Automated Teller Machine (ATM)

A self-service machine that allows you to perform basic banking activities. To use an ATM, you need an ATM card or debit card and a PIN (Personal Identification Number). ATMs are also known as an Automated Banking Machines (ABM).

Bonds

A bond is a debt investment in which an investor loans money to an entity (typically corporate or government) that borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debtholders or creditors of the issuer.

Bounced Cheque

A cheque that is not negotiated because there is not enough money in the account to cover the amount issued on the cheque. These are also called non-sufficient funds (NSF) cheques. Most banks and retail outlets charge a fee to cover the administration costs associated with processing NSF cheques.

Cheque

A written order tied to your chequing account that you fill out with a specified amount of money to pay a person or business. The cheque, once signed, directs your bank to pay the money out of your account.

Chequing Account

Account for everyday transaction. Allows you to write cheques and use electronic debit to access your funds inside the account.

Compounding

The frequency at which your investment returns are reinvested to earn additional returns can significantly impact your total returns. The more frequently earnings are compounded, the better. For example, daily compounding is better than annual compounding.

Corporate Class Funds

A more tax-efficient way of investing in non-registered mutual funds. Essentially, it is an umbrella structure under which you hold various mutual funds. Mutual funds can be bought and sold within the umbrella. As long as the assets do not leave the umbrella, you don’t need to pay tax.

Electronic Funds Transfer

A fast and secure way to electronically transfer funds. EFTs can be performed using computers, ATMs, over the phone or by wire transfers.

Financial Plan

A written report of your financial goals, resources, assets, debts, and investments.

Guaranteed Investment Certificate

A deposit investment sold by financial institutions where the principal, or how much you deposit, is guaranteed back to you. A GIC generally pays you a higher rate of return than some other investments, but you must keep it until the end of a pre-set maturity date. GICs are often bought as part of retirement plans because they provide a low-risk fixed rate of return. Also known as “Term Deposit”.

Joint Account

A bank account with two or more account holders. For instance, a husband and wife may have a joint account. Liability A legal responsibility you have for something. For instance, a debt you owe is considered a liability. Also, if you damage property or injure a person, you may have to take financial responsibility. Maturity Date The date by which you are expected to pay off a loan or mortgage. Also, the date on which something becomes due. For instance, if you invest in a term deposit, the day you are allowed to retrieve your money is called the maturity date.

Net Worth

The total amount of your assets, including money in your accounts, investments, and personal property such as home, car or business, less any outstanding debts you have.

Non-registered Investment Account

An investment account which you can choose different types of investments you would like to invest in (ex. Mutual funds, stocks, bonds, ETF). Any profit from the investment becomes taxable at the investor’s marginal tax rate. No contribution limits as opposed to RRSP and TFSA.

Online Banking

A convenient and secure way of performing banking transactions using your financial institution’s website. Online banking allows you to access your accounts at any time and from anywhere you have access to the Internet.

Overdraft protection

You can pay a small monthly fee to ensure your financial institution covers your account in case you accidentally withdraw more money than you have available.

Personal Identification Number

A private and confidential number that you create to access your account. A PIN is required to verify your identity, and to approve account transactions before you can make ATM withdrawals or debit card purchases. PINs are also used with credit cards embedded with electronic chips.

Registered Disability Savings Plan

A special program that helps Canadians with disabilities and their families save for long-term financial needs such as future medical and living costs. Like an RESP, investment income is tax-deferred and you may be eligible for government assistance. The lifetime contribution limit for an RDSP is $200,000. Depending on your family net income, the Canadian government will contribute through grants and bonds, potentially giving you up to $3 for every $1 you contribute.

Registered Education Savings Plan

A special program that helps Canadians with disabilities and their families save for long-term financial needs such as future medical and living costs. Like an RESP, investment income is tax-deferred and you may be eligible for government assistance. The lifetime contribution limit for an RDSP is $200,000. Depending on your family net income, the Canadian government will contribute through grants and bonds, potentially giving you up to $3 for every $1 you contribute.

Registered Retirement Savings Plan

A save for retirement plan. A government registered investment plan that allows you to save with pre-taxed income, meaning you can defer income tax until a later time. Contribution limits is accrued based on “earned income” therefore it varies for each individual (based on 18% of earned income). 2013 earned income is $25,000 x 18% = $4,500 RRSP contribution room accrued for 2014. NOTE:

• There is an “RRSP annual contribution limit” set by the CRA on the maximum RRSP room you can accrue each year.

• You can use up to $25,000 from your own RRSP to use toward a down payment for your first home. Refer to First Time Home Buyer’s Plan under “Buying a Home”.

Return on Investment

How profitable is your investment. A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

Return

The gain or loss of a security in a particular period. The return consists of the income and the capital gains

Risk

The chance that an investment’s actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment.

TIP: Risk vs Return and The Trade-off

The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with low potential returns, whereas high levels of uncertainty (high-risk) are associated with high potential returns. According to the risk-return trade-off, invested money can render higher profits only if it is subject to the possibility of being lost. Because of the risk-return trade-off, you must be aware of your personal risk tolerance when choosing investments for your portfolio. Taking on some risk is the price of achieving returns; therefore, if you want to make money, you can’t cut out all risk. The goal instead is to find an appropriate balance – one that generates some profit, but still allows you to sleep at night. Source: Investopedia

Risk Tolerance

The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important component in investing. An individual should have a realistic understanding of his or her ability and willingness to stomach large swings in the value of his or her investments. Investors who take on too much risk may panic and sell at the wrong time.

Savings Account

An account that pays interest for saving money. Generally, for money you don’t intend to use for daily expenses (ex. emergency fund).

Stocks

A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. Also known as “shares” or “equity”

Stop Payment

You can request the bank to not honour (stop) the payment of a written cheque from your account. The stop payment request must be given before the cheque is cashed.

Telephone Banking

Service provided by your financial institution allowing you to perform transactions over the telephone. Most telephone banking requires authentication to verify your identity. Instructions are provided by a customer service representative or via an interactive voice response (IVR) system.

Withdrawal

Money that comes out of your account when you make a direct debit purchase, write a cheque, or get cash from an Automated Teller Machine or bank.