Jargon buster

A B C D E F G H I J L M N O P R S T U V Y

A

Accident, sickness and unemployment insurance

See mortgage protection insurance and payment protection insurance.

AER (annual equivalent rate)

This the annual rate of interest, taking into account how often the interest is added to your account. The higher the AER, the better the return.

Annuity

An annuity converts a lump sum into income which is taxed.

APR

Annual Percentage Rate. This is the overall cost of borrowing if you owe money on your credit card.

Authorised firm

A firm that has permission from the FSA to carry out regulated activities.

AVCs – Additional Voluntary Contributions

A pension top-up for an occupational pension. You pay contributions into a scheme run by your employer to boost your main pension.

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B

BACS payments

A direct transfer into your account from someone paying you (for example, your employer).

Buildings insurance

Pays the cost of repairing or rebuilding your home if it is damaged by unforeseen events (as detailed in the insurance policy).

Buy-to-let mortgage

A loan you take out to buy a property which you intend to rent to tenants.

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C

Capital

Your overall amount of money invested or the amount you borrow to help buy your home.

Capital growth

An increase to your original investment after costs, charges and depreciation.

Capped mortgage

A mortgage that has a maximum limit on the interest rate you'll have to pay during a special deal period.

Card issuer

The bank, building society or store whose name is on your card.

Cashback mortgage

A mortgage that comes with a cash sum (often a percentage of the amount you're borrowing).

Cash (ATM) card

A plastic card that lets you get cash from your account through cash machines, at your bank or building society branch and by using cashback facilities at, for example, supermarket tills. You can also use it to make telephone or internet payments.

Cheque book

Lets you make a payment from your account to someone else.

Cheque guarantee card

Makes cheques up to the guarantee limit widely accepted, because the person you're paying is guaranteed to receive the money, whether or not you have enough in your account.

Chip and PIN

Your unique four-figure number which you must use when you spend with your card.

Cleared and uncleared balances

When you pay money into your account by cheque, it usually takes a few days for the cheque to clear before the money is ready for you to use. During this time, you can't be quite certain the money is yours because the cheque you've paid in might bounce - it might be worthless if the person who wrote it to you has no money in their account.

An uncleared balance includes the money in transit in your account, but your bank or building society might not let you draw it out yet. Even if it does, be careful - you could end up going overdrawn if a cheque does bounce.

A cleared balance shows only the money that has already reached your account and is ready for you to use.

You can ask a bank to clear a particular cheque more quickly than normal, but it will charge for doing this.

Collared mortgage

A mortgage with a minimum interest rate you'll pay during a deal period.

Collective investment scheme

A way of pooling contributions from lots of people into a single investment fund.

Contents insurance

Covers the cost of replacing possessions lost or damaged due to unforeseen events (as detailed in the insurance policy).

Corporate bonds

Loans issued by companies.

Cover

The protection given by insurance.

Credit limit

The maximum amount you may owe through spending on the card. If you go over this limit, your card may be refused and you may also have to pay extra charges.

Credit scoring

The system your card issuer uses to decide whether to provide you with a card, and to set your credit limit. Credit scoring works by awarding points to the information you provide on your application form and to the information recorded on your credit report (held by a credit reference agency). See Credit scoring for more information.

Critical illness cover

Insurance that pays a lump sum if you're diagnosed with a specified critical illness covered by your policy.

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D

Debit card

This works like an electronic cheque. When you pay by debit card, the money is automatically taken from your account.

Dental insurance

A type of health cash plan that focuses specifically on dental care expenses.

Deposit

The amount of money that you're putting into buying a home (not including the mortgage money you're borrowing).

Direct debits

Payments made on a regular basis (for example, for your gas and electricity) taken directly from your account on an agreed date. You arrange this with your supplier and give them your bank details.

Discounted mortgage

This has a discounted variable rate of interest for a set period, after which the rate will increase.

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E

Early repayment charge

A charge you may have to pay if you break off a mortgage deal - by paying it back early and/or moving to another lender.

