Glossary

actuaries Insurance professionals who analyse risk and its financial impact

AER Annual Equivalent Rate. Shows what the interest rate on savings would be if it were added to savings at the end of each year, used as a way of comparing different financial products which calculate interest at different times

all-risks A contents insurance policy covering possessions even when they are away from your home

annuity A special type of investment which can pay out a regular sum over the lifetime of the owner

APR Annual Percentage Rate. The cost of a loan, taking into account the interest you pay, any other charges and when the payments fall due. The higher the APR, the dearer the loan

arrears Money owed which was not paid when due

assets Everything that a person owns with monetary value (eg property, investments, cash)

ATM Automated teller machine, ie a ‘hole in the wall’ cash machine

Attendance Allowance A benefit for people over 65 with care needs

available credit The amount of money a store card or credit card company will lend you immediately

BACS Bankers Automated Clearing System. Fast electronic transfer of funds from one bank to another – used by internet banking, and generally taking three days to clear

balance The amount of money you have in your account at any particular time, or the amount you owe on a credit or store card, or on a purchase after the deposit has been paid. A balance brought forward is the figure shown on your previous statement

bankruptcy A court order given when someone cannot pay their debts: an official receiver takes control of your money and property and deals with your creditors

bonds Loans to an organisations such as a company, a local authority or the government, also called ‘fixed interest securities’ or simply ‘stock’. Bonds are a form of investment, usually with less risk than shares.

bridging loan A temporary loan which allows a buyer to buy a new property before selling the old one

building society An organisation owned by its members, some of whom will be customers saving with or borrowing from the society. They often offer a range of financial services similar to banks

buy-to-let Buying property with the intention of renting it out to someone else

capital The amount of money you originally have, save or invest, before any interest, other return or loss is taken into account

Capital Gains Tax The tax paid on profits from selling investments such as shares if their value is over a certain amount

Carer's Allowance A benefit for people who provide regular care to disabled people in their own home

cash card These can only be used at cash machines to withdraw cash, check your balance or print out a mini-statement, and not for paying in shops etc

cashflow A record of all the money coming in, minus any payments as they are made. If your receipts are bigger than your payments, you have a net cash inflow. If your receipts are less than your payments, you have a net cash outflow

CCJ County Court Judgement. An order made by a judge to settle a claim brought in the county court

CHAPS Clearing House Automated System – a method for transferring money from one bank account to another on the same day. There is usually a charge for this service

cheque guarantee card Issued by a bank or building society, guaranteeing that the amount of money on any cheque you write will be paid regardless of whether there is enough money in the account. There is a limit to the amount that is guaranteed, usually £100 or £250

Child Benefit A tax-free benefit paid to most people with children

CSA Child Support Agency. Responsible for ensuring that parents who live apart meet their financial responsibilities for their children

CTC Child Tax Credit – a means-tested benefit for people with children

Citizens Advice Bureau (CAB) A local office providing free help with a range of problems including debt and housing issues

clearing The time it takes for a bank to transfer money from one account to another

compound interest The usual type of interest paid on savings and loans, based on the capital plus the interest already paid so far, so the savings or the loan will grow by increasing amounts (unless money is taken out or the loan paid off)

comprehensive insurance Provides cover for accidental damage to your own car in addition to the third party cover

consolidation loan A loan which combines all your credit card payments, housing arrears, loan repayments and household bills into one monthly payment

credit An account ‘in credit’ has money available to be spent. Buying something ‘on credit’ means with a loan which must be paid back.

credit cards Credit cards are available from most banks, and allow you to borrow money up to a certain limit. When you buy something with your credit card, the amount you spend is added to your total borrowing. If you don't repay the full amount, you will start paying compound interest, which will build up each month

credit history/record A record of loans you have taken out or credit card payments made or missed. This information is stored by credit reference agencies, which supply details of your credit score to financial institutions when you take out further loans

credit repair companies Companies offering to advise you how to erase bad credit from your credit record

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

Credit Union A non-profit making co-operative savings association that lends money to its members at low interest and encourages saving

creditor Someone who you owe money to

debit card Can be used to pay for many things without using cash or a cheque: the money is taken out of your account electronically straight away

debtor A person who owes money

dependents People who are financially dependent on you, such as children or an elderly relative you care for

deposit Put money into an account; or an amount of money you pay to guarantee a purchase is saved for you make sure you get the goods. You may need to pay a deposit when getting goods on credit.

default Fail to make payments or to pay off a loan

direct debit An instruction to your bank to release money from your account to pay bills and other amounts automatically

