Money Dictionary: Tuesday, Sept. 16

Stocks – Also known as equities, stocks represent a piece of ownership of a corporation that can be traded. There are different types of stocks which you can learn about here.

Bonds – A type of security in which the borrower owes the issuer (a company or the government) an amount to be paid at a later date, plus interest. Whereas stockholders act as partial owners of a company, bondholders act as lenders to it. Learn about the different types of bonds here.

Mutual Fund – A professionally managed investment vehicle that allows a group of people to pool their money and put it in stocks, bonds or other securities. The main benefit of mutual funds is diversification, as the money can be spread across various sectors or different types of investments, thereby decreasing the inherent risk associated with the market.

Annuity – An insurance policy whereby a person gives a life-insurance company money which can grow and is then paid back in different ways. In a fixed annuity, the insurance company guarantees you a minimum rate of interest. In a variable annuity, you can choose to invest your payments in various vehicles such as mutual funds.

IRA – An Individual Retirement Account is a personal savings plan that lets people earmark money for retirement with tax advantages. There are five major types of IRAs: Traditional, Education, SEP (Simplified Employee Pension), Simple and Roth.

401(k) – An employee-sponsored retirement savings plan that lets workers put an amount of their paycheck in a retirement account. Many companies will “match” certain amounts of what their workers elect to contribute, and the contributions are usually tax-deferred.

CD – A certificate of deposit is an amount of money a customer gives a bank that is insured, usually by the FDIC, with a fixed interest rate over a fixed term. The interest rates that banks offer on CDs are often higher because the money cannot be withdrawn at any time.

Money Market Account – A type of savings account, often with a high interest rate, reserved for larger-than-normal deposits. These accounts usually come with restrictions, such as how many transactions you can conduct per month.

FDIC – The Federal Deposit Insurance Corp. is a government insurance corporation that guarantees the safety of deposits in its member banks up to $100,000 per depositor per bank. It insures IRAs up to $250,000.

SIPC – The Securities Investor Protection Corp. is a government-mandated non-profit that protects investors from harm if a broker/dealer fails. The SIPC is inherently different from the FDIC because it does not insure investors if they take a loss in the market.