Equities

Another name for shares in a company.

Equity release

A way in which you can benefit from the value of your home without having to move out – by borrowing on it or selling all or part of it for a regular income or a lump sum.

Excess

The amount you agree to pay before your insurer pays the rest of the bill (for example, the first £100 of a claim).

Exclusions

Things that your insurance will not cover.

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F

FSAVCs – Free-Standing Additional Voluntary Contributions

A pension top-up policy for an occupational pension, but separate from your employer's pension scheme and normally run by an insurance firm.

Fixed interest

The interest rate is fixed for a set period. So you win if interest rates on other accounts later fall, but you will be stuck on a poor rate if interest rates rise. There are usually penalties to stop you switching to another account and you may not be able to get your money out early.

Fixed rate

An interest rate that is fixed (ie it doesn't move up or down) for a set period of time.

Fixed-repayment lifetime mortgage

You take out a loan that pays you a cash lump sum and, instead of paying interest on the loan, you agree to pay the lender more than you borrowed when you sell your home.

Friendly Society

Similar to a mutual life assurance company but with different tax rules.

FSA

The Financial Services Authority - the UK's financial services regulator.

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G

Gilts

Bonds issued by the UK government.

Gross

Before tax.

Going overdrawn

If you spend more money than you have in your account, you will go overdrawn (also called being in debit or having a debit balance). Normally, you will be charged interest on the amount you are overdrawn. There could be a monthly or quarterly fee and there may be other charges too.

It's a good idea to ask your bank in advance whether you can go overdrawn, or the bank may refuse to pay your cheques, direct debits and so on and will probably charge you for bouncing these payments. The bank might write to you to tell you that you're overdrawn and charge you for the letter. Also, the interest on your overdraft is likely to be charged at a high rate.

If you ask your bank in advance to allow you to go overdrawn, you may have to pay an arrangement fee but the interest on the overdraft will be lower. And, as long as you stay within the agreed overdraft limit, you should not have to pay other charges.

Going overdrawn without permission on a regular basis could affect your credit rating.

Gross interest

Interest paid to you before tax is taken off is 'gross' interest. If you are a non–taxpayer you can register to have the interest paid gross – ask the bank or building society for Form R85.

Group Personal Pension

A type of personal pension offered by some employers but not classified as occupational (see money purchase pension).

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H

Health cash plans

Provide limited cash sums towards everyday healthcare bills.

Home income plan

You take out a loan that pays you a cash lump sum and is secured against your home. You buy an annuity to give you a monthly income, usually fixed for life.

Home reversion

You sell all or part of your home to a third party in return for regular income and/or cash lump sum and continue to live in your home for as long as you wish.

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I

Income multiples

The factor by which your earnings are multiplied to find out how much you can borrow.

Income protection (or permanent health insurance)

Insurance that pays you a monthly income if you're unable to work due to illness or injury, until you are able to return to work, or retirement, whichever is the sooner.

Instant access accounts

These let you take your money out whenever you want, without penalty.

Interest (on loans)

The amount you'll pay on any money you still owe after the interest-free period each month.

Interest (on savings)

Your savings earn interest. This can go up or down or may be fixed. Once interest is added to your savings your money grows.

Interest-only mortgage

You take out a loan on which you only pay the interest back each month. You do not pay off any of the capital. Instead, in a lifetime mortgage, the lender will be repaid by selling your home when you die or go into long-term care.

Investment-backed life insurance

Life insurance which has two roles: to protect you, and to act as an investment. These include Whole-of-Life insurance, With-profits bonds, Income and growth bonds, Endowment policies and Maximum Investment plans.

Interest-free period

The time between when you buy something on the card and the date when you must pay your monthly bill. This can be 50 days or more and is interest-free. So if you settle your bill in full every month, it's free borrowing.

Investment trusts

A pooled investment. You are buying shares in a company that invests in other investments. It has shares and is quoted on the stock exchange. It is a closed-ended fund as there are a set number of shares available.

