We often receive questions about investing terms and phrases so we decided to post definitions of some of the terms we use on monitorbankrates.com
What is principal?
Principal is the amount of money originally invested in an account. It includes any interest earned which has been posted to the account. Principal is the money that earns interest.
What is an Annual Percentage Rate (APR)?
The APR is the annual rate of interest without taking into account the compounding of interest.
What is an Annual Percentage Yield (APY)?
The APY is the annualized rate of return on your investment including compounding interest.
What is a Certificate of Deposit (CD)?
A certificate of deposit is a promissory note issued by a bank. It is a time deposit that restricts holders from withdrawing funds on demand.
What is a Jumbo Certificate of Deposit (CD)?
A Jumbo certificate of deposit usually has a minimum principal deposit of $100,000.
What is an Early Withdrawal Penalty?
Since certificate of deposits are timed deposits withdrawing monies early will incur a penalty, forfeiting some or all of the interest earned.
What is a Certificate of Deposit term?
The term of a certificate of deposit (CD) is the length of time your money has to be deposited to accrue the interest promised by the bank.
What is Compounding Interest?
Compounding refers to earning interest on previous interest earned, this is why the annual percentage yield (APY) is higher then the annual percentage rate (APR).
Another good source for information on investing terms is Investopedia.com
