APR - Annual Percentage Rate

APR stands for Annual Percentage Rate. The APR calculates the total amount of interest that will be paid over the entire period of the loan. It must also take into account charges which the borrower has to pay in order to obtain the loan and during the loan period (such as lenders fees, valuation and legal fees etc). The purpose of APR is to help you compare the true cost of borrowing. A lender is always required to quote the APR when advertising a loan or borrowing rate.

ATM

See Cash withdrawal machine.

BACS

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

Balance

In banking, this means the amount of money in your bank account.

Bankruptcy/ bankrupt

This is 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.

Bank charges

Banks and building societies may charge the customer for providing some of their services. You will usually pay bank charges if you become overdrawn without agreement of the bank (i.e. a direct debit, cheque or debit card purchase is paid when you don’t have enough money in your account). Bank charges and associated interest for unauthorised borrowing can be very expensive. It is important that you contact your Bank as soon as possible if you become aware that you don’t have enough money in your account.

Bank loan

Banks often lend money to customers for things such as car purchases, holidays, home improvements etc. These loans are often called personal loans. They may also lend money to business customers for lots of different purposes. Customers firstly have to apply for a bank loan – the bank will undertake a number of checks to make sure the customer can afford the loan and if the bank is happy to lend the money, they will agree:

  • an amount
  • the term (number of months the customer has to pay back the money)
  • an interest rate (a charge to the customer for borrowing the money).

Anyone borrowing money must be at least 18 years old.

Bank statement

Your bank will send you detailed information about all your transactions in the form of a bank statement. This will usually be monthly but for some accounts, it could be quarterly or annually. You will receive your statements usually by post or online. You can see the amount of money that has been paid in or taken out, transfers between accounts, interest paid or received and any bank charges. Mini statements showing the balance and most recent transactions are available from cash withdrawal machines.

Basic account

A basic bank account allows you to receive money, and access it using a cash card. You can pay bills by direct debit. You generally can't take out more money than you have in your account.

Bonds

A bond is a loan to a company, government or a local authority, where you receive a regular income from the interest in return, until the loan is repaid. Bonds are a form of investment, usually with less risk than shares.

Branch

This is a place where a bank, building society, credit union or other financial institution offers face to face and automated services to its customers.

Budget

This is a financial plan that shows the money you expect to receive, and the money you expect to pay out, over a specified time. It can also mean the amount of money you have allocated to spend on a specific purpose. In govermental terms, the Budget is an economic report presented by the Treasury to Parliament. In this report the Chancellor can review taxes and spending plans.

Budgeting

Putting together a financial plan that shows the money you expect to receive, and the money you expect to pay out, over a specified time.

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.

Capital

The amount of money you originally have, save or invest, before any interest, or any other return or loss is taken into account (e.g. if you bought a house for £100,000 and used your savings of £25,000 towards the cost, the £25,000 is your initial capital; the remaining £75,000 is the amount you need to borrow plus interest).

Capital gain

A capital gain is the difference between what you paid for an investment and what you received when you sold that investment after costs, charges and depreciation.

Cashback

An account that allows customers who pay for items by debit card in a supermarket or other shops to add a small amount of money to the amount of their purchase and receive that amount in cash.

Cash card

A plastic card that allows you to take out money from your account when you insert it into a cash withdrawal machine and key in your PIN. This card will only allow you to withdraw money up to the balance of your account or the withdrawal limit. This is the amount of cash that you can take out each day with your card depending on which account you have.

Cash flow

A record of the difference between all the money coming into an account and any payments coming out, as they happen. This relates mostly to businesses, but it is sometimes used to describe how much someone has available to spend.

Cash ISA

A savings account where no tax is payable on the interest. Cash ISAs allow you to invest up to £5,760 per tax year

Cash withdrawal machine

Cash withdrawal machines dispense money from your account, as well as providing information about your bank balance and some other services. Cash withdrawal machines are also known as ATMs (Automatic Teller Machines).

Charge card

A plastic card that allows you to buy goods and services and pay for them later. Interest is not charged, but you are required to pay your bill in full each month or be subject to late fees and restrictions on card use.

Cheque

A cheque is a written order which instructs your bank to pay a specific amount of money from your account to another person or organisation.

Cheque book

A cheque book contains a number of blank cheques printed with your name and account details.

Cheque guarantee card

A plastic card that was used with a cheque to guarantee that your bank will pay the sum of money written on the cheque to the named individual or organisation. This type of card is no longer in use.

