Glossary of Financial Terms

Account balance — The amount of money currently in your bank account.

Amortization period — Number of years it takes to repay the entire amount of a mortgage.

Asset class — A category of financial investments that share certain key characteristics. The three main asset classes are equities (stocks), fixed income (such as bonds and mortgages) and cash or cash equivalents (such as money market investments).

Automated Teller Machine (ATM) — A self-service machine where you can complete basic banking transactions and withdraw cash using your Client Card and a PIN. Also known as an Automated Banking Machine (ABM).

Automatic Savings Program (ASP) — A plan in which you arrange to have a selected amount of money transferred automatically from your bank account to a savings account or Registered Retirement Savings Plan (RRSP) on a recurring basis, such as weekly, biweekly or monthly.

Automobile insurance — A type of insurance that covers costs relating to damage to your car or injuries to yourself or others, in the event of accident, vandalism or theft. You must have auto insurance in order to drive a car in Canada.

Balanced fund — A type of mutual fund that holds a mix of fixed income, equity and cash equivalents.

Bank draft — see money orders and bank drafts.

Banking card — see Client Card.

Banking machine — see Automated Teller Machine.

Beneficiary — A person who has been designated to receive money or other benefits. Depending on the situation, this might include people named in your will, a person designated in your life insurance policy or a child or children you name to receive the funds from a Registered Education Savings Plan (RESP) when they attend a post-secondary school.

Bond — A way for governments and companies to borrow money. In return, the issuer promises to pay the holder a specific amount of interest for a specified length of time and to repay the loan on its maturity.

Budget — A document you create that lists all your fixed expenses (such as rent/mortgage, utilities, food), as well as discretionary spending, usually on a monthly basis.

Business number — A nine-digit number issued to a business by the Canada Revenue Agency (CRA) as identification in dealings with the CRA, such as payroll, corporate income tax or collecting GST/HST.

Canada Education Savings Grant (CESG) — A federal government grant deposited automatically into a Registered Education Savings Plan (RESP), equal to 20% on the first $2,500 of the annual RESP contribution to a maximum grant of $7,200 per child. Additional grants of 10% or 20% on the first $500 of annual contributions are available for qualifying families (based on family income).

Canada Learning Bond — A federal government grant, paid directly into an RESP, available to families with modest income to help them pay for post-secondary education for their children born after 2003.

Canada Pension Plan (CPP) — A social program operated by the Canadian government that provides retirees with a pension income when they retire, based on their contribution to the plan during their working years. It also provides retirees and their dependants with basic financial protection if the retiree becomes disabled or dies.

Canada Revenue Agency (CRA) — The department of the government of Canada that is responsible for financial areas such as tax law and many social and economic benefit programs in Canada.

Capital gain (loss) — The difference between the cost of an asset and the proceeds received from the sale of an asset.

Cheques — A way of paying for goods or services. A cheque is written for the amount to be paid, and when the recipient cashes the cheque, the money is transferred from the payer’s account into the payee’s account.

Client Card — This is provided to you when you open an account. It allows you to access your accounts while in your bank branch, at an ATM or store, or through online banking, often in combination with your Personal Identification Number (PIN) or RBC Online Banking password. Also known as a bank card or debit card.

Closed-end lease — A rental agreement in which you are not obligated to purchase the item leased when the term of the lease is complete.

Closed mortgage — A mortgage which cannot be prepaid, renegotiated or refinanced prior to the expiry of the term. You will pay a prepayment charge if you wish to renegotiate your interest rate or pay off your mortgage balance prior to the end of its term. Usually offered at a lower rate than a more flexible open mortgage.

Closing costs — The various fees or one time costs needed to complete or “close” the purchase of a home. Standard closing costs include adjustments for prepayments of taxes, utilities and condominium common expenses, if any, made by the vendor; property land transfer taxes; property insurance; and legal/notary fees.

Co-applicant — A second person named in addition to the primary person requesting a credit card, mortgage or loan and is equally responsible for the payments and money borrowed.

Common shares — An ownership stake in a company that gives you the right to vote on decisions regarding how the company is run.

Compounding — Investment income that is earned on previously earned investment income. This “income on income” increases your rate of growth over time.

Condominium — A type of real estate in which the living units are individually owned while the common areas (such as hallways, lobbies, elevators and recreational areas) are owned jointly by all the unit owners.

Contents insurance — see Renters or Tenants insurance.

Convertible mortgage — A fixed-rate or variable rate mortgage which offers the same benefits as a closed mortgage, but which can be converted to a longer, closed mortgage at any time without pre-payment charges.

