Your personal finance glossary
All the jargon used by banks and other financial companies can sometimes seem as if it's intended to confuse you.
Maybe it is. Some finance-specific words and terms are useful, others seem less so.
Either way, it's impossible to manage you money with a basic knowledge of them.
Here's your guide breaking down some of the most important terms.
The rate at which your benefits from a final salary pension accrue in each year.
Additional Voluntary Contributions (AVC):
These are extra contributions paid into an occupational pension run by an employer to increase the size of the fund.
A credit card that a provides a small donation to a charity of your choice at no extra cost when you make transactions.
Annual Equivalent Rate (AER):
The amount of interest you would be paid as a percentage for the whole year for the balance in your account.
It is distinct from APR, which is related to loans and credit cards.
Annual Percentage Rate (APR):
The yearly borrowing cost for credit or a loan.
That includes interest rate charged as well as additional fees.
All loans advertised must list its APR by law.
A type of life insurance policy whereby the customers pays a lump sum in order to receive regular smaller payments.
Money owed that should have been paid sooner.
To be in arrears is to have fallen behind on payments such as for a mortgage or energy bill.
When buying a large asset such as a house, your bank will issue a cheque – known as a banker’s draft – to pay for the item.
This allows for an extra level of security.
A legal status that allows people to clear debts they can’t pay.
All your assets, apart from essential ones such as your home or possessions, alongside your excess income are used to pay off your debts, usually for a year.
After that, most debts are cancelled.
Basic state pension:
Pension paid the government, funded through national insurance contributions.
When selling your home and buying a new one, you may find a home you wish to buy before securing a buyer for your current home.
If this happens, you can apply for a bridging loan to cover the difference while you wait for a buyer to sell to.
These loans are, however, expensive and should only be used if you are certain that you be able to repay within sixth months maximum.
Capital gains tax:
When you sell an asset (such as a house or flat that isn’t your main home) that has appreciated in value, you have to pay a capital gains tax on the profit you’ve made.
The asset must be worth over £6,000, excluding your car.
This is the interest when the money made from previous interest is included.
For example, if you have saved £1,000 and have a 10% interest rate, after the first period you will have £1,100.
The compound interest is the 10% interest rate applied to the £1,100 in the next period.
Cooling off period:
The time you have to rescind a contract or return a product after your purchase.
A credit score is a number given to determine how safe it is to lend to you.
This is based on your financial history and will determine the type of loan you are able to get.
Critical illness cover:
An insurance policy that pays out a lump sum if you’re diagnosed with a specific serious illness, covered by your policy.
A pension scheme where the final payment is determined by the amount of money paid in and the returns it saw over a certain period.
Having your money invested in various, unrelated places.
Share of profits paid to company shareholders.
This is when you use the value of your home, often through some form of a second mortgage, to raise money.
Final salary scheme:
A pension scheme whereby your income in retirement is determined by how your final salary upon retirement and how long you have been part of the scheme.
Financial Ombudsman Service:
This a free service consumers can use to try and settle disputes they may have with their bank or other financial institutions.
You can read our guide on using an ombudsman here.
Individual Savings Account (ISA):
There are three types of ISAs: cash ISAs, stocks and shares ISAs and innovative finance ISAs.
Each year you can save up to a certain amount in an ISA tax free (the limit for 2016 to 2017 tax year was £15,240).
A life assurance policy taken out for two people.
The maximum amount that can be paid out as part of a pension scheme without triggering an extra tax charge.
Occupational pension scheme:
A pension available through your employer.
Payment protection insurance:
A policy that results in payments for a regular, pre-agreed amount of time if you are unable to work for health reasons.
The amount of money you can earn without paying any tax on it.
In 2017 this will rise to £11,500, meaning that the first £11,500 you earn with not be taxed.
Price to earning ration (P/E):
This refers to both the price of a company’s shares and the amount of profit the company brings in in one financial year for a single share.
This refers to the year in which your National Insurance Contributions are made.
To qualify for a full pension state pension you must have contributed for at least 30 years.
Saving or investing your money in such a way as to reduce or minimise the amount of tax you can pay.
While the term often evokes images of people using dodgy offshore tax havens, more often it refers to people making use of normal saving schemes such as ISAs.
Mostly used in relation to the length of your mortgage or insurance policy.
A life insurance policy that protects you for a pre-agreed amount of time.
Whole of life insurance:
A life insurance policy covering you for the entire duration of your life.
Return from an investment, usually expressed as an annualised percentage based on the value of the asset.
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