Children savings account

Most children won't have to pay tax on their savings as they are entitled to their own personal allowance, and generally don't earn an income. Usually a child has to be aged 7 or above to open a children's savings account in their own name - before that an account would have to be opened by a parent or guardian on their behalf.

Chip and pin

A system to reduce card fraud. A chip and PIN card has a 'smart' chip that holds your four-digit Personal Identification Number (PIN). When you pay in a shop with a chip and PIN card, you'll be asked to enter your PIN using a keypad. This PIN is the same number that you use to withdraw money at a cash machine.

Citizens Advice Bureau

The Citizens Advice Bureau offers free information and advice on a range of issues and problems, including personal finance. Most banks require customers who are indebted and struggling with repayments to provide a detailed income and expenditure, an accurate appraisal of their debts and an offer of what the customer believes they can afford before entering into an agreement regarding reduced repayments. The CAB can help customers do this and many banks will direct customers to the CAB for advice before entering into negotiations with them.

Claim

In insurance, a claim is a demand for payment from the customer in accordance with an insurance policy.

Collective investment scheme

This is a way of investing money with others, to share the costs and benefits of doing so. This allows participants to access a wider range of investments which wouldn't be available to most individual investors.

Company pension

Company pensions are also known as occupational pension schemes. Most companies run their own pension scheme in which money is automatically deducted from your salary and placed into a pension fund. These have two major advantages over most personal private pensions. First, the employer usually makes their own contribution to your pension in addition to the contribution you are making. Second, the charges for running the pension are usually lower than those for personal private pensions and are entirely covered by your employer.

Conveyancer

A licensed conveyancer does the same work as a solicitor, but specifically on a house sale or purchase.

Cost price

The amount of money you can buy something for, especially in order to sell it on at a higher retail price.

Council tax

A local tax set by local authorities in order to meet their budget requirement. It pays for local services such as police, fire, recycling, garbage collection, schools, leisure centres,parks and many others.

Credit card

A plastic card which allows you to buy goods immediately and pay for them later. You will have an agreed limit on the amount you can borrow, and the time within which the money should be repaid (the due date). If you don't pay the total amount in full by the due date you will be charged interest on the outstanding balance. If you only make the minimum payment it could cost you more and take you longer to pay off than using alternatives e.g. loans, overdrafts. You must be at least 18 years old before you can have a credit card.

Credit check

Before banks, credit card, store card and finance companies lend money they will run a credit check. This includes information to confirm the borrower’s place of residence, current and past debt, and any county court judgements.

Creditor

Someone who you owe money to.A person or company that provides credit.

Credit provider

A rating used by banks to assess the credit worthiness of an individual.

Credit rating

A rating used by banks to assess the credit worthiness of an individual.

Credit record

A record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy.

Credit union

A non-profit making co-operative savings association that lends money to its members, often at low interest rates, and encourages saving.

Currency exchange

Changing money from one currency to another.

Current account

A current account is an account with a bank or building society from which you can withdraw money without giving notice. You can sometimes earn interest on your money, but generally this would not be as much as you would earn with a savings account. A current account is often the best account to have if you will be paying in and withdrawing money regularly or want to set up standing orders or direct debits.

Debit

A payment taken from your account.

Debit card

A plastic card which allows you to pay for goods or services. If you are in a shop, the cashier will insert your card into a machine and you will usually have to type in your PIN. The money is usually taken almost immediately from your account. You can also use your debit card as a cash withdrawal card, to withdraw money from a cash withdrawal machine.

Debt

An amount of money that you owe to a person or company.

Deductions

A sum that can be removed from your income figure to lower the amount on which taxes must be paid. (e.g. pension contributions).

Deposit

1. Money put into an account, using cash, cheque or an electronic transaction. 2. For a mortgage, this is money given in advance to show your intention to complete the purchase of a property. 3. When renting a property, a deposit is a payment required by a landlord from a tenant to cover the expenses of any repairs or damages to the premises beyond normal wear and tear.

Deposit account

A deposit account is a type of bank account that allows money to be deposited and withdrawn by the account holder. Some financial providers charge a fee for this service, while others may pay the customer interest on the funds deposited.

Direct debit

An instruction from you to your bank or building society allowing someone to take money from your account. The amount of money taken can vary, but you must be told the amounts and dates beforehand. Direct Debits allow you to pay bills automatically from your account on a regular basis. For example, you might set up a direct debit with a mobile phone company, so that they regularly collect the money owing to them each month. This can be an agreed fixed amount or the full bill.

