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Annual
Percentage Yield (APY) This reflects the annual compounded yield earned on an interest
earning account. As examples, a 4.0% interest rate would also have an APY
of 4.0% if interest was compounded annually, but the APY would be 4.06% if
interest were compounded quarterly.
Annuity
(Fixed) A
safe money place offered by an insurance company paying either a fixed
interest rate or fixed participation in an index.
Annuity
(Immediate)
Also called an income annuity, paying a regular income for a specific
numbers of years, for life, or for a combination of the two.
Annuity
(Variable)
an investment security offered by an insurance company aptly described as
a mutual fund within a tax-deferred wrapper.
Basis
Point One
one-hundredth of a percent. The difference between 5.02% and 5.03%
Brokered
CD A
certificate of deposit purchased from a broker instead of directly from a
bank. some brokered CDs cannot be surrendered before the end of the
period.
Callable
CD A
certificate of deposit whereby the bank can stop paying interest and send you back your
money at their discretion, and this usually happens when current rates
have dropped lower than what your callable CD is paying.
Certificate
of Deposit (CD)
A time deposit offered by a financial institution.
Commercial
Paper
Short term loans offered by companies.
Compounding
(Interest)
When interest is earned on interest.
Consumer
Price Index (CPI)
A government cost of living index reflecting inflation.
Coupon
Another name for a bonds interest rate dating back to the days when
a bondholder physically clipped off an interest coupon and presented it to
the lender for payment.
Credit
Union Offer
the same safe money places as banks and the covered account values are
also federally insured. Credit Unions are owned by their members and
are non-profit entities.
Deferred
Annuity
Refers to the ability to defer taxes on interest earned and is available
on a fixed rate, index or variable annuity.
Demand
Deposit
Bank account money that can be withdrawn upon demand (a checking account)
Dividend
In the investment world it is a yield paid on a share of stock either
in the form of cash or more stock. In the savings world it is money paid
(interest) to credit union members on their deposits.
Electronic
Funds Transfer
Consumer directed money sent electronically (bill paying), received
(ATM) or transferred (from one bank account to another).
FDIC Insurance Covers deposit accounts,
dollar for dollar, including principal and any accrued interest, up to the
insurance limit.
Guaranty Associations
Created by state legislatures to protect life, annuity and health
insurance policyholders and beneficiaries of an insolvent insurance
company. Every state (plus Puerto Rico) provides $100,000 in withdrawal
and cash values for all individual fixed annuities. Seven states (and one
District) have higher limits:
Index
Annuity A
fixed annuity in which interest earned is linked to the performance of an
external index.
Index
CD A
certificate of deposit in which interest earned is linked to the
performance of an external index.
Individual
Retirement Account (IRA) A government sanctioned tax advantaged savings vehicle.
Interest
Money paid or earned for use of money.
Laddering
A savings concept combining CDs, bonds, or annuities with different
terms to maximize potential interest.
Linked Savings Accounts
Are linked to a personal checking account, and money to or from the
saving account is electronically transferred at customer request.
Liquidity
The ability to get cash from an instrument now.
Market Value Adjustment (MVA) An
annuity feature where changes in the interest environment are taken into
account if and only if the annuity is surrendered prematurely. What this
can mean is if rates have risen since you started the annuity the
penalties for cashing out could be higher than the schedule stated in the
policy and if rates have fallen since you took out the annuity the
penalties could be lower or even zero.
Maturity
The date bond principal is returned, a CD quits earning interest or a
deferred annuity must begin paying an income.
Minimum
Balance
The least dollars in an account that must be kept to avoid bank fees.
Minimum
Guarantee
Only available with savings bonds and fixed annuities, a minimum return or
interest rate that will be credited regardless of economic conditions. The
annuity minimum guarantee is effective from day one, the savings bond
minimum guarantee kicks in after 20 years.
Minimum
Premium
The smallest amount of cash that buys an annuity.
Money
Market Account
An FDIC backed bank account permitting limited withdrawals.
Money
Market Fund
A non-FDIC backed mutual fund account permitting limited withdrawals.
NCUA
Charters and supervises
federal chartered credit
unions
National Credit Union Share Insurance Fund (NCUSIF)
A federal fund for credit union deposits backed by the full faith and
credit of the United States government similar to FDIC.
Office
of Comptroller of the Currency (OCC) Regulates all national banks.
Office
of Thrift Supervision (OTS) Regulates thrifts and savings banks.
Passbook Account
In which records of deposits, withdrawals and interest are stamped and
recorded in a booklet
Prime
Rate The
loan interest rate a bank charges its best customers.
Roth
IRA An IRA
wherein contributions are not deductible but distributions are not taxed,
which is the exact opposite of the way other qualified accounts work.
Savings Account
Bank instrument that usually features low yields that are fully
taxable, but money is extremely liquid and FDIC
insured. However, internet banks may offer very
competitive savings accounts.
Simple
Interest
When interest is earned only on original principal.
Statement Savings Account
Whereby the consumer receives a quarterly or monthly statement showing
deposits, withdrawals and interest activity.
Surrender Penalties or Charges
Used by the insurance company to recoup initial costs if an annuity is
cashed in prematurely.
Tax
Deferred
Delaying the payment of income taxes on interest earned until a future day
allowing that interest that would have gone to the IRS to earn interest in
the meantime.
Yield
curve A
comparison showing the relationship between yields and terms. Typically,
long- term vehicles have a higher yield than shorter term. An inverted
yield curve results when short-term rates are higher than long term rates.
Zero Coupon a Bond or CD
where interest is compounded and only paid out at maturity.
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