ISA – Individual Savings Account

Savings and investments accounts with limits on how much you can pay in and what type you can have – ie 'mini' or 'maxi' ISA – each year.

You can save up to £7,000 each year and not pay tax on the income you receive from your investment.

For more information see the HM Revenue and Customs (HMRC) ISA leaflet giving basic information about the types of ISA you can have and how much you can save each tax year.

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J

Joint life

Typically, life-cover to protect a family in the event of either or both parents dying.

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L

Legal fees

A fee you pay to your solicitor for their services.

Lifetime annuity

A lifetime annuity converts money from your pension fund into pension income, which is taxed. There are different types to suit your circumstances.

Lifetime mortgage

You take out a loan secured on your home, which is repaid by selling your home when you die or go into long-term care.

Loans

A bank loan is a set amount of money which the bank has agreed to lend you for a set period of time. Payments and interest rates are agreed at the time of the loan.

Loan-to-value

The percentage of money you want to borrow compared to the cost of the property.

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M

Minimum payment

The amount you must pay each month to keep your account in order.

Money purchase pension

Some occupational pensions and all personal, group personal, stakeholder, FSAVCs and some AVCs are money purchase pensions. Your contributions are invested in, for example, the stockmarket. The size of your fund depends on your contributions and how well your investments do. At retirement, you have a choice of options to provide you with a retirement income.

Mortgage

A loan secured on property.

Mortgage broker

A mortgage broker helps you understand the various mortgage types and deals available to them. A mortgage broker may recommend a mortgage for you or they may provide you with information to enable you to make your own choice.

Mortgage protection insurance

Accident, sickness and unemployment insurance (or payment protection insurance) used to cover your mortgage payments.

Motor insurance

Pays out if you injure someone or damage someone else's property while driving. It may also cover damage to your own car.

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N

Negative equity

The amount you owe the lender is more than the value of your home.

Net interest

Savings accounts from banks and building societies pay interest after the tax is taken off. This is called 'net' interest.

No claims discount

A discount if you haven't made a claim on your insurance policy within a specified period of time (for example 3 years) but it does not mean the premiums to which the discount is applied do not rise.

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O

Occupational pension

Only available through employers and run by pension scheme trustees. There are two types – salary-related (defined benefit) and money purchase (defined contribution).

OEIC

Open-Ended Investment Company, also known as an ICVC. A type of open-ended investment fund.

Outstanding balance

Any money you owe on the card.

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P

Payment protection insurance (or accident, sickness and unemployment cover)

Pays out a regular amount (repayments of a loan, although some cover bills as well) for a limited time – a year, say – if you can't work for health reasons or redundancy.

PEP

Personal equity plan, a wrapper for investments but no longer available to buy – similar to ISAs.

Personal overdrafts

Some banks offer an overdraft facility on a current account. There are two types of overdrafts: authorised and unauthorised.

You can arrange an authorised overdraft with your bank for you to use at any time.

An unauthorised overdraft is when you go overdrawn without the bank's permission. If you don't have sufficient funds in your account, the bank could bounce cheques, direct debits and other payments you want to make. This could also result in expensive charges.

Unauthorised overdrafts often incur a higher interest rate and other charges. Going into overdraft without permission on a regular basis could affect your credit rating or access to credit.

Personal pension

A pension policy you take out yourself from an insurance company or another financial institution and into which you pay contributions. It may also be offered by employers. See money purchase pension.

Policy

The details of what your insurance covers, what it doesn't, and what it costs, normally provided separately.

Premium

The amount your insurer requires you to pay for insurance.

Private medical insurance

Insurance that pays for you to receive private medical treatment.

Protected rights pension

The part of your pension fund which was used to contract out of the State Second Pension (SERPS or S2P) that must be used to buy a protected rights annuity.

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R

Remortgaging

The process of changing your mortgage for a different one, without moving home.

