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Glossary of financial terms

AER - Annual equivalent rate

Annual equivalent rate (AER) illustrates what the interest rate would be if paid and compounded each year.

The AER shows what the compound interest on an account would be if the interest was paid out each year instead of every month or over any other period. You may earn less than the AER because your money may not be deposited or invested for as long as a year.

APR - Annual Percentage Rate

The APR is the annual rate of interest you will be charged on a loan, mortgage or credit card. You can use the APR to compare different loans, as long as you compare them over the same term, for example 3-year loans.

Arrangement fees

The initial one-off charge made at the start of a loan by some lenders.

ATM (Automated Teller Machine)

ATMs are often called cash machines. They are found at banks, post offices, shops, railway stations, airports and in other public places. As well as dispensing money from your account they may provide information about your bank balance and some other services.

Balance

In banking, this means the amount of money in your bank account.

Bank charges

Banks may charge the customer for providing some of their services. You will usually pay bank charges if you become overdrawn without agreement of the bank.

It is important that you contact the Bank as soon as possible if you become aware that you don't have enough money in your account. Bank charges and associated interest for unauthorised borrowing can be very expensive.

For many accounts, there is no charge for day-to-day services such as cash withdrawals as long as the account has a credit balance. Most banks also offer a wide range of additional services which you may have to pay for e.g. buying foreign currency or stopping cheques.

Bank loan

Banks often lend money to customers for things such as car purchases, holidays, home improvements etc. These loans are often called personal loans. They may also lend money to business customers for lots of different purposes.

Customers firstly have to apply for a bank loan - the bank will undertake a number of checks to make sure the customer can afford the loan and if the bank is happy to lend the money, they will agree:

  • An amount.
  • An interest rate (a charge to the customer for borrowing the money).
  • The term (number of months the customer has to pay back the money)

You must be at least 18 years old before you can have a bank loan.

Bank statement

Your bank will send you detailed information about all your transactions in the form of a bank statement. You can see the amount of money that has been paid in or taken out, transfers between accounts, interest paid or received and any bank charges. Mini statements showing the balance and most recent transactions are available from most ATMs.

Budget

  • A financial plan that shows the money you expect to receive, and the money you expect to pay out, over a specified time.
  • The amount of money you have available to spend.

Budgeting

Putting together a financial plan that shows the money you expect to receive, and the money you expect to pay out, over a specified time.

Capital Gains Tax (CGT)

This is a government tax that you must pay if you make a profit (a capital gain) of more than a certain amount in any tax year if you sell an asset such as shares or investment property.

Cash withdrawal card

This is a plastic card that allows you to take out money from your account when you insert it into an ATM (cash machine) and key in your PIN. This card will only allow you to withdraw money up to the balance of your account or the withdrawal limit. This is the amount of cash that you can take out each day with your card depending on which account you have. Cash withdrawal cards are also called cashCARDs.

Cheque

A cheque is a written order which instructs your bank to pay a specific amount of money from your account to another person or organisation. The bank will give you a cheque book that contains a number of blank cheques, printed with your name and account details, for you to fill in. Cheques are valid for 6 months from the date written on the cheque. Once you are 16 you can ask for a cheque book. Each book has the customer's name and account number printed on it. You can use cheques in some shops to pay for goods or services.

Cheque book

A cheque book contains a number of blank cheques printed with your name and account details.

Cirrus

Cirrus is a brand owned by MasterCard which is used on ATM only debit cards. Cards with the Cirrus logo can be used at ATM's worldwide to obtain cash.

Citizens Information Board

The Citizens Information Board (CIB) offers free information and advice on a huge range of issues and problems, including personal finance. Most banks require customers who are indebted and struggling with repayments to provide a detailed income and expenditure, an accurate appraisal of their debts and an offer of what the customer believes they can afford before entering into an agreement regarding reduced repayments. In such cases Banks may direct customers to the CIB or Money Advice and Budgeting Service (MABS) both of which can provide advice to those with debt problems.