Disability Living Allowance A benefit for people under 65 who have personal care needs or mobility problems

dividend The payout from shares

economic wellbeing A person’s sense of financial security, including avoiding poverty, achieving employment and understanding personal finance

endowment An insurance policy that pays out a lump sum at the end of a set period or on death, whichever comes first

enterprise Running a business or, in education, learning how to do so

entrepreneur Someone who starts their own business

equity The value of a property on top of the amount of a mortgage secured against it – if property prices go up, your equity increases. Negative equity is where the value of your property is less than the amount of the mortgage still to be paid off

equity withdrawal/release Increasing a mortgage to release extra money for immediate use

excess Some insurance policies require you to pay an agreed amount of the cost of any damage if you make a claim. The insurer will then pay for anything more than this. Agreeing to a higher excess generally reduces premiums

exclusion A possible event or circumstance not covered by an insurance policy

fair trade A movement encouraging companies to pay farmers and other producers of food or goods in developing countries a fair amount under good working conditions

final salary pension A pension where the amount you receive on retirement is worked out on the basis of how much you earnt in the last year/s of work and how long you were in that job

financial adviser An individual or company that assesses your financial needs and recommends suitable products. Some can also manage investments for you. An adviser must be authorised by the FSA. An independent financial adviser (IFA) is one not working for specific bank or other seller of financial products, and can in theory therefore offer a wider range of options

financial capability A term used to describe a person’s general awareness of issues relating to money, including keeping track of finances and choosing financial products and services

financial exclusion Lack of access to mainstream banking and other financial services

financial year The 12-month period a business uses for recording its accounts. It is often the same as the calendar year or the tax year, but does not have to be

fixed interest rate An interest rate guaranteed to stay the same for an agreed period, regardless of whether bank rates go up or down

free buffer zone a free temporary overdraft offered by some bank or building society accounts

FSA Financial Services Authority. The UK’s financial watchdog which regulates how financial institutions are allowed to conduct their business

gilts bonds issued by a government to help fund its spending

giro A method of payment given by the payer to their bank, which transfers funds directly into the payee’s bank account

graduate earnings premium The extra earnings expected with having a university degree

gross An amount of money before any deductions – usually meaning tax – have been taken. Gross profit is the amount of money made from selling goods and services minus the cost of making/providing them

hire purchase (HP) A way of paying for goods over time if you don’t have all the money up front (often used for cars): an initial deposit is usually paid, followed by a series of regular payments to cover the balance and any interest

HMRC Her Majesty's Revenue and Customs, the government department responsible for tax collection and benefit payments

honour a cheque A bank ‘honours’ a cheque by paying out the money as requested, only if there is enough money available, a cheque guarantee card has been used, or an overdraft has been agreed

Housing Benefit A benefit for people on low incomes to help them pay their rent

Identity theft The criminal act of using someone’s personal details to open bank accounts, take out loans etc in their name

Incapacity Benefit A benefit for people who cannot work and do not get Statutory Sick Pay

Income Support A benefit paid to people who do not have enough to live on

Income tax A tax which is payable on almost all types of income, at various rates depending on the level of income

index-linked When the value of a financial product is linked to the rate of inflation or, for example, the Retail Price Index

inflation A continual increase in the general level of prices. Over time a given amount of money will buy fewer goods and services

informal/hidden economy Paid employment that is not declared for tax purposes, also known as ‘cash in hand’

insolvency When someone is unable to pay their debts

instalments Weekly or monthly repayments made to pay off a loan or goods bought on credit

instant access account A savings account where you can get your money back without needing to give any notice; they generally attract lower rates of interest than accounts where notice is required

insurance cover The situations or circumstances you are insured against

insurance premium The money paid to an insurance company to ensure you are covered

Inheritance Tax Tax on the value of a deceased person's assets. Tax may also be imposed on any gifts made during the seven years before death.

interest The reward you get for lending your money to say, a bank or a building society. Also the cost you pay when you borrow money through a loan or credit agreement. It is usually worked out as a percentage (the interest rate) of the money you have borrowed

interest-only mortgage A mortgage where only the interest due is paid off regularly. The original sum is paid off in full at the end of the term of the loan

intestate Dying without a valid will, in which case the law decides how assets will be distributed

investment Products that typically involve some risk of losing your original money but give you the opportunity of better returns than you get from savings

IPT Insurance Premium Tax, placed on some insurance premiums

ISA Individual Savings Account. A savings account where no tax is payable on the interest

Job Seeker's Allowance - paid to those available and actively looking for employment

Key Facts Illustration (KFI) Gives the terms and conditions of a financial product such as a mortgage or pension in a standard format so that simple comparisons can be made between products

liability An amount of money owed at a particular point in time

life insurance A type of insurance paying out a lump sum to your family if you die. Some mortgage lenders oblige borrowers to have this kind of cover

lifetime annuity A regular income for the rest of your life

limited company A registered run by private individuals, and entitled to employ other people. It can sell shares to private individuals to raise capital and the amount of these limits any financial liability it has

liquid assets Possessions that can easily or quickly be converted into cash

loan shark Anyone who is lending money without having a licence to do that from the Office of Fair Trading (OFT). They charge extremely high rates of interest and often use threats and violence to get more money if payments are missed.