Disconnection

If a person has failed to pay for services such as gas, water or electricity the provider may decide to disconnect the supply until the debt is paid.

Dividend

The part of the earnings of a corporation that is distributed to its shareholders. Usually paid quarterly.

Doorstep lender

A company, licensed by the Office of Fair Trading, that offers small loans to individuals who would not necessarily qualify for a bank loan. The company normally collects the weekly or monthly repayments in person from the borrower’s home. The rates of interest charged by doorstep lenders are often higher than those charged by other lenders. They are not to be confused with illegal unlicensed money lenders, often referred to as 'loan sharks'.

Education Maintenance Allowance

This is a financial scheme applicable to students and those undertaking unpaid work-based learning in the United Kingdom aged between 16 and 19 whose parents have a certain level of taxable income.

Earnings

The simplest meaning is wages, fees or a salary received in return for work carried out. As a financial term, earnings also refer to the balance of revenue after deducting costs and expenses.

Entrepreneur

Individual who has the initiative to start an enterprise and takes responsibility for any related obligations and risks.

Equity

The difference between the amount a business could be sold for and the claims or debts held against it.

Expenditure

Money spent on services or goods.

Finance company

A company that offers secured loans to be paid back in instalments.

Financial adviser

An individual or company that helps you to understand your financial needs and recommends suitable products. Some can also manage investments for you. They may or may not charge you a fee for their services. An adviser must be authorised by the FSA.

Financial institution

An institution that provides financial services for its clients or members.

FSA

An independent body that regulates the financial services industry in the UK. They have a wide range of rule-making, investigatory and enforcement powers.

Fixed costs

Business costs that don’t change as sales go up or down.

Fixed rate

With this type of mortgage, the interest rate doesn’t change for an agreed period of time – regardless of what happens in the economy, so your mortgage payments are always the same. In savings, the interest rate you receive on your savings doesn't change for the agreed fixed rate period.

Foreign currency

Any currency not normally used in a particular region or country.

Fraud

A crime in which people obtain money through deliberate deception of organisations or individuals.

Free banking

This means that the bank will not charge the customer to run their bank accounts (e.g. customers are not charged for holding their account or for services including cash withdrawals, standing orders or direct debits).

Gross

The whole amount before any deductions e.g. tax / fees. In the context of tax, this means the amount before tax has been deducted.

Handling fee

An amount charged for physical work associated with processing a product or in processing paperwork.

Hire purchase

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.

Income

The amount of money you earn. This can be through a job or through investments or other means.

Income tax

Income tax is a tax on earnings. It is based on the principle that the more you earn, the more tax you pay. Each year you can earn a certain amount of money tax-free – this is your free personal allowance.

Insurance

This is a way to protect something that has worth to you which is at risk of damage and loss in value. The insured person pays an amount each month or year (called a premium) to the insurance provider. The provider will pay the insured person or business a lump sum of money should the asset become damaged or incur a loss, depending on terms of agreement between the two parties.

Instalment

One of a number of successive payments in settlement of a debt.

Interest

An amount paid by a bank to the customer on savings placed with it.An amount paid to a bank from a customer on money borrowed from it.

Interest-only

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

Interest rate

The percentage paid on every £1 saved or borrowed.

Investment

Product that generally involves some risk of losing your original money but give you the opportunity of better returns than you would get from savings only.

Individual Savings Accounts

ISAs can be used for savings, just like a deposit account, but with the advantage of having no tax to pay on the interest that your savings earn. The rules on ISAs allow you to have a 'Cash ISA' and a 'Stocks and Shares ISA'. You are allowed to save up to £11,520 per tax year (this runs from 6 April to 5 April) in ISAs. You can save money in both a Cash ISA and a Stocks and Shares ISA each tax year although the maximum you can save in a Cash ISA is £5,760. You need to be over 18 to have a Stocks and Shares ISA. From 6 April 2011, ISA limits have increased in line with the Retail Prices Index (a Government measure of inflation using the price goods and services) on an annual basis.

Lease charge

The fee that provides profit to a leasing company, for example a car hire company.

Lender

A person or company that lends money.

Liability

A legal obligation for an individual or company to settle a debt. When one is liable for a debt, they are responsible for paying that debt.

Loan

A sum of money given from one party to another for use over a period of time. The money is paid back according to terms agreed upon by both parties, including the specified interest rates and the timeframe over which the loan will be repaid.

