Financial Glossary

Interest calculated on both the initial principal and the interest already accumulated. In practice, this means that a saved sum grows not just from the original deposit, but from all previous interest earned as well. Over long periods, compound interest can produce significantly larger returns than simple interest. The effect is more pronounced the longer the money remains in the account and the higher the interest rate. This principle is why starting to save early, even with small amounts, can produce meaningful results over time.

The general increase in prices of goods and services over time, which reduces the purchasing power of money. If the inflation rate exceeds the interest rate on savings, the real value of savings decreases even as the nominal amount grows. Understanding inflation helps explain why simply holding cash does not preserve wealth over the long term, and why the interest rate offered on a savings product needs to be considered in relation to prevailing inflation rates.

The total annual cost of borrowing expressed as a percentage of the loan amount. APR includes not only the nominal interest rate but also associated fees and charges that must be paid as part of the loan agreement. Comparing APR across different loan offers provides a more accurate picture of the true cost of credit than comparing nominal interest rates alone. In Croatia, lenders are required to disclose the APR for consumer credit products.

A numerical representation of a person's creditworthiness, used by lenders to assess the risk of offering credit. It is typically derived from payment history, existing debt levels, length of credit history, and the types of credit used. A higher score indicates a lower risk to the lender, which may result in more favourable loan terms. In Croatia, the Croatian Financial Services Supervisory Agency and credit bureaus maintain records that inform credit decisions. Late or missed payments negatively affect credit history and can limit future borrowing options.

A measure that compares total monthly debt repayments to gross monthly income. It is commonly used by lenders when evaluating loan applications. A lower ratio indicates that a person has manageable debt relative to their income. Financial educators often use this concept to help young people understand the practical ceiling on how much they can responsibly borrow without creating financial stress in their day-to-day lives.

The mandatory, state-managed component of the Croatian pension system, administered by the Croatian Pension Insurance Institute (HZMO). It operates on a pay-as-you-go basis, meaning current workers' contributions fund the pensions of current retirees. The pension benefit a person receives from the first pillar is calculated based on their contribution history, the points accumulated during working life, and the current pension value. All employed persons in Croatia contribute to the first pillar.

The mandatory individual capitalised savings component of the Croatian pension system. A portion of pension contributions goes into a personal account held with a mandatory pension fund (obvezni mirovinski fond). Unlike the first pillar, the second pillar accumulates actual savings invested in financial markets, so the eventual benefit depends on investment returns over the working period. Individuals can choose which mandatory pension fund manages their second pillar account.

The voluntary component of the Croatian pension system. Individuals may choose to contribute additional amounts to a voluntary pension fund, which provides supplementary income in retirement. Contributions to the third pillar may qualify for certain tax incentives. This pillar is entirely optional and the benefits depend on the amount contributed, the investment performance of the chosen fund, and the duration of contributions.

A fraudulent investment model where returns for existing participants are funded by contributions from newly recruited participants, rather than from any genuine business activity or investment. The scheme requires continuous recruitment to sustain payouts, which is mathematically impossible to maintain indefinitely. When recruitment slows, the scheme collapses and the majority of participants lose their money. Pyramid schemes are illegal in Croatia and across the EU. They are often disguised as legitimate business or investment opportunities.

A type of fraud in which a person is deceived into revealing sensitive financial information such as bank account credentials, card numbers, or personal identification details. Phishing typically occurs via deceptive emails, text messages, or websites that imitate legitimate institutions such as banks or government agencies. Red flags include unsolicited contact, requests for passwords or full card numbers, and links to websites with unusual or slightly misspelled addresses. Legitimate financial institutions do not request full credentials via email or SMS.

A broad category of financial fraud involving false or misleading claims about investment opportunities. Common forms include offers of unusually high and guaranteed returns, unlicensed investment advisors, and fake platforms that display fabricated account balances. Investment fraud often targets younger or less financially experienced individuals through social media, messaging apps, and online advertising. The Croatian Financial Services Supervisory Agency (HANFA) maintains a register of licensed investment service providers, which can be used to verify the legitimacy of any entity offering investment services.