Money glossary

50 money words you'll meet in Canada, in plain English.

A

Amortization: Paying a loan off in regular payments of interest plus part of the balance. In Canada, the amortization period is how long the whole mortgage takes to repay.
Annuity: A product you buy with your savings, usually at retirement, that pays you an income for life or for a set time.
APR: Annual percentage rate: the yearly cost of borrowing, including the interest and, for most loans, the main fees. The fairest way to compare loans and cards.

B

Bond: A loan you make to a government or company, which pays you interest and gives your money back at the end. Usually steadier than shares, with lower long-run returns.; Read: Investing basics: TFSA, RRSP and index funds
Budget: A plan for your money: what comes in, what has to go out, and what’s left to save or spend.; Read: How to make a budget in Canada (the 50/30/20 rule)
Buy now, pay later (BNPL): Splitting a purchase into instalments, often 4 payments over 6 weeks, usually with no interest if you pay on time. Missed payments can bring fees and harm your credit.; Read: Buy now, pay later in Canada: costs, credit and the rules

C

Capital gain: The profit when you sell something, such as shares or a property, for more than you paid. It may be taxed.; Read: Capital gains tax in Canada: 50% inclusion and your home
CDIC protection: Protection for money in Canadian bank accounts: if a member bank fails, the CDIC pays back eligible deposits up to a limit in each category.; Read: Banking basics in Canada: chequing, savings and CDIC
Central bank: The Bank of Canada. It sets the policy interest rate that other Canadian rates follow, raising it to slow inflation and cutting it to support the economy.; Read: Inflation and interest rates in Canada, explained
Compound interest: Interest on your interest as well as on the money you put in. Over many years it makes savings grow faster, and unpaid debts too.; Read: Inflation and interest rates in Canada, explained
CPP: Canada Pension Plan: contributions taken from your pay that earn you a pension when you retire.; Read: CPP and EI explained
Credit report: The record of your loans, cards and repayments that lenders check before lending. You can see your own report for free.; Read: Credit scores in Canada: what counts and how to raise yours
Credit score: A number that sums up how reliably you’ve repaid credit. Lenders use it to decide whether to lend to you, and at what rate.; Read: Credit scores in Canada: what counts and how to raise yours
Credit utilization: How much of your card limits you’re using. Keeping it low, well under a third, helps your credit score.; Read: Credit scores in Canada: what counts and how to raise yours

D

Debt avalanche: Paying off debts with the highest interest rate first, while making the minimum payments on the rest. It costs the least in interest.; Read: How to pay off debt in Canada: avalanche or snowball?
Debt snowball: Paying off your smallest debts first, while making the minimum payments on the rest. Quick wins keep you going, though it can cost more in interest.; Read: How to pay off debt in Canada: avalanche or snowball?
Debt-to-income ratio: Your debts, or your monthly debt payments, compared with your income. Lenders use it to judge how much more you can afford to borrow.
Diversification: Spreading your money across many investments, so one doing badly doesn’t sink the lot.; Read: Investing basics: TFSA, RRSP and index funds
Dividend: A share of a company’s profit, paid to the people who own its shares.; Read: Investing basics: TFSA, RRSP and index funds
Down payment: The part of a home’s price you pay upfront. The rest is borrowed with a mortgage.

E

Effective tax rate: Your total tax as a share of your total income. It’s lower than your top rate, because the lower slices of your income are taxed less.
EI: Employment Insurance: premiums taken from your pay that cover benefits if you lose your job, or take parental or sick leave.; Read: CPP and EI explained
Emergency fund: Money set aside for surprises, such as losing your job or a big repair, so you don’t have to borrow. A common goal is three to six months of essential spending.; Read: Emergency fund in Canada: how much and where to keep it
Employer match: Money your employer adds to your retirement savings when you pay in yourself. It’s extra pay you only get if you contribute.
ETF: Exchange-traded fund: a fund you buy and sell on the stock market like a share. Many ETFs are low-cost index funds.; Read: Investing basics: TFSA, RRSP and index funds

F

FHSA: First Home Savings Account: savings for your first home that lower your taxable income going in and come out tax-free for the purchase.; Read: The FHSA explained: First Home Savings Account
Fixed rate: An interest rate that stays the same for a set time, so your payments don’t change.
Fund fees: The yearly charge a fund takes, as a percentage of what you have in it. Small differences add up to a lot over decades.; Read: Investing basics: TFSA, RRSP and index funds

G

Gross pay: Your pay before tax and anything else is taken off.

H

Home equity: The part of your home you own outright: its value minus what you still owe on it.

I

Identity theft: When someone uses your personal details to borrow money, open accounts or claim refunds in your name.; Read: How to spot and report money scams in Canada
Index fund: A fund that buys every company in a market index, such as a country’s biggest companies, instead of picking a few. It spreads your risk and usually has low fees.; Read: Index funds vs picking stocks in Canada: why go passive
Inflation: The rise in prices over time. With inflation at 3%, what cost 100 a year ago costs 103 now, so the same money buys a little less.; Read: Inflation and interest rates in Canada, explained
Interest rate: The price of borrowing money, or the reward for saving it, as a percentage of the amount each year.; Read: Inflation and interest rates in Canada, explained

L

Land transfer tax: A provincial tax on buying a home, based on its price. Most provinces have one, and some give first-time buyers a rebate.; Read: Land transfer tax in Canada, province by province
Loan-to-value (LTV): Your mortgage as a share of the home’s value. A lower LTV, from a bigger deposit, usually gets a lower interest rate.

M

Marginal tax rate: The tax rate on the next bit of income you earn: your top bracket’s rate. It’s what matters when you get a raise or a bonus.
Minimum payment: The smallest amount you must pay on a credit card each month. Paying only this keeps you in debt for years and costs a lot in interest.
Mortgage default insurance: Insurance that protects the lender if you can’t repay, required in Canada when your down payment is under 20%. The premium is usually added to your mortgage.; Read: CMHC mortgage insurance explained

N

Net worth: Everything you own (savings, investments, your home) minus everything you owe (mortgage, loans, cards).

O

Overdraft: Spending more than you have in your bank account. The bank covers the gap, usually for a fee or a high rate of interest.; Read: Banking basics in Canada: chequing, savings and CDIC

P

Phishing: Emails, texts or calls pretending to be from your bank, the tax office or a delivery firm, trying to get your passwords, codes or card details.; Read: How to spot and report money scams in Canada

R

Real return: What your money earns after inflation. A 5% return when prices rise 3% is a real return of about 2%.; Read: Inflation and interest rates in Canada, explained
RRSP: Registered Retirement Savings Plan: retirement savings that lower your taxable income when you pay in. You pay tax when you take the money out.; Read: RRSP vs TFSA: which should you use first?

T

Take-home pay: What you actually receive after tax and other deductions. Also called net pay.
Tax bracket: A slice of income taxed at one rate. Only the income inside each slice is taxed at that slice’s rate, so moving into a higher bracket never lowers your take-home pay.
Tax credit: An amount taken straight off your tax bill. A credit of 100 cuts your tax by 100, so it’s worth more than a deduction of the same size.
Tax deduction: An amount taken off your taxable income before your tax is worked out. It saves you tax at your top rate.
TFSA: Tax-Free Savings Account: savings or investments that grow tax-free and can be taken out tax-free at any time.; Read: RRSP vs TFSA: which should you use first?

V

Variable rate: An interest rate that can go up or down, usually following the central bank’s rate, so your payments can change.