Loan protection

An insurance policy which protects borrowers from falling further into financial difficulty in the event of unforeseen circumstances such as redundancy, long-term unemployment or ill health which would make paying back the loan difficult.

Loan shark

A person or persons who lend money illegally. They often charge extremely high rates of interest and might use threats and violence to get more money if payments are missed.

Loan to value

A figure representing the size of loan to a property's worth as a percentage (e.g. a property costing £100,000 with a LTV of 75% would mean the loan was for £75,000.

Lump sum

A complete payment consisting of a single sum of money.

Minimum payment

An amount stated that you must pay back each month to a credit card or flexi loan company. If you make only the minimum payment each month, it will take you longer and cost you more to clear your debt, as interest just keeps accumulating.

Mini statement

This gives you details about your most recent transactions. You can get a mini statement from a cash withdrawal machine.

Money laundering

Money laundering is a term used to describe the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activity such as drug trafficking, theft, fraud, blackmail, tax evasion and so on. It often leads to criminals having a seemingly legitimate source of income. The term is used as criminals try to turn their ‘dirty’ money into ‘clean’ money, i.e. money which has been come by honestly.

Mortgage

A loan to help you buy property on condition that the company giving you the loan has certain rights, including the right to sell the property if you don’t pay back the loan.

Mutual fund

A professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.

Nationality

This represents the state or country to which a person belongs through birth or naturalisation.

National Insurance

An additional form of tax paid by most employers, employees, self-employed (and some unemployed) people. Money is taken from wages and paid to the government in return for services like the state pension, and social security benefits.

Net

The amount of money after deduction e.g of tax/fees. In the context of tax, this means after tax has been deducted.

Online banking

Where eligible customers can access their bank account through their computer at any time. Customers can check their balance and carry out many everyday transactions.

Overdraft

An agreement with your bank to spend more money than you actually have in your account. As you are borrowing money from the bank, there can be a charge for this service. You must be 18 years or over to have an overdraft. An agreed overdraft is the limit up to which the account holder may borrow from the bank, when there are no funds in his or her current account. To minimise excess bank charges it is important that you do not exceed the limit that has been agreed with the bank.

Partnership

A contract between two or more persons who agree to invest money together in a business and to share profits or losses.

Passbook

A book held by someone with a bank account in which his or her deposits and withdrawals are recorded by the bank. Passbooks are also sometimes called bankbooks. On many accounts customers receive bank statements which replace passbooks.

PAYE

The Pay As You Earn (PAYE) system is a method of paying income tax and national insurance contributions. Your employer deducts tax and national insurance contributions from your wages or occupational pension before paying you your wages or pension.

Payee

The person or organisation due to receive the money on a cheque – this is the person or organisation to whom a cheque is made out.

Paying-in book

This contains a number of paying in slips which include details to identify your bank account. You might need to complete one each time you go to the bank to pay cash or cheques into your account.

Paying-in machine

An automated machine, quite like a cash withdrawal machine, which lets you pay coins, notes and cheques into your account. These are often used in banks to reduce queuing times in branches.

Paying-in slip

Each slip includes details to identify your bank account. You might need to complete a paying-in slip each time you go to the bank to pay cash or cheques into your account.

Pension

Money which an individual invests to help support them after they have retired. Many companies offer their employees the chance to pay into a company pension scheme. This means that the employer as well as the employee pays towards an individual’s retirement. A basic state pension from the Government is also paid to you when you retire providing you have made enough National Insurance contributions.

Phishing

A criminal activity in which people try to gather your personal details (such as your PINs, passwords and credit card details) by contacting you by email pretending to be from a trustworthy source, such as a bank.

PIN

PIN stands for Personal Identification Number. This is the four-digit number that you enter into an ATM when you want to take out cash, and that you use when you pay with your chip and PIN card. Never give this number to anyone, or write it down.

Point of sale

The location at which a transaction takes place.

Policy

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

Premium

The price of insurance protection for a specified risk for a specified period of time.

Premium bonds

An investment where instead of interest payments, investors have the chance to win tax-free prizes. Like any investment, there are risks associated and you should be aware of all the facts before making an investment.

Pre-payment card

A payment card pre-loaded with your own money, which you can then use wherever the payment card is accepted, including online and abroad.

Property

Something that is owned, such as personal possessions or a house. In housing, you might also rent a property - occupy a house owned by somebody else (landlord).

Repayment mortgage

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

Repossess

Taking back of a property by a lender from the borrower, due to being unable to make payments.

Retail price

The amount of money goods sell for.