loyalty cards Cards offered by some shops to encourage people to shop there. Every time you spend money at that shop you will be given points on your card, which can be saved and later used to obtain discounts on shopping or other benefits

lump sum A one-off payment

means test An assessment of somebody’s income and savings in order to determine whether they should receive a benefit or financial aid

mis-selling High pressure or misleading sales techniques which encourage people to buy financial products which may not be suitable for them

money purchase pension A form of pension where your final pension depends on stock market performance. Personal pension plans operate in this way

mortgage A type of secured loan usually taken out to buy property. If you fail to pay off the loan the lender keeps the property

National Insurance A government deduction from your wages used to pay for benefits that you might need to claim, like Incapacity Benefit, and your state pension when you retire

net Indicates a sum of money from which certain amounts, usually meaning tax, have already been taken away. Net income is how much you earn after any deductions for tax and National Insurance. A person’s net worth is the overall value of all their assets minus all liabilities

non-priority debts Less important debts. The people you owe 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)

occupational pension A pension from a scheme set up by an employer. Employees usually have to join the scheme to be eligible and may have to make contributions towards it

overheads The costs of running a business, such as rent, utility bills and advertising

PAYE Pay As You Earn. When tax is collected from an employer before the individual is paid their salary

pension An income paid out after someone retires. The government gives tax relief on money paid into a scheme designed to provide a pension, making it more beneficial than other forms of saving. The money cannot be removed (or paid back in instalments) until a minimum age, such as 50, has been reached

pension deduction Payments into a occupational pension scheme taken automatically from your pay

peril In insurance, an event that causes financial loss

personal finance An individual’s financial affairs, including decisions about choosing products and services, and saving, investing, spending and borrowing money

personal pension A pension plan, not tied to a particular employment, that you can keep paying into even if you change job

personal loan Loans that you can use to pay for whatever you want (subject to certain restrictions)

P45 The document that an employer has to provide when you leave a job so that the right amount of tax can be deducted from your earnings

P60 A summary of your pay and the tax deducted from it over the tax year

PIN Personal Identification Number. A four-digit number used with a cash machine card

policy Another word for plan or cover, eg for insurance. A policy agreement sets out everything that is agreed between you and the insurer, including what is covered and any exclusions

principal sum The original amount of a loan taken out

priority debts Debts which are more important than others because the law lets the people you owe the money to take action against you if the debt is not paid. Priority debts include things such as a mortgage and utility bills

progressive taxation Taxation which increases as your income goes up, such as income tax

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

public limited company (plc) A limited company owned by shareholders, who can be members of the public

RSL Registered Social Landlord. A landlord registered with a Housing Corporation and providing social housing on a non-profit basis

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

repayment mortgage A property loan where regular payments cover both the interest due and a proportion of the original loan

repossession When a mortgage lender takes back ownership of a property when a borrower is unable to afford their mortgage repayments

Retail Price Index (RPI) The main measure of inflation in the UK, based on how the average cost of a set of particular goods changes over time

RRP Recommended Retail Price, the price at which a manufacturer suggests shops should sell its goods

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

secured loan A loan borrowed against the cost of something you own. If you fail to make repayments, the lender can then take the security – the thing you own, such as your house – instead

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

signatory A person who signs a document

sole trader An individual who runs their own business without any employees and without limited company status

stakeholder pension A type of pension scheme designed to encourage people to save for their own pension, by having low charges and flexible payments

Stamp Duty Land Tax A tax payable by the purchaser of a property; the amount payable is calculated as a percentage of the total purchase price

standing order A method of paying regular amounts from your bank account automatically. It can be cancelled by the account holder at any time

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

Statutory Sick Pay SSP is the minimum amount employers must pay any employees unable to attend work due to illness

store card The equivalent of a credit card run by some shops; it can only be used in their branches. Interest is usually charged on purchases made with it

take home pay The money you actually get paid after deductions such as income tax and National Insurance Contributions (ie net pay)

tax allowance A threshold below which any income is not subject to tax

tax code This code tells your employer how much tax-free pay to give you each time you are paid. Your tax code is worked out from your tax allowances and other tax adjustments

tax year A 12-month period running from 6th April one year to 5th April the next year. Taxes, such as income tax, are worked out over this periodterm The time for which something lasts eg how long you have to pay back a loan.

term accounts Savings account that lasts for a set period (such as two years). You may not be able to take your money out earlythird party insurance This means that your insurance company will pay out if you accidentally cause damage to another person or their car

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.

unsecured loan A loan that does not use anything you own as security. If you do not keep up with payments your possessions are not immediately at risk, but you can be taken to court, and your credit rating can be adversely affected

utility bills Charges for electricity, water, gas and telephone

VAT Value Added Tax. A tax paid by the consumer for goods and services, currently 17.5% in the United Kingdom

Winter Fuel Payment A benefit which helps elderly people with heating bills

work shadowing A form of work experience where you follow someone doing their job to learn more about it

WTC Working Tax Credit, a mean-tested tax benefit designed to encourage people into employment by providing financial help for those on low incomes

yield The income from an investment, usually shown as a percentage of its current market price