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 dates

  A more detailed explanation for many of the above terms can be found at our Knowledge Base and searchable Blog.

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