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Commonly Used Financial Terms

Navigating your personal finances can often be a confusing and complex process. Whether you are taking out your first mortgage, consolidation 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 is 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 is a 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
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