Glossary

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).