Welcome to our financial terms glossary, a foundational resource designed to enhance your understanding of common or more complex financial concepts. This comprehensive guide serves as an invaluable tool, whether you're learning the complexities of personal finance, exploring a career in the financial sector, or enhancing your classroom’s knowledge of financial education.
Understanding financial terms can help you structure a more comprehensive financial planning system. It empowers you to make informed decisions, effectively communicate with professionals, and confidently manage your personal or business finances. This glossary not only elucidates common terms but also explores the nuances that underpin financial operations, making it your go-to banking dictionary.
Moreover, familiarizing yourself with these essential financial literacy terms can potentially contribute to achieving economic stability and growth. The benefits of financial literacy are extensive, ranging from improved budgeting skills to more sophisticated investment strategies. Knowing why financial education is important can inspire you to engage with your finances more proactively, fostering a deeper understanding of how to maximize your economic potential.
We invite you to explore this glossary, which offers clear definitions to ensure that even complex financial concepts become accessible. By doing so, you equip yourself with the knowledge needed to reach your economic goals with confidence and clarity.
A
ACH Payment
An electronic payment is processed via the Automated Clearing House network. This system allows for the transfer of funds between bank accounts across different financial institutions. Typically, ACH payments are used for various types of transactions including recurring bill payments, direct deposits, and one-time vendor payments. They are preferred for their low cost and reliability, offering an alternative to traditional methods like checks or wire transfers.
Also known as “pull payments”, where funds are withdrawn from an account, as in automatic bill payments.
Also called a “push payment”, where funds are moved into an account, often used for payroll.
A nine-digit code that identifies banks in the U.S., is used for routing checks and electronic payments.
Account Balance
The total amount of money in a bank account at any given time
A unique 9-to-12-digit number is assigned by a bank to every account holder to identify their account.
Amortization
The process of spreading out a loan into a series of fixed payments over time.
Annual Percentage Rate (APR)
The annual rate charged for borrowing or earned through an investment, inclusive of all fees.
Annuity
A financial product that pays out a fixed stream of payments to an individual is typically used as an income stream for retirees.
Asset
Anything of value or a resource of value that can be converted into cash.
Average Cost
The total cost of goods divided by the number of goods.
B
Balance Sheet
A financial statement that reports a company's assets, liabilities, and shareholder's equity at a specific time.
Balance Transfer
The process of transferring debt from one credit card to another, usually to save on interest rates.
Bank Account
An account maintained by a financial institution in which the financial transactions between a customer and the bank are recorded.
Monis ey placed into a banking institution for safekeeping for secure storage and management, often to earn interest.
Bank Fee
Charges from a bank for account maintenance or services.
Bank Statement
A monthly summary from a bank detailing transactions in the customer's account.
Beneficiary
An individual who is entitled to receive benefits or funds under a will, insurance policy, retirement plan, or trust.
Bitcoin
A digital currency used for secure and instant transfer of value anywhere in the world.
B2B Payment
A payment conducted between two businesses rather than between a business and a
consumer.
It is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free.
Bond
A fixed-income instrument that represents a loan made by an investor to a borrower.
A code assigned to a branch of a bank for identification.
Broker
An individual or firm that acts as an intermediary in buying and selling securities for clients.
C
Capital
Financial assets or the financial value of assets, such as funds held in deposit accounts.
A scam where someone creates a fake identity to deceive others, often for financial gain.
Cash Flow
The net amount of cash being transferred into and out of a business.
Cash Refund Annuity
An annuity contract that provides for refunding of the cash that remains if the annuitant dies before breaking even on what they paid in.
Charge-off
The declaration by a creditor that an amount of debt is unlikely to be collected.
A number identifying a specific check, which helps track and account for it in banking records.
A charge assessed for the convenience of conducting transactions which could be performed at a lower cost or for free in person or by other means.
Commission
A service fee assessed by a broker or investment advisor in return for providing investment advice and handling the purchase or sale of a security.
Consumer
A person who purchases goods and services for personal use.
Payment transactions that require no physical contact between the consumer's payment device and the point-of-sale terminal.
Cost-effective
Economically efficient, where the benefit exceeds the costs.
The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.
Credit History
A record of a borrower's responsible repayment of debts.
Credit Risk
The possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations.
Credit Score
A numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual.
Cryptocurrency
Digital or virtual money secured by cryptography, making it nearly impossible to counterfeit or double-spend.
Currency
A system of money in general use in a particular country.
Custodian
A financial institution that holds customers' securities for safekeeping to minimize the risk of their theft or loss.
CVC
Card Verification Code is an anti-fraud security feature to help verify that the customer possesses the card.
