Financial glossary

A

Accidental damage

Some contents insurance polices will allow you to claim for accidental damage. That means the damage done to your possessions by accident, for example, if you spill a pot of paint over your carpet.

Accommodation

Where you live. This includes living with your parents, in a hostel, renting somewhere or buying on a mortgage.

Account

This is the service provided by a bank or building society that holds money for you. A current account is an everyday account for money to be paid in or taken out - it helps you budget and manage your money and pay for things in a convenient and secure way. A deposit account is for savings.

After tax

This is what you're left with after tax has been paid. It's also called 'net'. You must pay tax on most types of income (such as interest from savings, earnings from your job and pensions), but everyone can have some income tax-free. In 2010/11, the tax-free allowance for people under age 65 is £6 575. Older people may get a higher allowance.

All-risks

This means that your possessions are covered by the contents insurance policy even though you have taken them outside your home.

a.m

This means 'ante meridiem' which is Latin for 'before noon'.

AER

AER (or 'annual equivalent rate') is the amount of interest you'll gain over a year if you leave your money in the bank for the full year. For example, if you put £1,000 into a savings account with an interest rate of AER 5% then at the end of the year you'd have £1,050 in your account.

APR

APR is the Annual Percentage Rate. This tells you the cost of a loan, taking into account the interest you pay, any other charges and when the payments fall due. The cost is standardised as an annual percentage rate so you can easily compare the cost of one loan with another e.g. a loan with an APR of 15% is more expensive than one with an APR of 11%.

ATM

An Automated Teller Machine is a cash-dispensing machine, which you find in many places including banks, shopping centres and railway stations. In order to be able to use an ATM you need a cash withdrawal card and a Personal Identification Number (PIN). People often refer to ATMs as a 'hole in the wall'.

Available credit

This is the amount of money the store card or credit card company will lend you now. That is, your credit limit minus the amount you have already borrowed. You can use this money to buy goods or as a loan.

B

Balance

Your balance is the amount of money you have in your account at any particular time or which you owe on your credit or store card. It will be shown on your statement.

Balance brought forward

The balance that was shown on your last statement.

Bank

A commercial organisation that provides a range of financial services, such as current and deposit accounts. Banks must be authorised to take your money.

Basic bank account

A service from a bank or building society which lets you pay in money, get cash out and pay bills. It doesn't let you spend more than you have in your account, so there's no risk of going overdrawn and running up overdraft charges.

Borrowing

This is when you get money from someone else that you intend to pay back. You might borrow informally from friends and family or take out a formal loan with a written agreement.

Bounced cheque

A cheque that the bank refuses payment on because there is not enough money in the account of the person who wrote the cheque. The bank usually sends the cheque back to the person it was written out to (the payee). The cheque is marked 'return to drawer'. When this happens you have to ask the person who wrote the cheque to give you cash instead or to put some money in their account to cover the cheque.

Budget

A plan of your spending.

Building society

An organisation that is owned by its members, who are some or all of the customers saving with or borrowing from the society. They often offer a range of financial services and are similar to banks. Building societies must be authorised to take your money.

C

Calendar month

A calendar month is the period of time from the same date of one month to the same date of the next month. This means a calendar month is usually longer than four weeks.

Capital

The amount of money you originally save or invest, before any interest, other return or loss is taken into account. It could also be an amount of money that you have borrowed.

Cash card/cash machine card

A card that lets you use a cash machine (ATM or hole-in-the-wall) to withdraw money, check your balance or print a mini-statement.

Cashflow

A record of all the money coming into the business less all the payments as they are made, measured over a particular time.

Cash inflow

The receipts of your business. If your receipts are bigger than your payments, you have a net cash inflow.

Cash outflow

Payments out of your business. If your receipts are less than your payments, you have a net cash outflow.

Catalogue

Goods are shown in the pages of the catalogue. You can buy them on credit and pay in weekly or monthly instalments. The goods will usually be delivered by post. The price of the goods in the catalogue may be more than the price in a shop.

Cheque

A written instruction to a bank. It can be used to pay you money. You can write out cheques to yourself to get money out of your account or to pay other people, if you have your own chequebook with your current account.

Charges

Fees and interest which you have to pay, for example, when you borrow money or buy on credit.

Child Trust Fund

A government proposal to give every new-born child a sum paid into a special account. On reaching 18 the child would be able to withdraw the money which should have grown in value.

Citizens Advice Bureau (CAB)

A local office where you can get help with a range of problems including your finances or debts. To find your local CAB visit their website.

