First Bank of the Lake: Do You Know Your Financial Vocabulary?

The financial industry is full of unique vocabulary terms and acronyms, and it can be hard to understand if you are just beginning to familiarize yourself with the lingo. The terms can be confusing at first, but it is important that you understand them so that you can make smart financial decisions. Your friends at our Lake of the Ozarks bank are here to help you. Here is a list of common financial terms and their meanings.

Common Financial Terms Defined

Tax-Deferred
This means tax payments are being postponed until a later date. Common tax-deferred items include pension plans, 401(k)s, and IRAs.

401(k) Plan
This is a qualified retirement plan, typically through an employer. Eligible employees can make salary deferral contributions on a pre- or post-tax basis.

Stock
This is a type of security that signifies proportional ownership in a corporation. The stock represents a claim on part of the corporation's earnings and assets.

Adjustable-Rate Mortgage (ARM)
This is a type of mortgage loan in which the interest rate changes periodically. Typically there is a low "teaser" rate for the first three to five years, after which the rate will adjust periodically to reflect the current market.

Recession
A recession is a decline in the economy, officially defined as a decline the Gross Domestic Product (GDP) for two or more consecutive quarters. Recessions are typically characterized by job loss and drops in the stock and housing markets.

Amortization
This is the schedule of paying off a specific debt with regular payments. This schedule typically shows the ratio of principal to interest over time.

Prime Rate
The prime rate is the best interest rate available. Only the most credit-worthy borrowers qualify for the prime rate.

Annual Percentage Rate (APR)
The annual percentage rate is essentially the cost of a line of credit (encompassing all fees and interest). It is expressed as a percentage of the total loan amount.

Prepayment Penalty

A prepayment penalty is a fee assessed by a lender if the borrower pays off a loan before its scheduled time of maturity. These are uncommon.

Annual Percentage Yield (APY)
This is the amount of interest earned by interest-bearing accounts. Since it takes into account the frequency of compounding, it may differ from the interest rate.

Mutual Fund
This is an investment (operated by money managers who try to create gains for 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.

Bankruptcy
Bankruptcy is a legal proceeding wherein a borrower's assets are liquidated and he is released from any further liability for his debts.

Liquidity
Liquidity refers to an asset's ability to be converted to cash quickly without sacrificing value or giving a discount on the price.

Bear Market and Bull Market
In a bear market, securities are falling and investors have a pessimistic outlook on the stock market as a whole. In a bull market, securities rise faster than historic averages and investors are confident making buys.

Individual Retirement Account (IRA)
A type of retirement savings account. Unlike 401(k)s, IRAs can be opened by individuals - they do not have to be sponsored by employers.

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.

Fixed-Rate Mortgage
A type of mortgage loan wherein the interest rate remains consistent (or "fixed") for the duration of the loan.

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 Score
A number used to identify a borrower's creditworthiness. It is based on past financial performance, such as credit use and late payments.

Diversification
This refers to the process of spreading risk by investing in a range of investment tools such as securities, commodities, real estate, bonds, stocks, etc.

Remember First Bank Of The Lake As Your Local Financial Resource!

If you are in need of financial services at the Lake of the Ozarks, we hope you'll keep us in mind. From personal loans to business money market accounts, we offer a wide variety of services to meet your unique needs.

First Bank of the Lake - Striving For Excellence

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