options, such as a fixed account and one or more indexed strategies. You can usually change allocations on each contract anniversary.
Annual Point to Point Allocation: An indexed crediting method that compares the index value on your contract anniversary with its value one year later. If it went up, you're credited part of the gain (subject to caps, participation rates or spreads). If it went down, you're credited 0%, but you don't lose money.
Caps: In an indexed annuity, the most interest you can be credited in a period. Example: with a 7% cap, a 12% index gain credits 7%.
Declared Rate: The fixed interest rate an insurance company sets (declares) for a fixed annuity or the fixed account of an indexed annuity, usually guaranteed for a set period.
Equity Indexed Annuity: Now usually called a Fixed Indexed Annuity. A fixed annuity whose interest is linked to a market index (like the S&P 500), up to certain limits. You share in part of the index's gains, and your money isn't lost when the index goes down. You're not invested in the market directly.
Fixed Annuity: A contract with an insurance company that pays a guaranteed interest rate for a set period. Your money grows tax-deferred and can later be turned into a steady income stream.
Participation Rate: In an indexed annuity, the percentage of the index's gain that's credited to you. Example: with an 80% participation rate and a 10% index gain, you're credited 8%.
Spread: In an indexed annuity, a percentage subtracted from the index gain before interest is credited. Example: a 10% index gain with a 2% spread credits 8%.
Surrender Charge: A fee for taking out more than the allowed amount, or cashing out, during an annuity's or life policy's early years. Many annuities let you withdraw about 10% a year without this charge.
Surrender Schedule: The table showing how the surrender charge shrinks each year until it reaches zero. Example: 7%, 6%, 5% and so on over seven years.
Year Surrender Charge
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 0%
Variable Annuity: An annuity where your money is invested in sub-accounts (similar to mutual funds). Its value can go up or down, including losing money, and it is a securities product sold by registered representatives.

Year	Surrender Charge
1	7%
2	6%
3	5%
4	4%
5	3%
6	2%
7	0%

Taxes & rules

Non-Qualified Money: Money outside retirement plans that you've already paid tax on, such as savings, brokerage accounts or a non-qualified annuity. Generally only the growth is taxed.
Qualified Money: Money in tax-advantaged retirement plans such as 401(k)s, 403(b)s and traditional IRAs. It usually went in before tax, so withdrawals are taxed as income.
RMD: Required Minimum Distribution: the amount the IRS requires you to withdraw each year from most tax-deferred retirement accounts once you reach a certain age, currently 73 for most people and 75 for those born in 1960 or later. Roth IRAs have no RMDs for the original owner.
Tax Basis: The amount you've already paid tax on (what you put in). When you withdraw, your basis isn't taxed again; only the growth above it is.

Life insurance

Tax Ramification of Life Insurance: In general, the death benefit is paid to beneficiaries free of income tax, and cash value grows tax-deferred. Policy loans and withdrawals up to what you paid in can often be taken without tax if the policy isn't a Modified Endowment Contract (MEC); gains taken on surrender are taxable. Very large estates may still owe estate tax.

These definitions are for general education only and are not tax, legal or investment advice. Rules and limits can change; confirm details with a tax professional.