Clearing

Clearing is the time between paying cash or a cheque into your bank account and the money being available to spend or withdraw.

Compound interest

Interest rates are usually compounded - so the amount paid on savings is based on the capital plus the interest paid so far (provided you have not taken anything out of the account). This also works for loans - so the amount you owe can increase dramatically over quite a small time.

Consumer

When you buy something you are a consumer.

Credit

An account that is 'in credit' means that there is some money in it that is available to be spent. If you obtain goods or services 'on credit' it means that someone (for example, a bank or credit institution) has given you the money to make the purchase - they have credited you with the money. You must pay the money back. If you do not pay your credit card on time or have a history of not paying back other loans, this will be shown on your file held by a credit reference agency. When shops or banks check your creditworthiness and see this information has been listed, you may find it very difficult to get a loan.

Credit card

A plastic card issued by a bank or building society that allows you to make purchases now and pay for them later. Credit will be made available to you to buy the goods. Every month the bank or building society will send you a statement of your account. You must pay back at least a minimum amount each month and interest will be charged if you do not pay off the full amount borrowed.

Credit limit

The maximum amount the store card or credit company will lend you.

Credit reference agency

An agency that holds information on adults. This information includes public records (e.g. Electoral Roll entries), credit account information (e.g. repayment records for loans, credit, mortgage, hire purchase) and records of credit checks that have previously been made.

Credit record

Your details held by a credit reference agency. It will include whether you appear on the Electoral Roll, your name and address from the Electoral Roll, how you have handled previous credit, and any other credit checks made about you.

Credit risk

The chance that you might not repay your loan or credit.

Credit score

A score given by a shop or credit agency to you based on your personal and financial circumstances. It helps them to decide whether you are likely to repay the loan you are asking for.

Credit Union

A non-profit making co-operative savings association that makes loans to its members at low interest and encourages saving.

Creditor

A person you owe money to.

Current account

A bank or building society account which helps you to manage your money, pay bills, receive money and keep money secure. It will have more services than a basic bank account, for example, you will get a cheque book.

D

Debit

Money which is taken out of an account is 'debited from' that account.

Debit card

A plastic card that can be used instead of cash when making a purchase. The amount spent is taken automatically by computer from the account of the person who owns the card - it is debited from the account. Some cards (such as Switch and Delta) could let you spend money you have not got in your account - the balance is not always checked at the time of purchase. Other cards (such as Solo and Electron) only allow the purchase to go ahead if there is enough money in the account - it is always checked. They are useful when paying in shops, shopping by phone or over the internet.

Debt

If you are in debt you owe money to someone e.g. a bank.

Debtor

A person who owes you money.

Defaulted

Failed to make payments; or failed to pay off the debt.

Dependants

People who are financially dependent on you for their livelihood. This is usually children who live with you, but it could be elderly relatives or someone you care for.

Deposit

An amount of money paid by you to make sure you get the goods. You may need to pay a deposit when getting goods on credit.

Direct Debit

An arrangement where you instruct the bank to release money from your account to pay bills and other amounts automatically. The billing company requests the money from the bank directly. You are told in advance in writing how much will be taken and the date it will be taken out of your account.

Discount

Money which is taken off the price of something. You may need to collect coupons or vouchers before claiming the discount. Sometimes shops give a discount to their employees.

Dormant

No longer used.

E

Electoral Roll

A list of names and addresses of people over 18 in the UK. If you register to be on the Electoral Roll, you can then vote in elections. The Electoral Roll is checked when you make an application for credit.

Employee

Someone who is paid to work for someone else. The person who you work for is your employer.

Employee NIC

Stands for employee National Insurance Contributions. This is a form of additional taxation and will be taken off your pay before you get it. You usually need to make contributions before you can claim certain state benefits, such as State Pension when you retire.

Expires

On plastic cards - after this date your card cannot be used.

F

Fee

A sum of money you pay, for example, to have a loan or credit arranged for you.

Finance company

A company which makes money by lending to people who want to buy goods on credit. Most shops use finance companies for their credit deals.

Financial

To do with money.

Financial Adviser

An individual or company that can assess your financial needs, recommend suitable products, and arrange for you to buy or invest in these products. Some advisers can also manage investments for you. Where advice concerns 'packaged products' (such as unit trusts, open-ended investment companies, investment trust savings schemes, investment-type life insurance and pensions), an adviser must normally be either: - tied to a single product provider; or - independent and able to recommend any product on the market. An adviser must be authorised by the Financial Services Authority (FSA).

