Know Your Financial Terms – Financial Terms Explained

Navigating your finances can often be a confusing and complex process. Whether you are taking out your first mortgage, consolidating a pension or opening a protections policy, there are number of commonly used financial terms that come up again and again.

As such we compiled a handy reference guide to help you.

• Account – Usually a current or savings account, this is simply a deposit of funds with a financial institution
• Annual Fee – Usually an annual charge for the cost of a financial services such as a credit card of account fee
• Annual Percentage Rate (APR) – This is the total cost of a loan stated as an annual percentage and includes interest / charges
• Bad / Poor Credit – This refers to an individual who may be considered a credit risk for further borrowing due to missed payments
• Balance – The total money in an account / can also refer to total moneys owed
• Bank Statement – A letter headed or official statement of incoming and outgoings from a given account
• Bankruptcy – A legal process of taking over someone’s financial affairs when they are declared unable to repay their debts
• Benefits – Are moneys paid to those that are in receipt of Government welfare support
• Bounced Cheque – A cheque which a bank is unable to cash usually because the payee does not have enough funds in their account
• Budget – Refers to a total list of income and outgoings over a period of time with a stated balance
• Buy to Let – A mortgage that is sold specifically to people who are looking to buy property as an investment as opposed to a mortgage for a home of their own
• Capital Gains Tax (CGT) – Capital Gains Tax is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value
• Capital Gains Tax Exemptions – The stated exemptions of CGT free assets
• Charge Card – A card which can be used to pay for goods but the total amount must be paid off at the end of each month
• Cheque – Allows moneys to be paid in the form of a bank account backed paper note
• Cheque Guarantee Card – A card issued by a bank which guarantees to pay cheque’s up to a set limit
• Child Trust Fund – Am automatic child trust fund setup for those born between 2002-2011
• Clearing – The process of moving money from one bank account to another
• Collection – The recovery of unpaid debts
• Compound Interest – Interest earned by including previous interest in the calculation
• Consumer – An individual buying products or services for personal use
• Council Tax – A tax per household tax paid to the local authority and based on the value of the property
• County Court Judgment (CCJ) – An order made by the County Court for money to be repaid
• Credit – The purchase of goods or services by borrowing money and paying back at a later date including interest
• Credit Card – A card that is used to pay for goods or services using credit
• Credit limit – A maximum amount you can spend using your credit card
• Credit Rating – Is a financial score based upon your previous history of borrowing and repaying money
• Credit Reference Agency – A company that stores credit ratings that are used by lenders and runs checks for other financial institutions
• Credit Union – A non-profit organisation run by volunteer members to help people save and borrow money at low rates of interest
• Creditor – A person / company who lends money to another
• Current Account – Bank account that is used for everyday transactions including the payment of salaries, standing orders and direct debits
• Debit – Takes money out of an account
• Debit Card – A card that allows you to spend money directly from your current account, usually issued by banks
• Debt – Moneys that are owed
• Default – A failure to pay an amount due by the agreed date
• Deposit – Paying money into an account either as cash, cheque or by direct transfer
• Direct Debit – A means to make regular payments by giving a company permission to take funds from your account
• Dividend Income – The income gained from a share portfolio
• Economy – Financial activities related to the production of goods and services of a particular region or country
• Equity – The financial difference between the market value of an asset and the amount of loan or mortgage still outstanding on it
• Exchange Rate – The equivalent value used when transferring amounts of different currencies
• Fees – Charges made by a company for their services
• Financial Conduct Authority (FCA) – The central body that regulates the UK financial services sector and provides points of recourse for consumers
• Fixed Rate Mortgages – Is a fixed-rate mortgage where your interest rate is guaranteed to stay the same for a set period of time
• Gilts – Gilts are a sort of UK Government issued bond
• Gross Pay – The total amount of pay earned before any deductions i.e Tax, National Insurance etc
• Guarantor – A person who agrees to pay a debt owed by another person if that person fails to meet agreed payments
• Hire Purchase – Is a type of credit to purchase goods that are owned by the lender until the full amount is repaid
• Identity Theft -A crime involving the use of someone else’s identity to obtain funds
• Income – Total moneys earned as wages or received from other sources
• Income Tax – Tax paid on money earned
• Income Insurance – An insurance policy that pays out of you become unwell or lose your employment
• Independent Financial Adviser (IFA) – An FCA regulated adviser that supports you with all manner of financial services and products
• Inheritance Tax – Inheritance Tax (IHT) is a tax on the estate of someone who has passed away and includes all property, possessions and moneys left
• IFA Fees – Fees paid to an IFA
• Indirect Property Investments – Indirect Property Investment (IPI) is an investment in the stocks and shares of a company(s) that specialises in property and real estate, Real Estate Investment Trusts (REITs),  property index derivatives, or the bonds of larger corporate property entity
