Glossary of Financial Terms

Account numberAn eight digit number that identifies your bank account. You will find the number at the bottom of your cheques and also printed on the front of your bank card.
AERAnnual Equivalent Rate: when you have savings or an investment you are paid interest on this either monthly, quarterly or annually. If you opt to have your interest paid monthly or quarterly and the interest is then added to the original saved amount, you will then start to earn interest on that too for the rest of the year. For example, at the start of the year you have £100 in an account and the interest rate is 5% you would earn £5 interest each year, but if the interest is paid quarterly, at end of the first quarter you will have £101.25 in your savings and you will start earning interest at 5% on that. This means that in reality by the end of the year, you will actually have earned £5.07 interest and therefore the AER is 5.07%
After taxThis usually refers to an amount of money that is left, after tax has been deducted.
Alternative creditThese are credit lenders other than banks and building societies and they generally charge much more to lend you the money.
APRAnnual Percentage Rate: this is the total cost of a loan each year which includes interest charged as well as any fees or set up costs involved. So your interest rate may be 5% but your APR could be higher to take in to account the fees and the cost of compounding*. APR can also apply to savings you make, so in that case it applies to total amount you will earn on your capital to include compounding*.
ArrearsThis is the amount of money that is still owed and has not been paid when it was due. For example if you have a monthly payment on a loan of £50 and you miss a payment one month, your account will be £50 in arrears.
AssetsEverything you own that has monetary value are called your assets such as a house, a car, investments.
BACSBank Automated Clearing System: an electronic way of making payments from one bank account to another.
BalanceEither the amount you have left in your bank account or the amount left still to pay on a credit card or loan.
Balance brought forwardAn amount of money that was showing on your last statement that is still there on the current one; it has either not been spent and is still in the account or you still owe it from last month.
Balance transfersCredit card companies try to entice customers to transfer their outstanding debt from one credit card to theirs, with offers of low interest rates on the balance that is transferred.
Bank accountA service provided by a bank or building society which allows you to pay money in, take cash out, write out cheques and pay bills. You are provided with a statement each month detailing all your transactions.
Bank loanMoney borrowed from a bank.
Bank of EnglandThe UK’s central bank which is responsible for setting the Bank of England base rate. The base rate is a standardised rate of interest from which other banks fix their interest rates, in an attempt to stabilise the economy.
BankruptcyWhen someone is declared bankrupt, it means officially that they are unable to pay their debts and what assets they do have are seized in order to try and repay their creditors.
Base rateThe standard interest rate set by the Bank of England which other financial institutions use as a guide when setting their interest rate. The Bank of England changes the base rate according to whether they are trying to encourage borrowing or spending to stimulate the economy.
BorrowingBorrowing money which you will need to pay back. Typically when anyone lends you money (unless it is a friend) they will charge you interest until you have paid it back.
Bounced chequeIf you present a cheque to the bank and it bounces, this means that the person that gave you the cheque did not have enough money in their account to pay you. If you write out a cheque to someone which bounces, you will be charged a fee by your bank, so make sure you always have enough money in your account to honour any cheques you write out.
Building Society,Building Societies offer similar services to banks but are owned by shareholders.
Buildings insuranceInsurance that covers the cost of a building should it burn down or be damaged in some way.
BursaryA bursary is an amount of money donated to a student for their education. You do not need to repay a bursary.
CapitalThis is the amount of money that you invest or borrow – the initial lump sum.
CashflowThis is keeping count of the money you have coming in and the money you are spending and keeping a record of it – the inward and outward flow of your cash.
ChargesThe fees that banks or building societies charge you for services
Cheque guarantee cardA card that guarantees that if you write a cheque when you do not have sufficient funds in your account the bank will guarantee the cheque holder that they will still pay them. Some shops will ask for this when you write a cheque but not all banks will issue them.
Compound interestCompound interest is adding the interest to the original sum invested or borrowed. When a bank adds the interest you have earned on your savings to the original sum invested, this increases the amount of interest you earn for the next period. Compound interest can sometimes be added to loans too, increasing the amount that you owe, although with most loans the amount you pay back each month covers the interest charged and at least some of the original sum borrowed, so compound interest does not apply.
Comprehensive insuranceComprehensive insurance refers to car insurance that covers you for accidental damage to your car as well as anyone else’s car damaged in an accident you are involved in.
Consolidation loanA consolidation loan combines all your loans in to one monthly payment, making it easier to manage and keep track of your outgoings.
Contents insuranceInsurance that covers the contents of your home. For university students special insurance packages are available to cover your personal belongings in your accommodation.
Corporation taxTax that companies pay on their earnings.
Council taxTax that you pay the local council to cover the cost of council services such as refuse collection and recycling, library services, police. If a house is fully occupied by students, then the house is exempt from council tax if the appropriate forms are completed.
CreditBuying something on credit is taking a loan from a bank or credit card company to buy something now and paying them back later. You will be charged interest on the amount borrowed.
Credit historyThis is a record of the loans you have taken out in the past and any payments you have missed. This information is used by credit reference agencies to advise banks and building societies of your credit rating when you apply for new loans.
Credit limitThe maximum amount you can borrow at any one time on credit.
Credit ratingBased on your credit history you are given a credit rating to enable banks and building societies to assess how risky it might be to lend you money.
Credit recordSee credit history
Credit reference agencyThe agency that stores information on credit ratings and credit history and advises potential lenders on the likely risk involved in lending to you.
Credit scoreSee credit rating.
CreditorSomeone to whom you owe money.
Current AccountA day to day bank account that allows you to withdraw money, pay by debit card or cheque, set up standing orders to pay your bills and put money in. Current accounts do not pay much interest on the money you have in the account.