Financial records

Will include statements, bills, receipts etc.

First £50 of damage (also called an 'excess')

Some contents insurance policies ask you to pay the first £50 (or other amount) cost of the damage. The insurer will then pay for anything more than this.

Free buffer zone

Some bank or building society accounts have a buffer zone (a free temporary overdraft) so you can take this money out. You will not be charged for being very slightly overdrawn on this basis.

G

Gross

Indicates an amount from which certain items have yet to be deducted.

Gross interest

This means before tax or other deductions are made. ‘Gross’ is connected to ‘net’ – gross is before tax, net is after tax.

Gross profit

In a business - the money you make from selling your goods and services less the cost of materials or making the goods.

Gross pay

Your pay before anything is taken away from it, like income tax and National Insurance Contributions

H

Hire purchase

You take away the goods and can use them. You have to make regular payments and after a set length of time, when the goods have been paid for, the goods will become yours. Cars are often bought this way. You would not own the car until you have completed the hire purchase agreement - so you would not be able to sell the car until you had paid for it.

I

Index-linked

Index-linking means that the value of the financial product or service (e.g. pension, savings certificate) is increased in line with an index (e.g. the Retail Price Index, or inflation). With some types of contents insurance the insurer works out how much you need to increase your cover by each year.

Instalments

Weekly or monthly repayments made to pay off goods bought on credit or to pay off a loan taken out to buy them.

Instant access

This means you can get your money back immediately without having to wait for any notice period.

Insurance (buildings/content)

Insurance taken out to cover the house itself (buildings insurance) or the things in the house (contents insurance). If something happens to the building or contents you may get a pay-out from the insurer.

Insurance (car)

By law you have to have insurance if you drive a car on public roads. The basic insurance everyone must have is 'third party' - this means that the insurer will pay out if you damage someone's property (e.g. their car) or cause them an injury in an accident. You can pay additional premiums and have 'third party, fire and theft' - this means you are covered by the insurance if you damage someone else's property or cause an injury and also you will get a payout if your car is stolen or damaged by fire. Some people choose to pay extra and have 'fully comprehensive'. This means they are covered for any loss or damage to their own car as well as for damage to other people's property or injury to other people.

Interest

The reward you get for lending your money to say, a bank or building society. Also, the cost you pay when you borrow money through a loan or credit agreement.

Interest rate

The percentage that is paid on savings or loans. A savings account that offers 8% would give you a better return than one that offers 5%. Similarly borrowing money at 22.5% will cost more than borrowing at 18%.

Investment

Financial products which typically involve some risk of losing your original money but give you the opportunity of better returns than you can get from savings. Rather than putting your money into a deposit account and getting the interest, you buy, say, stock market-based investments, such as bonds, shares, unit trusts and so on. A lot of people have shares without realising it as many financial products are actually based on investments, for example, endowment mortgages and pensions. Other products spread the risk of investing in the stock market by putting your money in a range of different shares, for example, unit trusts. The value of your investment will change over time as the stock market prices go up and down.

ISA

An ISA is an Individual Savings Account. You do not have to pay tax on the gains or income from an ISA. You can pay an overall total of ££10,200 into ISAs each tax year, up to £5,100 of which can be in the form of cash, and the remainder in stocks and shares. You can mix and match up to the total amount by having more in shares and less in cash, but the maximum limit for the cash part is £5,100. The overall total limit will increase when the new tax year starts on 6 April. ***Mini- and maxi-ISAs no longer exist – they are now called cash ISAs and stocks&shares ISAs, so we should delete the following entries. Also the maximum allowance is now significantly greater.***

Mini-cash ISA

A savings account that pays tax-free interest. You can save up to £3 000 in a mini-cash ISA in any one tax year.

Issue

On some plastic cards - the number of cards you have received from the card issuer ever since opening the account.

J

Joint account

A joint account is a bank account that you share with someone else, usually your partner. You can both withdraw or put money into the account.

K

Kitty

Money which has been collected by a group of people to be used later, perhaps for an office party. People might say “we each put £5 into the kitty”.

L

Loan

A sum of money which you borrow, usually with interest.

Loan shark

Someone who lends money and charges a very high rate of interest. They will not hold a consumer credit licence.

Loyalty card

A scheme offered by some shops to encourage you to shop there. For each £1 you spend they give you something in return - often money at 1% (a penny in the pound) in the form of vouchers which must be used at that shop.

