A to Z of financial terms

The world of financial services is full of technical words, terms and abbreviations which can often confuse us - and this can end up leaving us out of pocket. This section of the website  is designed to help you find out what a financial term means - just select the first letter of the term below.

If the word you are looking for is not here, please contact us and let us know so we can add it in.

 

A  B  C  D  E  F  G  H  I  J  K  L  M  N  O  P  Q  R  S  T  U  V  W  X  Y  Z

 

A

Annual Equivalent Rate (AER)

This is a rate that is quoted on the interest paid on savings and investments.

Annual Percentage Rate (APR)

This is a rate of interest that you agree to pay on any money that you borrow.

B

Base rate

This is the main interest rate set by the Bank of England every month. It is designed to keep inflation under control.

Buildings insurance

Buildings insurance is designed to meet the cost of rebuilding a property.

 

C

Caveat emptor

This is a Latin expression which means 'buyer beware'. It is used to warn people buying goods that they may not be able to get compensation if the goods they buy are faulty.

Cheque

A cheque is a written order, addressed to a bank, instructing it to pay an amount of money to the person or organisation named on the cheque. The bank also has to take the amount from the relevant account.

Contents insurance

Contents insurance is designed to insure your home's contents from theft, as well as fire and flood damage.

Council Tax

Council Tax is set by your local council and is designed to pay for local services such as the police and collecting your rubbish.

County Court Judgement (CCJ)

County Court Judgement - a decision reached in the County Court which can be for not paying debts. If you pay off the debt, the CCJ is satisfied and a note is put on your credit record to say so. This will stay on your credit record for six years and will affect decisions on your borrowing applications for at least this period. It is likely you will be declined store credit, mortgage applications and car loans with a CCJ on your file.

Credit check

An enquiry made on the credit history of an applicant, normally by reference to one of the major credit agencies. When you apply for credit, companies will conduct a credit check - so keep your file as clean as possible. If you would like a copy of your credit check, you can request it for a small fee from a company such as Experian.

Credit Union

A Credit Union is a profit sharing, democratically run financial co-operative which offers convenient savings and low interest loans to its members. The members own and manage their credit union themselves...

D

Direct Debit

A Direct Debit is an instruction from you to your bank or building society permitting a company to claim regular payments (which can vary) directly from your account. This service ensures you do not miss payments and so you will avoid late payment fees. However, you may feel you lose some control of your finances in this way and may prefer to pay bills when they arrive.

E

F

G

H

Hire purchase

A type of credit whereby you hire the item you are buying for a fixed period, during which time you pay for the item in monthly instalments, plus interest. Unlike ordinary credit agreements, you do not own the goods until the final payment of the agreement is made. If you do not make regular payments, creditors can ask you to return the goods.

I

Inflation

Inflation is a term that describes general price increases.

J

K

Key Facts document

These are standard documents with important information that explain a company’s services and the cost of the services being provided.

L

Libor

The London Interbank Offered Rate, to give it its full title, is the interest rate that banks charge each other for short-term loans. Libor rate will be quoted for a specific currency for a particular period of time.

Loan-to-value

The amount of mortgage finance compared (as a percentage) to the value of the property.

M

N

O

Overdraft facility

This facility on a bank account allows customers to borrow up to a pre-determined limit. This limit must be agreed in advance and is subject to status. If withdrawal exceeds an authorised overdraft limit, customers can face high charges so always shop around for the lowest overdraft interest rate when you are looking for a bank account.

P

PAYE

Pay As You Earn. An employer collects income tax and national insurance from employees' pay and pays it to HM Revenue & Customs.

PIN

This stands for personal identification number. It is a secret number given to an account holder to be used when they put their credit card or cash card into an automatic teller machine (ATM). If the number they use is correct, they will be allowed access to their account.

Q

R

S

Sort code

Each bank branch is given an identification number which is called a sort code. The sort code is used on cheques and other bank documents to identify the bank branch.

Stamp Duty

Stamp Duty is a government tax that home buyers must pay when buying properties. Homes priced below a certain threshold are exempt and the rate of Stamp Duty varies in bands according to the value of the property.

Standard Variable Rate (SVR)

The Standard Variable Rate is a rate that mortgage lenders will charge on the majority of its mortgage range and it is generally the most expensive rate you can pay. Lenders are free to choose how much to charge for SVR, and because most mortgages revert to SVR after the introductory period ends most borrowers will find themselves paying SVR if they don't remortgage.

T

Tax code

HM Revenue & Customs works out the allowances for each taxpayer paying PAYE. The total allowances are converted into a code number which is used with tax tables to work out how much tax should be taken from the income.

Tax year

The tax year starts on 6 April and finishes on 5 April in the following year.

Term

The length of time over which you will pay your mortgage.

U

V

Value Added Tax (VAT)

Most traders in the UK are registered for VAT. This means that registered traders have to charge their customers value added tax on any goods and services they supply which are not exempt. The VAT collected (less VAT they have been charged) is later paid to HM Revenue & Customs.

Variable rate mortgage

A variable rate mortgage is the standard mortgage offered by lenders. It is usually set above the Bank of England's base rate and can move up and down should the base rate change.

W

X

Y

Z

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Last updated: 23 January 2012