Corporation — A company that is structured as a separate legal entity from its owners. A corporation may be privately or publicly owned.

Credit bureau report — Your credit history is compiled by Canada’s central credit bureaus. When a bank or utility considers an application for credit or an account, it will request the applicant’s credit report.

Credit card — A plastic card that enables you to purchase items or services from a range of stores and establishments and pay for them at a later date. A minimum amount must be repaid each month. If you pay the full balance by the due date, no interest is charged.

Credit card balance — The total amount owing on your credit card.

Credit check — A review by a lender or other party, such as a prospective landlord, of a person’s track record for repaying borrowed funds according to schedule.

Credit history — A list of facts, gathered from financial institutions, retailers and other lenders, about how you have handled credit in the past. Most of this information stays in your file for seven years. This information forms a profile of your credit-worthiness, called your credit rating. Your credit rating is used to help banks and other companies to decide whether they will allow you to borrow money, and how much.

Credit limit — The amount of credit a financial institution will give a client. Can also be the maximum amount a credit card company allows someone to borrow on one credit card.

Currency — The form of money that is accepted in a country. Canada’s currency is the Canadian dollar.

Earnings — A company’s revenues minus its cost of sales, operating expenses and taxes, over a period of time (such as a year or a quarter year). Personal earnings are money a person receives from a job (including regular and overtime pay, vacation pay, commissions and tips) or investments, but not from social assistance programs or personal savings.

Education Savings Plan (ESP) — See Registered Education Savings Plan (RESP).

Employment Insurance (EI) — A government program that provides temporary benefit payments to employees who cannot work because of layoff, because they are upgrading their skills or looking for work, or who are sick, pregnant or caring for a newborn or adopted child. Premiums for EI are deducted from the employee’s paycheque.

Equities — Shares issued by a company that represent an ownership stake in that company.

Equity funds — Mutual funds that invest in shares of public corporations. They may have a particular focus, such as small companies, or companies within a sector, such as technology or natural resources.

Expenses — Everyday living costs, such as rent/mortgage, food, heating, electricity, transportation, clothing and debt repayment.

Financial institution — A company, such as a bank or insurance company, that deals with financial transactions such as deposits, loans and investments.

Financial planning — The process of creating a strategy to reach your future goals taking into account what you own, what you owe and what you expect to earn in the intervening years.

Financing — Arrangements, usually in the form of some type of loan or credit, to secure funds so that a person can make a purchase.

Fixed income fund — A mutual fund that invests in debt instruments that pay predetermined amounts on a regular basis, such as government or corporate bonds or mortgages.

Fixed rate — A loan whose interest rate is the same throughout the term of the loan.

Fixed-rate mortgage — The interest rate for a fixed rate mortgage is locked in for the full term of the mortgage. Payments are set in advance for the term, providing you with the security of knowing precisely how much your payments will be throughout the entire term. Fixed rate mortgages can be open (may be paid off at any time without breakage costs) or closed (breakage costs apply if paid off prior to maturity).

Foreign exchange/foreign exchange rate — The level at which the currency of one country can be converted to the currency of another.

Goods and Services Tax (GST) — A federal tax (currently 5%) applicable on the sale of most goods and services in Canada. It is collected by the vendor on behalf of the government.

Gross earnings/pay — The total amount of money a person is paid by an employer, including regular pay, overtime and vacation pay, before deductions such as income tax, Canada/Quebec Pension Plan contributions or Employment Insurance premiums.

Growth fund — A mutual fund whose primary objective is to generate capital appreciation over time. These funds typically hold equities (stocks).

Guaranteed Investment Certificate (GIC) — A type of deposit investment that guarantees the investment principal and usually pays a predetermined rate of interest for a specified amount of time (the term).

Harmonized Sales Tax (HST) — A tax on goods and services, applicable on sale, that reflects both the federal Goods and Services Tax (GST) and provincial sales tax. HST exists in the provinces of New Brunswick, Nova Scotia and Newfoundland and Labrador.

High-interest savings account — A bank account that pays a rate of interest on the balance that is higher than ordinary savings accounts.

Hold — A pre-set waiting period once you deposit a cheque to ensure that the cheque has “cleared” (the issuer’s account has sufficient funds) before you can access the money. The length of the waiting period can vary depending on the location of the issuing financial institution. Note, however, that a hold provides no guarantee that a cheque will not be returned for any reason after the hold period has expired. Clients are responsible for any cheque they deposit that is returned to us, whether or not the hold period has expired.

Home Buyers’ Plan (HBP) — A program of the Federal Canadian government that lets first time home buyer’s withdraw money from their Registered Retirement Savings Plan (RRSP) to buy or build a qualifying home. Some restrictions apply.

