Glossary

Budget

A financial plan for a forward period – typically a month or a year – that sets out expected income and expenditure.

Consumer Price Index (CPI)

A measure of consumer prices in the UK and the main basis for measuring price inflation.

Council Tax

A tax raised by local authorities in England, Scotland and Wales. The tax is based on the valuations of properties.

Gross income

Income before any deductions, including income tax, National Insurance Contributions (NICs) and pension contributions.

HMRC

(Full term: Her Majesty’s Revenue and Customs.) The UK body responsible for collecting tax revenues.

Income tax

A tax on earnings in the UK.

ISA

An Individual Savings Account. A savings account where the interest or other earnings are tax free.

Marks and Spencer

A UK-based department store chain.

National Insurance Contributions (NICs)

Deductions from earnings in the UK, with the record of contributions helping to determine entitlement to certain state benefits like State Pension.

Net income

Income after all deductions from gross income.

Premium Bond

A lottery bond issued by the UK government through its agency National Savings and Investment (NS&I).

Progressive tax

A tax where the amount paid as a proportion of gross income increases as income rises (commonly by step ups in the marginal rate of taxation, e.g. from 20% of gross pay to 40% of gross pay).

Banks

Companies owned by shareholders, whose main business activities are borrowing money and lending it to individuals and business, and offering bank account services.

Broker

A financial intermediary who arranges financial products for customers.

Building societies

Mutual organisations – meaning that they are owned by their customers – whose main business is offering savings accounts and mortgages. Other financial products like current accounts are offered too by the larger societies.

Compounding (of interest)

The process of receiving interest on previous interest earned (on savings accounts) or paying interest on previous interest paid (on loans).

Council Tax

An annual tax levied by local authorities based on the value of the property they are living in.

County Court Judgment (CCJ)

A court order made in England, Wales and Northern Ireland against those who fail to repay money owed by them. See also Decree.

Debt

Borrowed money.

Decree

A court order made in Scotland against those who fail to repay money owed by them. See also County Court Judgment (CCJ).

Discounted rate

A reduction in the normal interest rate for a defined period at the start of a loan or mortgage. This is used to make the early repayments more affordable and hence make the product attractive to borrowers.

Early repayment charges

A charge that your lender will make if you leave your mortgage before the allotted term. This usually applies to fixed rate mortgages but can be a feature of tracker mortgages too.

Financial Conduct Authority (FCA)

The UK financial services regulatory body that has responsibility for consumer protection.

Fixed rate

Where the interest charged on a loan or mortgage is fixed for the entire life of the product or for a defined initial period.

Interest rate

The charge on the amount of money borrowed (or paid on the amount of money in savings). This is usually expressed as a percentage (%) amount for each year (or ‘per annum’ or ‘p.a.’) e.g. 3 % p.a.

Monetary policy

The use of interest rates and control of the money supply to assist in the management of the economy and, in particular, the rate of price inflation.

Mortgage

A loan to buy property or land.

Nominal

Not adjusted to take account of price inflation. See Real.

Overdraft

A negative balance on a bank account (or ‘current account’).

Personal debt

Borrowed money owed by individuals and households.

Price inflation

A rise in the general level of retail prices in the economy. Retail prices are those paid by households.

Profits

The surplus of earnings from sales over the costs associated with the goods or services sold.

Real

Adjusted to take account of price inflation. See Nominal.

Rent-to-own

A payment contract for buying household goods. This typically involves monthly payments over a year or few years. During this time the borrower retains the goods, but ownership is only secured when all the payments under the contract have been made.

Secured debt

Debt that is linked to a contractually specified asset (e.g. a property). If the borrower fails to repay the money lent, then the asset can be used by the lender to recover the outstanding debts.

Trillion

One thousand billion.

Unsecured debt

Debt that is not linked to a contractually specified asset (e.g. a property). If the borrower fails to repay the money lent, then the lender has no recourse to the assets that might have been purchased with the borrowed money.

Compounding (of interest)

The process of receiving interest on previous interest earned (on savings accounts) or paying interest on previous interest paid (on loans).

Early repayment charges

A charge that your lender will make if you leave your mortgage before the allotted term. This usually applies to fixed-rate mortgages but can be a feature of tracker mortgages too.

Financial Conduct Authority (FCA)

The UK financial services regulatory body that has responsibility for consumer protection. https://www.fca.org.uk [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)]

Freehold

Outright ownership of a property and the land it stands on.

Ground rent

A payment made by the leaseholder of a property to the freeholder of the land on which the property is built.

Help-to-Buy ISA

An Individual Savings Account that provides a bonus from the government when used by first-time buyers to help buy a property.

ISA

A savings account where the interest or other earnings are tax-free.

ISA Allowance

The maximum amount each UK adult can deposit into an ISA account in each tax year. This allowance is set by the government.

Leasehold

Ownership of property for a defined term (the term of the lease, e.g. 99 years) but not of the land it stands on.

Lifetime ISA (LISA)

An Individual Savings Account that provides an annual bonus from the government. LISAs must be used either to help buy a property (if you are a first-time buyer) or to help set up a pension plan.

Maturity (of a bond or savings account)

The point in time when an investment – like a fixed-rate bond – reaches the end of its life and at which the investor is returned the sum invested and any remaining earnings (e.g. interest) on that investment.