Risk

A concern with any investment is that you may lose the money you invest - your capital. Depending on the nature of the investment, the type of investment risk will vary.

Salary

Payment given to employees in return for the services provided by them.

Savings account

An account with a bank or building society in which you save money. Your money will often earn more interest in a savings account than a current account however you should do a comparison. Some accounts also require you to give notice before withdrawing money. A savings account is often the best account to have if you won’t be withdrawing money regularly.

Secure site

This means that the website offers a safe way to communicate sensitive information (such as bank details). A secure payment site will have a padlock sign and a secure browser address changes from http to https. If you are in any doubt whatsoever do not proceed with any transaction.

Secured loan

When a loan is 'secured' on your home, it means the lender can repossess your home and sell it to get its money back if you don't keep up your repayments.

Securities

A document, historically a physical certificate but increasingly electronic, showing that someone owns a portion of a publicly-traded company or is owed a portion of a debt issue. Securities are tradable.

Security check

When accessing a bank account online or on the phone, banks will walk you through security questions to make sure you are the owner of the account.

Share

An investment which makes you part-owner of a company, along with all the other shareholders. Some shares give you an income (dividend) 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 make a loss.

Smart card

A plastic card that has information stored on a computer chip. This can be a credit card, or other types of cards, such as travel cards.

Sole trader

Type of business owned by an individual who is fully responsible for the company's debts and completing any contracts undertaken.

Sort code

A six-digit number that identifies the branch of a bank. Every branch has its own sort code.

Standing order

A standing order moves money from your own bank account to another account. This might be to an organisation or an individual, or perhaps from your current account to your savings account. It's a fixed sum and you tell your bank when to start and stop paying it. Standing orders are useful for making regular payments.

Stocks and shares

Forms of loans used by the government and companies to raise finances. They are released for sale on the stock exchange. See 'Share' for more information.

Stocks and shares ISA

An Individual Savings Account which invests in stocks and shares. You can invest up to £11,520 per tax year and pay no capital gains tax on any profits made from share price increases; tax on bonds can also be reclaimed. While there are greater risks with this type of ISA, there is potential to make greater gains.

Store card

The equivalent of a credit card run by some shops. It can usually only be used in their branches. Interest is usually charged on purchases made with it if the balance is not paid in full within a certain time period.

Student loan

A loan that can help pay for the costs of higher education courses. There are two main types of student loans – loans for tuition fees and loans for maintenance. The interest rate on student loans is linked to the rate of inflation, so in real terms you only repay the same amount as you borrow. Students can take out a loan if they are an eligible full-time higher education student or a part-time initial teacher training student.

Tax relief

Amounts that can be deducted from a person's annual income to reduce the amount on which tax is paid.

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 period.

Term

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

Telephone banking

Customers whose accounts offer telephone banking can often have round-the-clock access to their bank account by telephone. Most everyday transactions can be carried out by telephone banking, for example, paying bills, asking for a balance, transferring money between accounts.

Tenancy

Renting a property or part of a property.

Tendering

A tender is when a company or individual bids for a contract. Tendering is the response to the tender. It includes a detailed proposal on how the contract will be fulfilled, and how much it will cost.

Tracker

This is a variable mortgage that is either above or below the Bank of England's Base Rate by a set percentage within a set period.

Transfer

In banking, this is a way to send money from one account to another electronically.

Traveller's cheques

A pre-printed cheque for a fixed amount, often in a foreign currency, issued by a bank that may be used instead of cash. Can usually be replaced if lost or stolen. A form of identity (usually a passport) is normally needed to use a traveller's cheque.

Tuition fees

Course fees which are payable to the university to cover the tuition cost.

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 affected.

Utility bills

Charges for services such as electricity, water or gas.

VAT

VAT stands for Value Added Tax. This is a government tax on the final consumption of goods and services. It is collected at every stage of production and distribution. In effect this means that anything you buy or pay for will be subject to VAT if value has been added at some point. So you will pay VAT on many goods and services, for example, for a meal in a restaurant, a repair to your computer, a CD or a travel ticket. The standard rate of VAT is currently 20%. You do not have to pay VAT on some goods, such as some foods, books and children's clothing.

Variable rate

The rate of interest charged is not fixed but varies as general interest rates, usually expressed by the Bank of England base rate, vary. Variable rates are often used for mortgages and other kinds of loans and also for interest earned on savings accounts. The rate of interest could be charged (e.g. on a loan) or applied (e.g. to a savings account).

Wages

Payment received by workers in exchange for the work they have carried out.