Home equity — The current market value of your home less any outstanding mortgage(s), representing the portion of the home’s value that you own. For example, if your home is worth $300,000 and the mortgage is $125,000, your equity is $175,000.

Homeowner’s insurance — A type of insurance that protects the insured from the financial consequences of loss or damage to his or her home and its contents caused by e.g. theft, fire or other covered loss. A homeowner’s policy also provides coverage against liability claims in case an insured injures another person or causes damage to their property.

Host Program — A Canada government program that matches newcomers with a Canadian family or individual.

Immigrant Loans Program (ILP) — A Canadian government program that provides loans to government-assisted or privately sponsored members of the Convention Refugees Abroad, Country of Asylum and Source Country classes to help pay for overseas medical exams, travel documents and transportation to Canada.

Immigrant Settlement and Adaptation Program (ISAP) — A program funded by the government of Canada to help immigrants settle and integrate into Canadian society.

Income — The money a person receives from all sources, including employment, interest and investments, social assistance or pensions.

Income fund — A type of mutual fund whose primary objective is to generate regular income by investing in bonds, preferred shares, income trusts and other assets that provide regular cash flow.

Income tax — Money collected by the federal and provincial governments that is used to fund government programs and services for all Canadians. The amount you pay is based on the amount of money you earn.

Income tax return — A form that a person files each year to the Canada Revenue Agency (and Revenu Quebec for Quebec residents) that states the amount of earnings, investment and other income, as well as eligible deductions, to reconcile the amount that he or she has actually paid in income tax with the amount owing or owed.

INTERAC — RBC Client Card holders may use any ATM or direct payment machine bearing the INTERAC symbol.

Interest rate — The rate of return the lender receives for permitting the borrower to use money for a specified term. The interest rate is usually expressed as an annual rate. The compounding frequency (for example, semi-annual compounding) will depend on the type of loan or mortgage you select.

Insurance — A contract in which a person agrees to pay a certain amount of money to a licensed insurance company in exchange for financial protection against losses of a particular type (such as health, life or property), if damage, injury or loss occur within established circumstances.

Insurance premium — The amount that you pay to the insurance company, usually monthly or annually, in exchange for financial protection in the stated circumstances.

Investment — Money that a person uses with the expectation of receiving income or profit.

Investment portfolio — see portfolio.

Investment risk — The possibility that a person’s investment returns may not be as high as expected, or that he or she may lose some of the original investment.

Investor profile — An analysis of a person as an investor, including his or her comfort with risk, investment goals and the length of time he or she plans to invest.

Laddering — A strategy for purchasing fixed-income investments such as bonds or GICs so that the maturity dates are staggered.

Lease — An agreement under which a person pays a monthly amount for the right to use a specific asset, such as a car, for a specified length of time.

Life Income Fund (LIF) — A fund that turns pension funds within a Locked-in Retirement Account (LIRA) into pension income, with a maximum annual value based on a percentage of the fund’s value.

Life insurance — A policy that provides a benefit payment to the insured’s named beneficiary or beneficiaries in the event of the covered death of the insured person.

Lifelong Learning Plan — A plan from the federal government which allows you to borrow funds from your Registered Retirement Savings Plan (RRSP) to finance training for yourself or your spouse or common-law partner.

Line of credit — A type of credit that offers a person immediate access to part or all of a pre-determined amount of cash upon demand. A line of credit may be either unsecured or secured with personal assets such as bonds, term deposits or equity in a home. A secured line of credit results in a lower rate of interest for the borrower.

Loan — An agreement under which a borrower receives cash from a lender (often a bank) for a predetermined length of time at a given interest rate, generally with a stated repayment schedule. The principal must be paid back at a specified future date. Interim payments may consist of interest only or a blend of interest and principal. With a fixed-rate loan, the interest rate stays the same for the term of the loan. With a variable-rate loan, the interest rate changes with market rates.

Market linked — Investments that provide a return based on increases in equity markets, while protecting your capital.

Market volatility — see volatility.

Maturity — The end of an investment period or loan term. For example, the last day of the term of a mortgage agreement, or the length of time until the principal amount of a bond must be repaid.

Money market fund — A type of mutual fund that invests in short-term, government-issued debt and other low-risk, cash-equivalent investments.

Money orders and bank drafts — A way of making secure payment. The money order or bank draft is purchased from the bank and issued to the vendor.

Mortgage — A loan secured by real property, typically a home.

Mortgage pre-payment options — Additional principal payment(s) you make to your mortgage prior to the maturity date. These payments are beyond your scheduled repayments in order to help repay the loan more quickly.