Compound annual rate (CAR)

CAR is a measure of the rate of return on a deposit or investment. You can use it to compare different accounts.

Credit card

A plastic card which allows you to buy goods immediately and pay for them later. You will have an agreed limit on the amount you can borrow, and the time within which the money should be repaid (the due date). If you don't pay the total amount in full by the due date you will be charged interest on the outstanding balance. If you only make the minimum payment it could cost you more and take you longer to pay off than using alternatives e.g. loans, overdrafts.

You must be at least 18 years old before you can have a credit card.

Credit checking

Before banks, credit card, store card and finance companies lend money they will run a credit check. This includes information to confirm the borrower's place of residence, current and past debt, and any county court judgments.

Credit history

This is your track record in repaying loans. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely fashion.

Credit scoring

When you apply for a credit card, current account, personal loan, hire purchase agreement or mortgage, the lender will award you a score based on your credit history and on your answers to questions on the loan application form.

Current account

A current account is an account with a bank or building society from which you can withdraw money without giving notice. You can sometimes earn interest on your money, but generally this would not be as much as you would earn with a savings account. A current account may be the best account to have if you will be paying in and withdrawing money regularly or want to set up Standing Orders or Direct Debits.

Debit

A payment taken from your account.

Debit card

A plastic card which allows you to pay for goods or services. If you are in a shop the cashier will insert your card into a machine and you will usually have to type in your PIN. The money is taken almost immediately from your account. You can also use your debit card as a cash withdrawal card, to withdraw money from an ATM.

Debt

An amount of money that you owe to a person or company.

Deposit

Money put into an account, by means of cash, cheque or an electronic transaction.

Direct Debit

An instruction from you to your bank or building society allowing someone to take money from your account. The amount of money taken can vary, but you must be told the amounts and dates beforehand. Direct Debits allow you to pay bills automatically from your account on a regular basis.

For example, you might set up a Direct Debit with a mobile phone company, so that they regularly collect the money owing to them each month. This can be an agreed fixed amount or the full bill.

EAR (Equivalent annual rate)

A figure quoted to help people when comparing financial products. It indicates what the rate would be if interest was compounded and paid each year. The annual equivalent rate will typically be higher than the actual annual rate calculated without compounding as many investment products are not compounded annually.

European Central Bank (ECB)

The ECB is the central bank for Europe's single currency, the Euro. Its main task is to maintain the purchasing power of the Euro and price stability in the Euro area.

Fraud

A crime in which people obtain money through deliberate deception of organisations or individuals.

Gross

Gross is the interest rate paid before the deduction of tax.

Guarantor

This is a person who agrees to pay off a loan if the borrower fails to pay.

Interest

  1. An amount paid by a bank on savings placed with it.
  2. An amount paid to a bank on money you borrow from it.

Interest rate

The percentage paid on all money saved or borrowed.

Internet banking

Also known as online banking. Customers with an Internet Banking account can access their bank account through their own computer at any time. Customers can check their balance and carry out many everyday transactions.

Joint account

These are accounts you open in the names of more than one person. Before you open a joint account, consider if the permission of all those taking part is required to make any withdrawals and what happens to the account if one of the holders dies.

Loan Protection

This is an insurance policy which protects borrowers from falling further into financial difficulty in the event of unforeseen circumstances such as redundancy, long-term unemployment or ill health. Loan protection is usually optional and the cost of the insurance is relative to the amount borrowed.

Loan-to-Value (LTV)

This is a percentage representing the amount owing on a mortgage compared to the market value of the property.

Maestro

Maestro is a brand owned by MasterCard which is used on debit cards. MasterCard licences banks to issue payment cards with the Maestro brand and to enter agreements with shop owners to accept payments on Maestro branded cards.

Maestro cards are accepted in retail outlets worldwide but have limited acceptance on the internet. Maestro branded cards can also be used at ATM's to obtain cash.