• Individual Savings Account (ISA) – A type of saving account which offers tax free interest
• Individual Voluntary Arrangement (IVA) – A legal agreement between the debtor and creditors to repay part of the debts over a specified period of time
• Insurance – A financial policy where an insurer agrees to pay out an amount in the event that certain losses occur
• Interest – Money paid by the bank to the holder of a savings or investment account or a charge for borrowing money
• Investment – An allocation of funds to a dedicated investment portfolio, property or item
• Investment Insurance – An insurance company backed policy for certain investments
• Joint Account – An account opened in the name of more than one person
• Junior ISA – A type of ISA that matures at the age of 16 and paid in over the course of a childhood
• Know Your Customer (KYC) – The onboarding of a customer to access financial services – covers all manner of due diligence
• Lender – A company (or person) who lends money to a borrower
• Liability – The responsibility for a bill or amount owed
• Life Insurance – A policy to give a cash sum or staggered payments to your dependants when you pass away
• Life Insurance Investment Bond – Investment bonds are a form of life insurance that is paid for with a one-off lump sum deposit at the outset of the policy rather than via monthly insurance premium
• Loan – Is an agreement between a lender and a borrower by which the borrower agrees to repayment of money borrowed over a period of time
• Minimum Payment – The lowest amount that can be paid on a credit card
• Mortgage – A loan used to buy a property
• Mortgage Deed – A mortgage deed is a legally binding agreement, using property as collateral for a loan
• National Insurance – A deduction from wages which is paid to the government to build your entitlement to a State Pension / social security benefits
• National Savings – A government organisation giving a range of Savings products and bonds
• Net Pay / Take Home Pay– The salary amount after deductions such as Tax and National Insurance
• NICS – National Insurance Contributions (NIC) are taxes paid by British employees and employers to fund government benefits programs, including state pensions. The contributions are made through payroll deductions
• Occupational Pension –An occupational pension scheme is one in which an employer(s) has paid into a pensions pot for you
• Online Banking – Accessing your bank account via the internet
• Outstanding Balance – The total amount still owed
• Overdraft – An agreement with the bank to be able to withdraw
• Pay Period – The period of time a salary e.g. weekly or monthly
• Payday Loans – Short-term high interest loans leveraged against your salary
• Payer – The person you are paying money to
• Pension – A form of long term investment which pays out a regular amount to you when you retire
• Pension Credits – Pensions credits are an income related benefit that are made up of two parts – guaranteed credit and savings credit
• Pension Regulator – The central body that regulates the UK pensions sector
• Pensions Scheme – A pensions scheme is a type of savings plan to set aside funds for later in life
• Personal Pension – A personal pension policy, be it an individual policy or as a part of a group personal pension scheme, is one in which you have paid into it yourself
• Property Income – Property income refers to profit or income received by virtue of owning property
• Repossession – The taking back of goods or a property which are secured against a loan, in the event of failing to repay
• Remortgaging – Remortgaging your property is the process of paying off one mortgage with the proceeds from a new mortgage whilst using the same property as security
• Rental Yields – A rental yield is the potential return a property investor would be likely to achieve on a property through rent from its tenants
• Salary – Total annual earnings
• Savings Account – An interest gaining account designed for money to be paid in and saved
• Stamp Duty – A stamp duty is the tax a government will place on legal documents, usually in the transfer of an asset or a property
• Student Loans – Specific type of government loan to help students studying at University
• State Pension – The State Pension is a regular pension payment from the government that most people can claim for when they reach State Pension age
• Tax – Moneys deducted from income and paid to the government
• Tax Band – A banded income bracket that reflects your income
• Treating Customers Fairly (TCR) – TCF rules cover systems and processes in place to ensure financial firms treat customers fairly
• Value Added Tax (VAT) – A tax paid when you buy goods or receive services
• Unsecured Loan – Moneys borrowed without goods offered as security against non-payment
• UK Land Registry – HM Land Registry registers the ownership of property
• Voluntary Pensions Insurance – An insurance to support pensions contributions
• Wills – A will informs everyone what should happen to your money, possessions and property after you die (all these things together are called your ‘estate’)
• Yield Curves – A yield curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity datesA more detailed explanation for many of the above terms can be found at our Knowledge Base and searchable Blog.Introducing Fintuity – The Premier Digital IFA in the UK!

  Fintuity is like a traditional IFA, only we are one of the only online adviser which means we can offer a more cost-effective, time-sensitive and flexible service! We offer the full range of IFA services via our digital platform, at below industry rates and at your convenience. Please do not hesitate to get in touch to see how we can assist you.

  For all enquiries please visit www.fintuity.com or contact Fintuity’s Communications Manager, Nic Cobb at nic.cobb@fintuity.com.

  Please Note: All information, references and dates included in this article were accurate at the time of publishing.