D
Debit
An accounting entry that results in either an increase in assets or a decrease in liabilities on a company's balance sheet.
Debt
An amount of money borrowed by one party from another.
Deductible
The amount of expenses that must be paid out of pocket before an insurer will cover any expenses.
Deflation
A decrease in the general price level of goods and services, which can increase the real value of money.
Demand Deposit
A bank deposit that can be withdrawn at any time without any prior notice.
Demand Draft
A method used by individuals to make transfer payments from one bank account to another.
Depreciation
A reduction in the value of an asset over time, particularly in relation to wear and tear.
Electronic devices that allow an individual to make electronic transactions.
Direct Deposit
An electronic transfer of a payment directly from the account of the payer to the recipient's account.
Distribution
The payment of assets from a fund, account, or individual security to investors.
Dividend
A payment made by a corporation to its shareholders, usually as a distribution of profits.
Domestic Transfer
A transfer of funds between accounts in the same country.
E
Earnings
The net profits of a company after taxes and expenses have been deducted.
Electronic Funds Transfers, which move money between different bank accounts electronically.
ECBS
Electronic Communications Billing Service, a system used for managing and issuing electronic bills.
E-commerce
Buying and selling of goods and services over the Internet.
Encrypted Data
Data that is encoded for security purposes during internet transactions.
Estate Tax
A tax levied on an individual's estate or total value of money and property that they leave behind when they die.
Equity
Ownership value in an asset after liabilities are deducted.
Explicit Cost
Direct, out-of-pocket payments for goods or services during business operations.
Exchange Rate
The value of one currency for conversion to another
Expenses
Broad, open areas, often misused in finance; likely intended to mean expenses.
Expense Ratio
A measure of what it costs an investment company to operate a mutual fund.
F
A tax levied by the United States federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.
Federal Deposit Insurance Corporation; a United States government corporation providing deposit insurance to depositors in U.S. commercial banks and savings institutions.
Fixed Cost
Costs that do not fluctuate with changes in production level or sales volume.
Fixed Deposit
A financial instrument provided by banks that provides investors with a higher rate of interest than a regular savings account until the given maturity date.
Fixed Income Fund
A type of investment fund that generates returns from investing in bonds or other debt securities.
Financial Aid
Any grant or scholarship, loan, or paid employment offered to help a student meet his/her college expenses.
Financial Statement
A formal record of the financial activities and position of a business, individual, or other entity.
Financial Industry Regulatory Authority; a non-governmental organization that regulates member brokerage firms and exchange markets.
Flat Transaction
A transaction with no interest or fees that varies with the amount of the transaction; often used incorrectly in place a of flat fee.
Foreign Draft
A cheque drawn on a bank in one country and payable in another country.
A fee is assessed by a credit card company to a consumer who uses a credit card to make a purchase in a foreign currency.
Wrongful or criminal deception intended to result in financial or personal gain.
A sum of money saved or made available for a particular purpose.
G
A debit card used by a government agency to provide benefits to recipients electronically.
Grace Period
The period during which no interest is charged on a credit card balance if the total balance is paid by the due date.
Gross Income
The total income from all sources before deductions, taxes, and expenses.
Group Annuity Contract
A retirement investment product sold to employers that provides an income stream to employees upon retirement.
Growth Fund
A mutual fund that invests primarily in stocks with potential for above-average growth.
H
Hard Money Loan
A loan secured by real property and typically issued by private investors or companies.
A tax-advantaged medical savings account available to taxpayers who are enrolled in a high-deductible health plan.
Hedge
An investment to reduce the risk of adverse price movements in an asset.
High-Yield Account
A bank account that offers a higher interest rate in exchange for larger than average deposits.
Holding Period
The amount of time an investment is held by an investor.
I
The fraudulent acquisition and use of a person's private identifying information, usually for financial gain.
International Bank Account Number, a standard internationally agreed system of identifying bank accounts across national borders.
Implicit Cost
The opportunity cost equal to what a firm must give up in order to use factors which it neither purchases nor hires.
Tax paid on money made from employment, business, or capital.
Index
A statistical measure of change in an economy or securities market.
The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Information Security Management System (ISMS)
A set of policies and procedures for systematically managing an organization's sensitive data. Afriex is proudly ISO 27001 certified, having an Information Security Management System.
A fee paid between banks for the acceptance of card-based transactions.
Interest Rate
The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.
International Fund
A mutual fund that invests in companies located anywhere outside of the investor’s country of residence.
A contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company.
Investment
Money committed, or property acquired for future income with the expectation of achieving additional income or profit.
Investment Risk
The possibility that an investment will not perform as expected.
J
Joint Account
A bank account owned by two or more individuals who share equal access and responsibilities.