MasterCard

MasterCard is an American based publicly owned company which licences banks to issue payment cards with the MasterCard and Maestro brands. The MasterCard brand is generally used on Credit Cards. MasterCard also licences banks to enter agreements with owners to accept payment on MasterCard branded cards. MasterCard Credit Cards are widely accepted worldwide and on the internet.

Minimum payment

The amount that a credit card company says you must pay back each month. If you make only the minimum payment each month, it will take you longer and cost you more to clear your debt, as interest just keeps accumulating.

Mini statement

This gives you details about your most recent transactions. You can get a mini statement from an ATM (cash machine).

Mortgages

A loan to help you buy property on condition that the company giving you the loan has certain rights, including the right to sell the property if you don't pay back the loan. You must be at least 18 years old before you can have a mortgage.

Net

Net is the interest rate paid after the deduction of tax.

Overdraft

An agreement with your bank to spend more money than you actually have in your account. As you are borrowing money from the bank, there can be a charge for this service. You must be 18 years or over to have an overdraft. An agreed overdraft is the limit up to which the account holder may borrow from the bank, when there are no funds in his or her current account. To minimise excess bank charges it is important that you do not exceed the limit that has been agreed with the bank.

Payee

The person or organisation due to receive the money on a cheque - this is the person or organisation to whom a cheque is made out.

Paying-in book

This contains a number of paying-in slips which include details to identify your bank account. You complete one each time you go to the bank to pay cash or cheques into your account.

Pensions

Money which an individual invests to help support them after they have retired. A pension is basically a long term investment plan, where you save regular amounts or lump sums (called 'contributions') to build up a retirement fund.

Many companies offer their employees the chance to pay into a company pension scheme. This means that the employer as well as the employee pays towards an individual's retirement.

PIN

PIN stands for Personal Identification Number. This is the four-digit number that you enter into an ATM when you want to take out cash, and that you use when you pay with your chip and PIN card. Never give this number to anyone, or write it down.

Point of sale

The location at which a transaction takes place.

Repossession

The taking back of property by a lender from the borrower, due to a default in the payments.

Savings account

A savings account is an account with a bank or building society in which you save money. Your money will often earn more interest in a savings account than a current account, but you may have to give notice before withdrawing money.

Secured loan

A loan which is backed by assets belonging to the borrower in order to decrease the risk assumed by the lender. The assets may be forfeited to the lender if the borrower fails to make the necessary payments.

Sort code

A six-digit number that identifies the branch of a bank. Every branch has its own sort code.

Standing Order

A Standing Order moves money from your own bank account to another account. This might be to an organisation or an individual, or perhaps from your current account to your savings account. It's a fixed sum and you tell your bank when to start and stop paying it. Standing Orders are useful for making regular payments.

Telephone banking

Customers whose accounts offer telephone banking can often have round-the-clock access to their bank account by telephone. Most everyday transactions can be carried out by telephone banking, for example, paying bills, asking for a balance, transferring money between accounts.

Transaction fee free banking

This means that the bank will not charge the customer to run their bank accounts. (i.e. customers are not charged for services including ATM withdrawals, Standing Orders or Direct Debits). Fees or charges may apply for other associated products or services.

VAT

VAT stands for Value Added Tax. This is a government tax on the final consumption of goods and services. It is collected at every stage of production and distribution. In effect this means that anything you buy or pay for will be subject to VAT if value has been added at some point. So you will pay VAT on many goods and services, for example, for a meal in a restaurant, a repair to your computer, a CD or a travel ticket.

Visa

Visa is an American company with a European affiliate. Visa licences banks to issue payment cards with the Visa Brand. Visa cards can be debit cards (to access bank accounts) or credit cards. Visa also licences banks to enter agreements with shops to accept Visa branded Cards.

Visa cards can also be used to obtain cash at ATM's.

Visa debit cards and credit cards are widely accepted in the UK, Ireland and worldwide as well as being widely accepted on the internet.