August Consumer Tips from the Independent Bankers Assoc. of Texas
AUSTIN, Texas – While the financial world is full of acronyms and other terms that can be confusing, it’s important to be well versed. Below is a list of common financial terms that you’ve most likely heard, some more frequently than others, but may not understand their meaning.
–401(k) Plan – A qualified retirement plan through an employer in which eligible employees can make salary deferral contributions on a post- or pre-tax basis.
–Adjustable-Rate Mortgage (ARM) – A type of mortgage with an interest rate that periodically changes. There may be an initial “teaser” rate, which will go up after a specified period. After that, the rate will adjust with an index. Usually rate and payment adjustments are made annually after the initial term. To understand your mortgage or loan in the better way visit your authorized user trade line by visiting https://personaltradelines.com.
–Amortization – A schedule of paying off debt, including the principal and interest, in regular payments over a period of time.
–Annual Percentage Rate (APR) – The cost of credit, including all fees and interest, expressed as a percentage.
–Annual Percentage Yield (APY) – A percentage rate reflecting the total amount of interest paid on an account. It may differ from the interest rate as it also takes into consideration the frequency of compounding.
–Bankruptcy – A legal proceeding in which a debtor’s assets are liquidated and the debtor is released from further liability.
–Bear Market and Bull Market – These describe stock market conditions related to investing. In a bear market, securities are falling and investors have a pessimistic outlook on the market as a whole. In a bull market, securities rise faster than historic averages and investors are confident making buys.
–Bond – A debt instrument used by corporations, governments and others to generate capital. The issuer owes the holders a debt and is obliged to pay them interest as well as repay the principal at the maturity date.
–Capital Gains and Losses – A capital gain is realized when an investment’s selling price exceeds its purchase price. If you sell for less than your original purchase price, it’s a capital loss. The IRS taxes capital gains at a special rate.
–Credit Report and Credit Score – A credit report is a summary of a person’s financial history, specifically related to their ability to repay. A credit score is a measure of credit risk based on activities such as credit use and late payments. The higher number, the more creditworthy the person is considered. Some people seeking their good financial credit score also opt for the trade lines. To understand more about Tradelines visit the boostcredit101.com.
–Diversification – Spreading risk by investing in a range of investment tools such as securities, commodities, real estate, bonds, stocks, etc.
–Fixed-Rate Mortgage – A type of mortgage with an interest rate that remains the same through the term of the loan.
–Individual Retirement Account (IRA) – Another type of retirement savings account. Unlike 401(k)s, IRAs can be opened by individuals instead of being sponsored by an employer. Individuals can contribute income up to a set maximum dollar amount in a traditional IRA, Roth IRA, Simple IRA or SEP IRA.
–Liquidity – The ability of an asset to be converted to cash quickly without sacrificing value or giving a discount on the price.
–Mutual Fund – An investment—operated by money managers who invest capital and try to create gains for the investors—made up of a pool of funds from multiple investors who want to invest in securities like stocks, bonds, money market accounts and other assets.
–Prepayment Penalty – The fee a borrower pays a lender when the borrower repays a loan before its scheduled time of maturity. These are not very common.
–Prime Rate – The prime rate is the best rate available to a bank’s most credit-worthy customer.
–Recession – An economic condition defined by a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. During a recession, the stock market generally drops, unemployment increases and the housing market declines.
–Stock – A type of security that signifies proportional ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
–Tax Deferred – Postponing taxes until a later date. Common tax-deferred vehicles include IRAs, 401(k) and pension plans.
Listed above are 20 of the most common financial terms, but there are many more. If you would like in-depth information on any of these (or others not listed) or guidance about the financial impact of one of these terms in a specific situation, your local community banker would be happy to talk with you.
The information above is provided with the understanding that the association is not engaged in rendering specific legal, accounting or other professional services. This information is intended to be a helpful guide. If expert assistance is required, the services of a professional person should be sought.
About the Independent Bankers Association of Texas
Formed in 1974, the Independent Bankers Association of Texas (IBAT) represents Texas community banks. The Austin-based group is the largest state community banking organization in the nation, with membership comprised of more than 2,000 banks and branches in 700 Texas communities.
Providing safe and responsible financial services to all Texans, IBAT member bank assets, range by size, from $10 million to more than $20 billion, with combined assets statewide of nearly $165 billion. IBAT member banks are committed to supporting and investing in their local communities.