JPM
Abbreviation for JPMorgan Chase & Co., a leading global financial services firm known for its asset management and banking services.
Judgment
A legal determination of the rights and obligations of the parties in a lawsuit, often related to debt.
Jumbo Loan
A loan amount above the limits set by the Federal Housing Finance Agency.
Junior Mortgage
A mortgage that is subordinate to the claims of a prior lien or mortgage.
K
Keogh Plan
A retirement plan allowing self-employed individuals and unincorporated businesses to save for retirement, deferring taxes until withdrawal.
Key Rate
A fundamental interest rate influencing overall banking rates and the cost of credit for borrowers.
Kicker
An extra feature in a bond or security that makes it more appealing, often enhancing its value.
KYC (Know Your Customer)
Banks perform this process to verify the identity and address of clients, preventing misuse of banking services.
L
Lease
A contractual arrangement where one party conveys property, services, or land to another for a specified period in exchange for payment.
Letter of Credit
A document from a bank guaranteeing timely and full payment to a seller from a buyer.
Leverage
Using borrowed capital or debt to increase the potential return of an investment, amplifying both gains and losses
Liquidity
How quickly and easily an asset can be converted into cash without significantly affecting its price.
Loan
A sum of money borrowed expected to be paid back with interest.
Loan Grading
A rating system that banks use to assess the risk associated with a loan based on the likelihood of default.
Loan Maturity
The final payment date of a loan at which point the principal (and all remaining interest) is due to be paid.
M
Marginal Cost
The cost of producing one additional unit of a product or service.
A charge that a merchant pays to a bank for processing electronic payments.
A line on a check printed in magnetic ink, allowing it to be read by machines that process checks.
Minimum Wage
The lowest salary that employers can legally pay their workers; the rate is set by law.
An application that allows customers to perform banking tasks from their mobile devices without needing to visit a bank branch.
A money transfer app enables users to send and receive money directly from their mobile devices, offering convenience and speed. Afriex, for example, excels in sending money to Africa with features like fast transfers, low fees, and robust security, making it a preferred choice for diaspora remittances. For assistance with our app, refer to our guide on how to send money to Africa and don’t hesitate to contact our customer support team for further instructions!
Money laundering involves disguising the origins of illegally obtained money, typically by passing it through complex sequences of banking transfers or commercial transactions.
Mortgage
A loan secured by real property, used by purchasers of real property to raise funds to buy real estate.
Mutual Fund
An investment vehicle composed of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments, and other assets.
N
The organization that manages the development, administration, and governance of the ACH Network in the United States
Net Income
The total profit of a company after all expenses and taxes have been deducted from revenues.
Net Worth
The difference between the total assets and total liabilities of an individual, company, or institution.
A fee charged for the use of an electronic network for transactions such as ATM withdrawals or debit card purchases.
A method that allows two devices placed within a few centimeters of each other to exchange data. Used for services like contactless payments.
Nominal Interest Rate
The rate at which interest is paid by a borrower for the use of money that they borrow from a lender.
NSF Fee (Non-Sufficient Funds)
A fee incurred when a bank account does not have enough money to cover a payment.
O
The performance of banking activities via the Internet, such as transferring funds, paying bills, and viewing account balances.
Online Payment Gateway
A service that authorizes credit card or direct payments processing for e-businesses, online retailers, bricks and clicks, or traditional brick and mortar.
Option
A financial derivative that represents a contract sold by one party to another. The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period or on a specific date.
Outstanding Balance
The amount of money owed, or due, that remains in a deposit account.
Overdraft
An extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it or not enough to cover the withdrawal.
P
Paycheck
A check for salary or wages made out to an employee.
Payroll Service
A third-party service that handles all aspects of payroll processing for businesses to ensure employees and taxes are paid correctly and on time.
Payment Processing Service
A system that businesses use to handle transactions from various channels like credit cards and debit cards, ensuring the transfer of funds.
Attempts by fraudsters to obtain sensitive information such as usernames, passwords, and credit card details by masquerading as a trustworthy entity.
PIN
Personal Identification Number used to secure and access bank accounts or conduct transactions.
Policy
An insurance document detailing the terms under which coverage is extended.
Prepayment/Prepaid Payment
Paying for goods or services before they are received or consumed.
A charge applied to cover the cost associated with handling a transaction.
Profit
The financial gain made after subtracting expenses from revenue.
Property Tax
A local or municipal tax paid by property owners based on the assessed value of their property.
Q
A contactless payment method where payment is made by scanning a QR code using a smartphone app.
Quarterly Reports
Financial statements issued by public companies every three months, detailing earnings, expenses, and net profits.
Quasi Cash
Items or instruments like traveler’s checks or money orders that can be quickly converted into cash.