Mutual fund — A portfolio of investments managed by professionals on behalf of a number of investors, who own “units” in the fund.

National Child Benefit (NCB) — A monthly benefit paid by the federal government to help low-income families with children.

Net pay — The amount of income from employment remaining after deductions such as income tax, Canada/Quebec Pension Plan contributions and Employment Insurance premiums.

Non-redeemable investments — Investments that cannot be withdrawn before the maturity date.

Non-registered investments — Investments held outside of a tax-deferred plan registered with the Canada Revenue Agency.

Notice of Assessment — A statement the Canada Revenue Agency mails to people after they file an income tax return, which summarizes earnings, the amount of tax owing or owed, Registered Retirement Savings Plan (RRSP) contribution room and other details.

N.S.F. (“Non-Sufficient Funds”) cheque — When a cheque is written for an amount that exceeds the funds available in the account, the item is marked “NSF” to indicate that there are insufficient funds. A penalty is charged for NSF items.

Old Age Security (OAS) — A pension provided by the Canadian government at age 65 to people who have lived in Canada for at least 10 years after the age of 18.

Online banking — A convenient and secure way of making many transactions, such as transfers and bill payments, by accessing your account via the Internet from any computer.

Open-end lease — A rental agreement in which a person is obliged to purchase the item leased at the end of the lease agreement. Also known as a “finance lease.”

Open mortgage — A mortgage that can be repaid either in part or in full at any time without prepayment charges. Open mortgages can be converted to any other term, at any time, without a prepayment charge. Interest rates for open mortgages are generally higher than for closed mortgages because of the added pre-payment flexibility.

Overdraft protection — By paying a small monthly fee, you receive protection should you become overdrawn on your account.

Partnership (business) — A formal business structure between two or more people, with shared responsibilities and liabilities.

Payroll deductions — Money withheld from a person’s pay to cover mandatory or voluntary payments such as income tax, government or company pension plan contributions, Employment Insurance premiums and other “at-source” deductions.

Pension — Retirement income paid to those who have contributed to a pension fund managed and invested specifically for that purpose.

Permanent life insurance — A type of life insurance that covers a person for as long as he or she lives.

Personal Identification Number (PIN) — A password, usually four digits, created by the user to access his or her account, in combination with a Client Card, when making an ATM or point-of-sale transaction.

Portfolio — A group of investment products held by one individual.

Post-secondary education — Schooling provided after high school, typically provided by universities, colleges, community colleges, trade schools and vocational and technical institutes.

Power of Attorney — A legal document authorizing someone to make financial or personal care decisions for another person if that person becomes incapable of doing so.

Pre-authorized automatic savings plan — see Automatic Savings Program.

Preferred shares — An ownership stake in a company that generally includes regular payments out of company earnings. Unlike common shares, preferred shares do not have voting rights but have a prior claim on assets in the case of insolvency.

Principal — The amount of the loan or mortgage owed to the lender at any specified time, not including interest.

Private Banking — Personalized banking services for people with assets over a certain value and complex credit or investment needs.

Private health insurance — Health insurance funded by an individual to cover health and medical expenses when he or she is not eligible to receive provincial health insurance benefits.

Professional money manager — A financial expert who manages investments.

Property insurance — Insurance that provides compensation to a homeowner covered in case of fire, loss, theft or liability. Property insurance is usually required in order to get a mortgage.

Quebec Pension Plan (QPP) — The Québec Pension Plan is a compulsory public plan. Its purpose is to provide persons who work in Québec (or have worked in Québec) and their families with basic financial protection in the event of retirement, death or disability.

RBC Royal Bank Visa* card — A type of credit card that is widely accepted across Canada and around the world.

Real estate agent — A licensed agent employed to negotiate the purchase and sale transaction between the buyer and the seller.

Redeemable investment — An investment that can cashed in or returned to the issuing institution before the maturity date.

Registered Education Savings Plan (RESP) — A tax-deferred account registered with the federal government that enables a person to set aside money specifically for a child’s education.

Registered Retirement Income Fund (RRIF) — A tax-deferred investment account into which a person may transfer Registered Retirement Savings Plan (RRSP) assets to provide a stream of income during retirement.

Registered Retirement Savings Plan (RRSP) — A special investment account registered with the government in which contributions are tax-deductible and investment earnings are tax-deferred.

Rent — The amount of money, usually paid monthly, that a tenant pays a landlord in exchange for living accommodations.

Renter’s (or tenant’s) insurance — A type of insurance that provides compensation to tenants for damage to or loss of their personal belongings. A tenant’s policy also provides coverage against liability claims in case an insured injures another person or causes damage to their property.