Repayment mortgage

A mortgage that pays off both the home loan and the interest at the same time. Make all the payments and the mortgage will be fully repaid.

Roll-up mortgage

You take out a loan as regular income or cash lump sum. The interest on the loan is rolled-up each month or year and added to the loan. This means you may end up owing more than the value of your home (ie more than you borrowed).

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S

Salary-related pension scheme (final salary or defined benefit)

A type of occupational pension. The amount of pension you get is worked out on your salary at or near retirement, or when you left employment, and your pensionable service.

Schedule

The specific details of what's covered, and what's excluded, by an insurance policy.

Secured

Secured means that if you do not keep up the payments on your loan, the lender can sell your home to get its money back.

Shares

A stake or share in a company.

Shared appreciation mortgage

Some lifetime mortgages include this element. The lender gives up the right to get some or all of the interest on the loan. Instead, you agree to allow the lender to take a share in any increase in the value of your home when it is sold.

Stakeholder pension

A type of personal pension that has to meet certain standards set by the government. You can take one out yourself or it may be available through your employer, but is not classified as occupational. See money purchase pension.

Stamp duty

A tax which home buyers must pay on properties above a government set figure.

Standard variable rate mortgage

A loan at the lender's normal mortgage rate - ie without any discounts or deals.

Standing orders

You can arrange for a payment to someone to be made direct from your account on a regular basis (for example, to pay bills or a regular allowance to a student son or daughter). You arrange this with the bank.

Statement

Your monthly credit card bill that shows what you've spent, what you owe, the minimum you must pay and the latest date you can pay it.

State Pension

The Pension Service (part of the Department for Work and Pensions) will pay your basic State Pension based on your National Insurance contribution record. You may also qualify for the additional State Second Pension based on your earnings and National Insurance contributions – see below.

State Second Pension

The State Second Pension is an additional State pension paid on top of your basic State Pension. This was called SERPS. Self-employed people cannot build up a State Second Pension.

Stocks

Another term for shares.

Survey

A report on the condition of the property you are planning to buy.

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T

Tax-free lump sum

An amount of cash set by tax law which you can take at retirement free of tax. Salary-related occupational pension schemes may have different rules on the amount of tax free cash you can take.

Tax year

6 April one year through to 5 April the following year.

Term

The length of your mortgage.

Term account

Term accounts last for a set period – two years, say. You may not be able to get your money out early.

Term insurance (or term assurance)

Life insurance giving protection for a specific amount of time (the 'term').

Third party debt order

An order issued by a Claimant, against a third party, to seize money or other assets in their keeping, but belonging to the debtor. Orders can be granted preventing a defendant from withdrawing money from their bank or building society account. The money is paid to the claimant from the account. A third party debt order can also be sent to anyone who owes the defendant money.

Tracker mortgage

A mortgage with an interest rate that is usually linked to a particular rate that is set independently from the lender and moves up or down with it.

Travel insurance

Pays out if you unexpectedly have to cancel your holiday, are taken ill while away, accidentally injure somebody, damage somebody else's possessions or lose your own possessions. Insurance policies vary so read your policy to find out exactly what situations it covers. 

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U

Unit trusts

A pooled investment, which is an open-ended investment that gets bigger as more people invest and smaller when they take money out.

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V

Valuation

A brief inspection, for the benefit of your lender, of the home you hope to buy. This is to make sure they are not lending more than the property is worth and that the property is suitable security for the mortgage, but this will not tell you if it is a good or bad buy. For your own peace of mind, you may want your own survey.

Variable interest rate

Interest rates offered by banks and financial institutions on loans or deposits which are liable to change according to circumstances. For example, a movement in the interest base rate set by the Bank of England would usually be an influence.

Most current accounts pay variable interest, which means the interest rate goes up or down. From time to time you should check whether you could get a higher interest rate from a different account and, if so, be prepared to switch.

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Y

Yield

What the bond pays to investors by way of interest as a percentage of the bond's price.