Quick Ratio
A measure of a company’s ability to meet its short-term obligations with its most liquid assets.
R
Rate of Return
The gain or loss on an investment over a specified time, expressed as a percentage increase over the initial investment cost.
Rebate
A return of part of the original payment for some service or merchandise, serving as a discount or reduction.
Reconciliation
The process of matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement.
Recurring Payment
Payments that are automatically repeated according to a preset schedule.
Recurring Deposit
A type of term deposit offered by banks which allows investors to save a fixed amount every month systematically and earn interest at the rate applicable to fixed deposits.
Refinancing
The process of replacing an existing debt obligation with another debt obligation under different terms.
Revenue
The total income generated from normal business operations and includes discounts and deductions for returned merchandise.
Risk Management
The identification, evaluation, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events.
ROI (Return on Investment)
A performance measure used to evaluate the efficiency of an investment or compare the efficiency of several different investments.
A type of online fraud where someone believes they are establishing a romantic relationship with someone, but the person is, in fact, using a fake identity to deceive them.
S
An interest-bearing deposit account held at a bank or other financial institution that provides a modest interest rate.
Securities
Financial instruments that represent some form of financial value, such as stocks, bonds, or options.
Identifiers used to simplify bank transfers denominated in euro, part of the Single Euro Payments Area.
Short Selling
The practice of selling securities or other financial instruments that are not currently owned, and subsequently repurchasing them ("covering").
A number used by British and Irish banks to identify the bank and branch where an account is held.
Social Security
A program that provides retirement income, disability income, and other payments to most elderly and disabled Americans.
Statement
A detailed written document that lists all the transactions that have occurred over the account holder’s account during a set time frame.
Stocks
Securities that represent an ownership share in a company.
A venue where buyers and sellers meet to exchange equity shares of public corporations.
An international bank code that identifies particular banks worldwide and is also known as a Bank Identifier Code (BIC).
T
Tariff
A tax or duty to be paid on a particular class of imports or exports.
Tax Credit
An amount that taxpayers can subtract from taxes owed to their government.
A fee charged for processing an individual transaction.
Transaction Cost
The total expenses associated with purchasing or selling goods or services.
Transfer Cap
A limit on the amount of money or transactions that can be transferred.
Tiered Transaction
A transaction structure where different levels of pricing are applied based on the volume or size of the transaction.
U
A government program that provides financial assistance to workers who lose their jobs through no fault of their own.
Underwriting
The process by which an insurer determines whether and on what basis it will accept an application for insurance.
Unit
In investment terms, it refers to a share or piece of a pooled investment fund or trust.
Unit Class
Different categories within a mutual fund, each with distinct terms regarding fees, risks, and rewards.
Unsecured Loan
A loan supported only by the borrower’s creditworthiness, without any type of collateral.
A government bond that offers a fixed rate of interest over a fixed period of time.
V
Value Fund
A mutual fund that invests in stocks believed to be undervalued in price and that are likely to pay dividends.
Variable Cost
Costs that vary depending on the level of production or sales.
Virtual Currency
A digital currency that is not regulated by any central authority and uses cryptography to secure transactions.
Volatility
A statistical measure of the dispersion of returns for a given security or market index.
W
Wage
Compensation or payment usually derived from employment or labor.
Warranty
A guarantee given to the purchaser by the seller regarding the condition of a product.
Wire Transfer
An electronic method of transferring funds through a network administered by banks globally.
Withdrawal
The act of removing funds from a bank account.
Withholding
An act of deducting taxes from an employee's salary before it is issued to them from their employer.
Write-off
The accounting act of writing off a bad debt or asset that has no further value.
X
X-Efficiency
The level of efficiency that firms can actually achieve given their technological and organizational constraints.
Xenocurrency
A currency that circulates or is traded in markets outside of its domestic borders.
X-Mark Signature
A mark used as a signature by a person who is unable to write.
XML (Extensible Markup Language)
A flexible way to create common information formats and share both the format and the data on the World Wide Web or other networks.
Y
Year-End
The end of the fiscal year, a time when companies close their books and prepare financial reports.
Year-to-Date (YTD)
Refers to the period of time beginning the first day of the current calendar year up to the current date.
Yield
The income return on an investment, such as the interest or dividends received from holding a particular security.
Z
Zero-Balance Account (ZBA)
A checking account which maintains a zero balance because funds are automatically transferred from a master account in an exact amount to cover checks presented.
Zero-Coupon Bond
A bond that does not pay periodic interest and is sold at a deep discount from its face value.
Zig Zag Indicator
A technical indicator used to analyze the movement of securities by filtering out smaller price movements to show only significant trends and reversals.