Debit CardA debit card is used to take money out of a cash machine. It deducts the money you take out direct from your bank account. Cash cards can be used in the same way as cash by paying for goods and services at the point of purchase, and it is deducted direct from your bank account.
DebtMoney that you owe to someone.
DebtorThe person or organisation to whom you owe money.
DepositEither a small amount paid towards the overall cost of a purchase to secure the item or a depositing money in to your account, means putting money in.
Direct debitAn instruction to your bank account to pay an amount of money to a specific person or organisation to pay your bills, such as a landlord. The company you owe will request the money directly from the bank and you will be advised how much will be coming out and the date it will be taken. You must ensure you have enough money in your account to cover the direct debit otherwise you could incur bank charges.
ExcessInsurers sometimes ask for you to agree a sum of money that you will pay as the first amount on any claim you make and this is called your excess. If you agree to a £50 excess, you pay the first £50 of any claim. Agreeing to a higher excess will reduce the monthly payments on the policy.
Fixed costsCosts that do not change regardless of how much you use, such as your rent.
GrantA grant is a financial award for a particular purpose, often given by a charitable organisation that supports a particular cause. Educational grants can be applied for and the money does not need to be repaid.
Gross incomeYour income before tax.
HMRCHer Majesty’s Revenue and Customs – the government department responsible for collecting tax and paying benefits.
IBAN/Swift codeAs well as your account number and sort code, your bank account has an IBAN and Swift Code. These are only used for International bank transfers, so if you are sending or receiving money from abroad you will need to quote these numbers. They can usually be found on your bank statements.
IFAIndependent Financial Advisers are people who offer advice on the best savings and investment products on the market. They are independent of any particular bank or building society and so can advise on products from all the different financial organisations.
IncomeMoney you earn or receive as a result of investments.
Income supportA benefit paid by the government to people on very low incomes to help them manage.
Income taxTax payable to the government on your income.
Index linkedInvestment products which increase in line with the rate of inflation or the retail price index are said to be index linked.
InflationA continuous rise in the price of everyday goods. As time goes on, £1 will buy less things due to inflation.
Inland revenueAnother way of saying HMRC
InstalmentsStage payments
InsuranceBuying insurance involves paying regular payments to an insurance company so that in the event of an accident or loss, the costs incurred by the event will be paid for by the insurance company.
Insurance premiumThis is the amount you pay to the insurance company to cover you for an unforeseen event. They can either be paid monthly, quarterly or annually.
InterestWhen you invest money or borrow money you receive or pay interest on the amount invested or borrowed. If you are investing you are effectively lending your money to the bank or building society and they pay you interest for doing so. If you borrow, they are lending you money and you pay them interest on the amount borrowed.
Interest rateThe % of the amount of money borrowed or invested that will be paid annually. If you invested £100 and the interest rate was 3% you would earn £3 a year on that investment.
ISAAn ISA is an Individual Savings Account which is an investment on which you do not pay any tax. There is a fixed limit to the amount of money you can invest in ISAs each year.
LoanA sum of money lent which will need to be paid back.
Means testA way of establishing your income and assets to assess your eligibility for benefits, bursaries or grants which may be subject to a low income threshold criteria.
National InsuranceA tax that all earners pay which is deducted directly from your wages and pays for benefits, pensions and the NHS.
NetA sum of money after tax.
No claims bonusIf you do not make any claims on an insurance policy you are awarded a “no claims bonus” which will reduce your premiums for the following year. You can build up your no claims bonus over many years.
OverdraftTaking more money out of your bank account than is actually in there will make you go in to overdraft. Banks will have a prearranged overdraft limit for each individual and if you go over that you will incur bank charges.
PAYEPay as You Earn: the collection of taxes from an individual’s salary before they have been paid.
PINPersonal Identification Number: you will be asked to create your own 4 digit number for use with your debit card.
Priority debtsDebts which it is more important to pay than others as non payment can result in legal action against you or seizure of your assets. A student loan is not a priority debt.
Protected no claims bonusBy paying an additional premium you can protect your no claims bonus. If you have built up a good few years no claims bonus it can be worth doing this to avoid losing it should you have an accident.
Quarterly statementsA summary of your account sent to you every 3 months.
RepaymentsThe agreed sum of money you have to pay back each month on a loan.
RPIRetail Price Index: is a way of measuring the changing prices of everyday items such as groceries over time. This is a good indication of the rate of inflation.
Savings AccountAn account offering a higher rate of interest for money that you are saving and not using on a day to day basis. You will find that some savings accounts require the money to be left there for specified periods of time to be guaranteed a higher rate of interest.
ScholarshipA financial award given to a student based on merit or means testing, to be used for their education, and does not require repayment.
Sort CodeThe six digit code you will find on your bank statement and bank card which identifies the branch of the bank where you hold your account.
Standing OrderA method of paying regular amounts of money to a particular person or company automatically via your bank account. You give the instruction to your bank and they will make the payment for you each month.
StatementA summary of your account
TaxThe money deducted by the government to pay for public goods and services. Tax is included in the price of many every day items and it is also deducted from your pay.
Tax allowanceThe minimum amount you are allowed to earn each year without having to pay tax.
Tax yearThe tax year runs from the 6th of April to the 5th of April the following year. Taxes due are worked out based on this period rather than the calendar year.
Taxable incomeThe amount of money you have earned after your tax allowance and on which you have to pay tax.
Term of the loanThe number of years over which you have to repay a loan.
Third party insuranceCar insurance which only covers any damage to another person’s car, or fire and theft of your car.
Variable costsYour costs which vary each month, such as food or clothes.
Voluntary excessThe excess on an insurance policy that you can voluntarily choose to pay. See Excess for further explanation.

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