M

Maximum withdrawal

Most cash machines check your bank account before giving you any money and will not give you any more than there is in your account. There is often a limit of, say, £250 per day on your withdrawals from a cash machine. If you need to withdraw more than the cash machine limit, you’ll need to do it over the counter in the branch.

Mini-ISA

A mini ISA or cash ISA means Individual Savings Account. A savings account that pays tax free interest. You may not have a mini-ISA and a maxi-ISA in the same tax year. You can save up to £3000 in a mini-cash ISA in any one tax year.

Minimum payment

A minimum payment on credit or store card statements is the minimum amount you must pay each month to clear your debt.

Mortgage

A loan usually taken out to buy property e.g. a house. If you do not keep up the mortgage repayments the mortgage company can repossess your house. This is an example of a secured loan. The loan is secure for the mortgage company because they can not lose out. They get the value of your house if you default on the loan.

N

Net

Indicates a sum of money from which certain amounts have already been taken away.

Net interest

This is interest which has already had the tax taken off it.

Net pay

The pay you actually get. All the deductions have been taken off before you get it.

Net profit

The profit a business makes minus all the expenses such as overheads or running costs over a particular period of time.

Non-priority debts

Less important debts. The people you owe the money to can take you to court to recover the debts but cannot take any other action (such as cutting off a service or repossessing your home).

Notice

The time you must wait to get your money after telling your bank or building society that you want to take it out. If you don't wait this time you may be penalised in some way, for example losing the interest rate on your account. 

Occupation

Your job, work or profession e.g. bricklayer, checkout operator, teacher.

Occupational pension

A pension from a scheme set up by an employer, for example, a Local Council Pension or a Teacher's Pension. Employees have to join the scheme to be eligible and may have to make contributions towards the pension. The scheme may pay a fraction of the final salary as a pension (calculated taking into account the number of years worked) or build up a cash fund used to buy an annuity. An annuity is a special type of investment which can pay out a regular sum over the lifetime of the owner.

Overdraft

If you spend more money than you have in your current account you will go overdrawn. You can ask the bank if they can arrange to lend you some money for a short time. This is known as an arranged overdraft. You pay an agreed rate of interest on the overdraft. If you go overdrawn without asking the bank in advance, they might refuse to pay your cheques and charge you a high interest rate on the money that you owe them.

Overheads

The costs of running a business. It includes things like rent, office help, heat & light, advertising and distributing your goods and services.

P

Pay in

Putting money into your account, either in cash or by cheques.

Payments

Money you pay out, for example, on materials you need for your business, interest on loans or money for services such as gas and electricity.

Payment received

A sum of money paid into an account to pay off credit, a loan or for services such as gas and electricity. This will be shown on your statement.

Pension

An income paid out after someone retires. The government gives tax relief on money paid into a scheme designed to provide a pension. A pension is a 'locked box' form of savings because you cannot spend any money in the fund until you have reached the minimum age (often 50). You can often take part of the proceeds as a cash lump sum but the rest must be taken as income. There are different types of pension schemes: occupational, stakeholder, state, personal.

Pension deduction

Payments into a pension scheme will be taken automatically from your pay if you pay into a pension scheme which is arranged by your employer. This will show up on your payslip as 'pension deductions'.

Per annum

Each year.

Personal pension

A pension plan, not tied to a particular employment, that you can keep going even if you change job. You might have set up the plan yourself direct with a pension provider or it could have been arranged through your workplace. Some personal pensions are Stakeholder schemes.

PIN

Personal Identification Number - a secret number which you use with a cash machine card. You type it in and the cash machine checks the card number and PIN are the same.

p.m.

This means 'post meridiem' which is Latin for 'after noon'.

Premium

The amount you have to pay to buy the insurance. You may be able to pay in monthly instalments.

Priority debts

These are debts which are more important than others because the law lets the people (you owe the money to) take serious action against you. Priority debts include things like a mortgage because your home could be repossessed if you do not keep up your mortgage repayments and fuel bills because your gas or electricity could be cut off.

Profit and loss

In a business, you make a profit if you sell goods or services for more than your costs. You make a loss if the proceeds are less than your costs.

Policy

This sets out everything that is agreed between you and the insurer. It will list everything that is covered as well as what is excluded. Read it carefully before buying the insurance.

Q

Quarterly

The year is split into four quarters, which are each three months long. If you pay your bills quarterly, this means you'll have to pay every three months – that's four times a year.

R

Receipts

Money coming in, for example, from selling goods and services or taking out a loan.

Repayments

The sums of money you pay back weekly or monthly on your loan or credit.