Nominal

Not adjusted to take account of price inflation. Often alternatively called ‘in cash terms’. See Real.

Notice Accounts

Savings accounts that require a period of notice – typically of between 1 and 6 months – in order to access the funds in the account without a charge. Such accounts offer slightly higher interest rates than those with no notice periods.

Real

Adjusted to take account of price inflation. See Nominal.

Reversion rate

The mortgage interest rate applied by the lender at the end of the term of a mortgage deal – e.g. when a fixed-rate term comes to an end. This will typically be the lender’s standard variable rate (SVR).

Stamp Duty Land Tax (SDLT)

A tax on the cost of property or land purchased in England and Northern Ireland. In Scotland the equivalent tax to SDLT is Land and Buildings Transactions Tax (LBTT) and in Wales it is Land Transaction Tax (LTT). The Scottish Parliament and Welsh Assembly have the power to apply their own rates for these equivalents of SDLT.

Unit trusts

Pooled investment schemes – typically in company shares – managed by fund managers.

Annual Equivalent Rate (AER)

The effective annual rate of interest on a savings product after taking into account how much and how often interest is paid in each year.

Authorised deposit taker

A financial institution that is permitted to accept deposits (savings) from the public in the UK.

Bid-to-ask spread

(Also called bid-to-offer spread.) The variance between the price that a market maker will pay for an asset (the ‘bid’) and the (higher) price at which they will sell the same asset (the ‘ask’ or ‘offer’).

Capital Gains Tax (CGT)

The lax levied on the profits made on the sale of assets (e.g. second homes) in the UK.

Company shares

Financial assets that provide part ownership of a company.

Compounding

The process of earning interest on past interest earnings as well as the original sums saved (or, for borrowers, of being charged interest on past interest as well as the original sum borrowed).

Credit ratings

Assessments of credit worthiness made by credit rating agencies.

Discount rates

The factors applied to forecast future cash flows to give them their present value – also expressed as the value in today’s money.

Dividends

The payments typically made anually or semi-annually to a company’s shareholders.

Equity release

The use of financial products to access the equity held in a property, and turn it into cash, without having to sell the property.

Exchange traded funds (ETFs)

Companies traded on the stock market where the share price is directly linked to the value of the underlying investments they hold.

Financial Conduct Authority (FCA)

The UK regulator of financial services companies and markets.

Financial Services Compensation Scheme (FSCS)

The scheme to protect savings and investments made by the public in the UK in the event of default by the entity with whom the investments have been made.

FTSE-100 Index

The index of the 100 largest companies listed on the London Stock Exchange.

Hedge

A means of counterbalancing the adverse price movement of an asset or group of assets.

Index

The statistical measure of a defined group of assets – for example the FTSE-100 index measures the movement in the aggregate share value of the top 100 companies listed on the London Stock Exchange.

Individual Savings Account (ISA)

A savings (Cash ISA) or investment (Stocks & Shares ISA) where the interest or other earnings are not subject to tax.

Inflation

A rise in price levels.

Interest

The percentage (%) rate of earnings on a savings account, usually paid anually.

Market maker

A person or financial institution that quotes prices for buying and selling defined financial assets (e.g. company shares).

Money and Pensions Service

The UK financial guidance body that has incorporated the Money Advice Service (MAS), the Pensions Advisory Service (TPAS) and Pension Wise.

National Savings and Investments (NS&I)

The UK state owned savings bank. The government uses this body to borrow money from the public.

Nominal

In the context of investments, the face value of an asset. More widely, the term means not adjusted to take account of price inflation. Often alternatively called ‘in cash terms’. See Real.

Per annum (p.a.)

Per year.

Personal savings allowance

The maximum amount of interest that can be earned each tax year free of income tax. This does not apply to interest on ISAs which is always tax-free.

Premium Bond

A lottery bond issued by the UK government through its agency National Savings & Investments (NS&I).

Present value

The value in today’s money of a future cash flow or a series of cash flows.

Real

Adjusted to take account of price inflation. See Nominal.

Real Estate Investment Companies (REICs)

Companies whose business can comprise buying, selling, renovating and letting properties and financing property developments.

Securities

Financial assets (like bonds) that can be invested in.

Tracker

A financial asset whose price is linked to a defined index (e.g. the FTSE-100) or interest rate (e.g. Bank Rate).

Active members

People who are currently contributing to a pension scheme – as opposed to pensioners who are drawing a pension from the scheme or non-pensioners who have stopped making contributions (for example, people who have stopped contributing to an occupational scheme on moving to a new job).

Annuity

A guaranteed income given by an insurance company in exchange for the value of your pension pot.

HR

Human Resources, abbreviated.

Inheritance Tax

A UK tax on inherited money, property and other assets.

ISA

Individual Savings Account. ISAs are tax-free accounts for savings and investments.

Longevity

Life expectancy (in demography) or just living to an old age.

Means-tested

Payments, such as state benefits, which are dependent on the assessment of an applicant’s income or other resources.

National Insurance Contributions (NICs)

A form of taxation of incomes payable by those aged up to the state pension age.

Private sector

The part of the economy not under state control.

Public sector

The part of the economy under state control.

State Earnings Related Pension Scheme (SERPS)

A supplementary state pension to the ‘old’ basic state pension.

Workplace pension scheme

A pension scheme provided by an employer to eligible employees (who are automatically enrolled onto the scheme unless they opt out).