Resettlement Assistance Program — A program of the Canadian government that helps refugees and protected persons resettle in Canada. The program provides financial assistance to cover the costs of essential living expenses such as accommodation, basic clothing and essential household items.

Residual value — The value of the car at the end of the loan or lease term.

RESP-Matic — Automatic RESP contributions made through RBC Royal Bank, whereby amounts are deducted from your bank account at regular intervals and contributed directly to an RESP.

Retirement — The period in later life during which a person stops working.

Rewards points — Points that are earned by making purchases at eligible stores or services with a credit card that has a rewards points program, such as the RBC Visa* card with RBC Rewards. Rewards points can be redeemed for items such as travel, household items or gift certificates.

Risk tolerance — A person’s level of comfort with the idea that the value of investments may change, and is part of that person’s investor profile.

Salary — The amount a person is paid for a job, as expressed in an amount of money per year, as opposed to an hourly wage.

Secure investment — An investment that guarantees the safety of principal (the money invested) and possibly also the amount of interest earned on that money, providing a low level of risk.

Secured line of credit — A type of loan that is accessible at any time and that is guaranteed by an asset such as real estate or investments and therefore has a lower rate than an unsecured line of credit.

Securities commission — A provincial body that administers and enforces laws governing stocks, bonds and derivatives.

Security deposit — A sum of money that a tenant gives to a landlord, on top of rent, when he or she first moves into a rented property. The landlord is required to return the money at the end of the rental period and to pay interest on it annually.

Security pledge — An amount of money equal to the amount of credit you wish to receive on an RBC Royal Bank Visa card. The security pledge is held by Royal Bank of Canada in case you are unable to pay the amount owing on the credit card.

Shares — Ownership stake in the company. Also known as stocks or equities.

Social Insurance Number (SIN) — A nine-digit identification number issued to individuals by the Canadian government. It is required in order to work in Canada, receive government benefits, hold investments and pay taxes.

Sole proprietorship — The simplest form of business structure, in which a business is owned by an individual who takes sole responsibility for all debts and obligations related to the business.

Statement — A document from a person’s financial institution listing all transactions for a given account, loan, investment or credit card for a given period of time.

Supplemental Health Insurance — Additional insurance purchased to cover medical expenses that are not covered by a person’s provincial health plan.

Tax-deferred — An investment holding within a registered plan that is not subject to tax until withdrawn.

Telephone banking — Clients can make transactions remotely by telephone.

Term — The period of time for which a loan, lease or mortgage agreement is in effect. May range from several months to several years.

Term life insurance — A type of life insurance in which coverage is provided only for a specified period of time, such as one, five, 10 or 20 years. This is often less expensive than permanent insurance.

Trade-in — A car you own that can be sold to the car dealer when buying a new car. The trade-in reduces the price of the new car.

Transit number — A four-digit number, found at the beginning of a person’s bank account number, that indicates the branch where the account is held.

Travel Insurance — Insurance that provides coverage for eligible emergency expenses incurred if illness, accident or other unexpected covered risks cause a person to cancel a trip or disrupt travel plans. This insurance can provide reimbursement in the case of lost or delayed luggage, emergency trip cancellation prior to departure and emergency trip interruption coverage after departure or emergency medical attention during a vacation or business trip outside of Canada.

Treasury bill (T-Bill) — A short-term investment, available in terms of one month to a year, issued by a federal or provincial government and therefore considered a safe investment.

Trip interruption coverage — Travel insurance that pays expenses incurred if illness, accident or other unexpected covered risks cause a person to cancel a trip or disrupt travel plans.

Universal Life Insurance — Life insurance that provides coverage over the span of your life and includes a savings component.

Unsecured line of credit — A type of loan that is accessible at any time up to your approved limit that is not secured by an asset such as investments or real estate, and therefore has a slightly higher interest rate than a secured line of credit, but typically lower than a credit card.

Variable rate — A loan whose interest rate moves up or down with changes in market interest rates.

Variable-rate mortgage — With a variable rate mortgage, mortgage payments are set for the term, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of interest. Variable rate mortgages may be open or closed.

Volatility — Fluctuations, typically with respect to stock market prices.

Will — A legal document stating how a person wishes his or her assets to be distributed after death.

Wire payments/wiring money — A safe way to transfer money electronically from a bank account into that of another person or business in Canada or other countries.

Withdraw/withdrawal — The act of taking money out of a bank account, by taking cash from an automated bank machine (ABM) or at a branch, by writing a cheque or by using a debit card.