Return

The amount you get back on your capital. A general rule is that the higher the return the more risky the investment.

Responsibilities

What you should do e.g. finish paying for goods taken out on credit.

Rights

The protection that is given to you by law. For example, you have a right to compensation if your bank goes bust and you lose money.

Risk

Another name for chance or uncertainty. Types of risk include capital risk (your savings or investment fall in value), interest rate risk (the interest rate you agree to may not be good value in the future) and inflation risk (price levels will rise so the buying power of your savings or investments will fall). Shares and share-based investments, such as unit trusts, are considered higher risk because the value of your investment can fall (capital risk) but growth of these investments tends to outstrip inflation and over the medium- to long-term usually beats the return from savings accounts.

S

Savings

Any money you put aside for future use. This may be in a deposit account - or under your bed. 'Rainy day' savings are useful for emergencies and need to be easily accessible, while longer-term savings can be built up to give a 'nest egg'.

Savings accounts

Savings are often kept in bank, building society or National Savings accounts. The amount you put in does not fall in value but may grow as interest is added.

Shares

An investment which makes you part-owner of a company, along with all the other shareholders. Some shares pay you an income (called dividends) regularly. With all shares, you accept a capital risk. This means that if the share price rises you’ll make a profit when you sell, but if the share price falls, you’ll make a loss.

Short term

Usually means a period of time no longer than around five years and often a lot shorter.

Solo, Electron

Types of debit card where your account is always checked to see whether there is enough money to pay for the goods. Your account cannot go overdrawn if you use these types of debit card.

Standing Order

A method of paying regular amounts automatically. You instruct your bank to pay the money for you to a particular person or company. It's your responsibility to change the payment if it needs to alter.

Stakeholder

A type of pension scheme designed to be good value for money by having low charges, flexible payments and so on. Usually it means a personal pension that meets these conditions, but some types of occupational scheme can also be stakeholder schemes.

Statement

A document from the bank or building society which shows all your recent payments into and withdrawals from your account. You should check it with your own records.

State pension

A pension paid to you by the State when you retire by the State. The amount you get will depend on your National Insurance record (or on that of your marriage partner).

Stock market

Where stocks and shares are bought and sold.

Storecard

A plastic card issued by a shop that lets you buy goods at that store on credit. The APR is usually quite high. You must pay something back each month.

Switch, Visa Debit

Types of debit card. Your account may be checked if you are paying out a large amount but not always. This means that it is possible for you to go overdrawn on your account while making a payment with your debit card. 

T

Take home pay

The money you actually get paid after deductions such as income tax and National Insurance contributions.

Taxation local

You may pay local taxes such as council tax. This money is used to pay for local services such as libraries and the police force.

Taxation national

You're taxed in a variety of ways, for example, by paying income tax on your wages, by paying VAT when you buy certain goods, or by paying the road fund licence for a car (your car tax). These taxes are used to finance services such as the National Health Service, Armed Forces and education, which are of benefit to everyone.

Tax code

This code, tells your employer how much tax-free pay to give you each pay period. Your tax code is worked out from your tax allowances and other tax adjustments, like your age and how many jobs you work.

Tax this period

Shown on a payslip - how much income tax you have to pay this pay period for which you've been paid. It's worked out from tables using your tax code.

Tax year

A 12 month period running from 6 April one year to 5 April the next year. Taxes, such as income tax, are worked out over this period.

Tenant

Someone who rents where they live.

Term

The time for which something lasts e.g. how long you have to pay back a loan.

Thirty day

Means you get your savings back 30 days after you told your bank or building society that you wanted them. 30 day accounts might pay higher interest than instant access.

Three months

Means you get your money back three months after you told your bank or building society that you wanted it. You may be able to get your savings immediately but you might lose interest your money earned.

Total deductions

On a payslip, this is the total amount that will be taken from your gross pay. What is left after this is your take-home pay.

U

Utility bills

The bills for electricity, water, gas and telephone.

V

Voluntary excess

You can get a reduction on your insurance premium if you agree to pay the first part of every insurance claim yourself. The insurer will then pay for anything more than this.

W

Withdraw

Taking money out of your account.

X

There aren't any words in this section. If there's a word beginning with X that you'd like the definition to, get in touch with us to let us know.

Y

There aren't any words in this section. If there's a word beginning with Y that you'd like the definition to, get in touch with us to let us know.

Z

There aren't any words in this section. If there's a word beginning with Z that you'd like the definition to, get in touch with us to let us know.