Learn what a CD ladder is, how it works, the benefits and risks you should know, and how to tell if this strategy fits your financial goals. Definition and Examples of a CD Ladder When you use a CD ladder, you divide your funds between a number of CDs, each with different term lengths. The idea is that each account matures after a different number of months or years. This strategy lets you take advantage of the better annual percentage yield (APY) you can get with a longer-term CD, while still enjoying the convenience of shorter-term CDs....

Typically, a deposit account earns either simple or compound interest. A simple-interest account pays interest on the principal amount. A compound-interest savings account earns interest on the principal balance and interest. How To Calculate Compound Interest If you want to figure out how much you can expect to earn in compound interest, an online calculator works. However, you can also calculate this amount on your own using this formula: A=P(1+r/n)nt A = Amount of interest earned P = Principal balance r = Interest rate n = Number of times interest is applied per time period t = Number of time periods elapsed (in months or years)...

Convertible notes provide a short-term financing method in which a business promises the funds will be repaid with interest, or the principal plus interest can be converted into shares of the company. Let’s learn more about what convertible notes are, how they work, and about their pros and cons for businesses and investors. Also, before you decide to invest in a convertible note, learn what determines how investors receive shares....

Alternate name: Outgoing acquirer number A credit card reference number, for example, could be 24041311167000042529377. When you receive a credit card billing statement, you may receive a shortened version of the number, like 9377. How Do Credit Card Reference Numbers Work? Credit card reference numbers help you or your bank identify specific credit card transactions. Since each transaction has a unique number, it can be easier to use the reference number rather than look up transactions using the date, location, or transaction amount....

Alternate name: Leading dividend yield, forward yield For example, the forward dividend yield for Company Y is 2.20%. Assuming the stock price ($81.84) and payout remain the same, investors can expect to make $1.80 (2.20% of the stock price) per share in dividends over the next year. How Do You Calculate Forward Dividend Yield? To calculate the forward dividend yield, you would annualize the most recent dividend payment and then divide it by the stock price....

Sometimes the term “health care proxy” refers to the person you designate rather than the legal document itself. That person may also be known as your agent or surrogate. A health care proxy becomes necessary when a person is unconscious, cannot communicate, or their mental state has deteriorated to the point where they’re not capable of making informed decisions. If you become incapacitated and don’t have a health care proxy, your state law determines who makes medical decisions on your behalf....

The money you save in your health savings account can be used for qualified medical expenses. The Internal Revenue Service (IRS) determines which expenses qualify. Many over-the-counter medicines are covered, too. Examples of qualified medical expenses include: Ambulance servicesArtificial limbsBirth controlBreast pumpsContact lenses and eye examsDrug treatmentFertility enhancementGuide dogsLab feesLong-term careMedicationsNursing home care and nursing servicesPhysical examsPregnancy testsSurgeryTherapyVision correctionWeight-loss programs Health savings accounts are funded through contributions from the insured person....

“A K-shaped recovery is when different segments of the economy recover from a recession or an economic shock at different rates,” Dr. Robert Johnson, chartered financial analyst (CFA) and professor of finance at the Heider College of Business at Creighton University, told The Balance in an email. “It gets its name from the shape of the letter K—that is the trajectory of part of the letter points up and the other points down....

Borrowers must meet certain criteria in terms of cash on hand, credit score, and collateral for this reason. Lenders are looking for assurances that you’ll be able to repay the loan. The terms of your loan agreement will describe exactly how the process works after you’ve been approved by a lender: how often you’ll make payments, how long you have to repay, how much interest you’ll pay, and what happens if you fail to repay....

Alternate names: Loan loss reserves, valuation allowance, valuation reserve, allowance for loan loss Consider this example: Let’s say a bank has issued $100,000 total in loans and has a loan loss provision of $10,000. On one of their defaulted loans, the borrower repaid only $500 of the outstanding $1,000. To cover the $500 loss from the defaulted loan, the bank would deduct $500 from the loan loss provision. How Does a Loan Loss Provision Work?...

Investors consider the size of the companies they invest in for many reasons, namely because it has a role in expected risk and reward. Let’s look in more detail at what a microcap is and the advantages and disadvantages of smaller companies for investors. Definition and Example of Microcap Stocks A microcap is a publicly traded company with a market capitalization of less than about $250 million to $300 million....

A bond is a loan investors make to a corporation, the federal government, a government agency, or a municipality. Most bonds offer investors regular fixed interest payments called “coupons” throughout the bond’s lifespan. The majority of bonds have a maturity date, which is when the investors’ principal is repaid, but perpetual bonds are non-redeemable. Alternate names: perps, perpetual notes, consols, consol bonds Investors often include bonds in their portfolios as a part of a broader investing strategy....

With a permanent life insurance policy, you earn cash value over time. Cash value is the portion of your premium that the insurance company invests over time. You can typically access this cash value through policy loans and withdrawals. Since your cash value is used as collateral, the interest rate on a policy loan may be lower than what you’d find with a personal loan or credit card. Some states limit how much the insurer can charge in interest....

Learn more about what structured notes are, and what you should know before deciding to invest in them. Definition and Examples of Structured Notes Securities generally fall into one of three categories: debt, equity, or derivative. The most common example of a debt security is a bond. The most common example of an equity security is stock. Derivative securities are financial instruments that derive their value from an underlying asset....

Definition and Examples of a Subprime Lender Subprime lenders are lenders that offer loans with higher interest rates to subprime borrowers because they are considered a higher risk. The two main types of interest rates are prime and subprime. Prime rates are offered to borrowers who have higher credit scores and clean repayment history. Subprime rates, which are usually significantly higher, are offered to borrowers who, for example, have lower credit scores, a lack of proof of income, or have had a bankruptcy or foreclosure....

In many cases, receiving a tax exemption requires an individual or organization to apply for that status. For example, you may have to initially apply to receive a property tax exemption based on your age or veteran status. That exemption might continue automatically for as long as you live in that home, depending on local laws, or you may need to reapply periodically. Organizations also typically have to apply for tax exemption....

Taxpayers, corporations, and mutual funds may choose to work through tax havens—often through subsidiaries—or hold their bank accounts there. This allows these individuals and groups to avoid paying taxes in their home country. That’s because income earned by a U.S.-based corporation’s foreign subsidiaries is not subject to federal income tax. It is only taxed once the income is repatriated to the United States via a dividend to the parent corporation....

Taxpayers must meet certain requirements to pay taxes, which can vary depending on the type of tax. For example, to potentially qualify as a taxpayer of federal income tax in the U.S., you simply have to earn wages, even if you’re not a citizen. It’s possible that you may not owe any federal income tax because you didn’t earn enough. However, you could still be considered a taxpayer if you pay other forms of tax....

When used, this waiver can help minimize the number of lawsuits, cross-suits, and countersuits that arise from one claim. You usually won’t find a waiver of subrogation in a personal insurance policy. It is usually available in professional or commercial policies as well as some auto and property insurance policies. For example, if you were involved in a car accident that wasn’t your fault, your auto insurance company would use the subrogation process to recover their losses from the at-fault party....

Calculating after-tax income is simple. You subtract your total taxes from your total personal income. If you get a regular paycheck with tax withholding, your after-tax income is the amount you receive in each paycheck. If you pay estimated taxes throughout the year, your after-tax income is your total income minus any estimated tax payments. After-tax income is important to individual taxpayers because it’s the amount of money you have to pay your bills and, if you’re able, to save and invest....