Glossary of terms
A
Affinity accounts
An account provided by a bank or building society, that is branded with the name of a third party such as a sports club or charity. This is a popular way of supporting your favourite football club or charity as the organisation receives a percentage of the average balance held by savers. Because of the money given to the associated organisation, the rates on these accounts tend not to be market-leading.
Annual Equivalent Rate
(AER)
This is displayed as a percentage and indicates what the rate of interest would be if the interest is compounded. The AER will be higher than the gross rate if interest is paid monthly. If interest is paid annually the AER will be the same as the gross rate.
B
Bank rate / Base rate / BEBR
The country’s official rate of interest set by the Bank of England.
Bonds
Also known as fixed-interest securities, they are basically an ‘I owe you’ issued by governments, financial institutions and companies. They pay a set rate of interest for a fixed number of years, but they can be bought and sold like shares so their intrinsic value can go up and down. Government bonds are known as gilts.
British Bankers’ Association
(BBA)
The trade organisation for UK banks.
Building Society
A financial institution owned by its members, rather than by shareholders.
Building Societies' Association
(BSA)
The trade organisation for UK building societies.
C
Child trust fund
A government-backed savings initiative available to all children born since September 1 2002. Babies receive a £250 voucher at birth (those from lower-income families receive £500) and a further voucher for at least £250 at the age of seven. Families and friends can contribute an additional £1,200 a year tax-free. Returns are tax-free and the child can access the money when he or she reaches the age of 18.
Children's accounts
Savings accounts available to under-16s. They can be opened by a parent on behalf of their child.
Cash ISA
A tax-free savings vehicle, into which £3,600 can be invested every tax year. (See Individual savings account)
E
Easy access account
A savings account that allows you to access your money at any time. Also known as an instant access or no notice account.
Equities
Another word for shares.
F
Fixed rate account
Also known as fixed rate bonds, these are available from banks and buildings societies, and they pay a fixed rate of interest for a set period. Most only accept lump sum deposits and you cannot usually access your money during the fixed rate term.
Financial Ombudsman Service
(FOS)
The independent service for settling disputes between consumers and businesses providing financial services.
www.financial-ombudsman.org.uk
(FSA)
The regulatory authority for the UK financial services industry.
www.fsa.gov.uk
Compensation Scheme
An independent body that can pay compensation to consumers if an authorised financial services firm goes bust.
www.fscs.org.uk
A tax or accounting year. The government’s tax-year runs from April 6 to April 5.
G
Guaranteed equity bonds
(Gebs)
Gebs are fixed term products aimed at cautious investors. Returns are linked to a stock market index, usually the FTSE 100 or FTSE All Share. However, Gebs guarantee a minimum return so if share prices fall your capital is protected.
Guaranteed income bonds
(GIBs)
Available from life companies, Gibs pay a fixed amount of interest for a set period. Interest is paid net of basic-rate tax. This cannot be reclaimed, so Gibs are not suitable for non-taxpayers.
Gilts
These are bonds issued by the government (See bonds).
Gross
Total interest before tax.
I
Individual savings account
(ISA)
This is a tax wrapper within which you can hold a range of different investments. Returns are tax-free. Any gains on investments held outside an ISA are liable to income tax or capital gains tax.
You can invest up to £7,200 per tax year. A maximum of £3,600 can be invested in a cash ISA and the remaining £3,600 can be invested in a stocks and shares ISA.
Instant access account
A savings account that allows you to access your money at any time. Also known as an easy access or no notice account
Independent financial adviser
(IFA)
A person who is qualified to give financial advice and sell investments products from all providers. If you are looking for an IFA in your area visit
www.unbiased.co.uk
J
Joint account
An account held in two names - both of whom share equal responsibility.
M
Monetary Policy Committee
A committee of nine people, appointed by the Bank of England, whose job it is to keep inflation in check. They meet on a monthly basis and decide whether or not Bank rate needs to change.
N
Notice account
An account which requires notice to be given before a withdrawal is made. You will be penalised, often with loss of interest, if you need access to your money more quickly.
National Savings
and Investments
A government-backed savings provider.
Net
The rate of interest after the basic-rate of tax has been deducted.
O
Offshore account
Offshore accounts are usually based in the Channel Islands and the Isle of Man because the tax jurisdictions differ from the mainland. Unlike standard ‘onshore’ savings accounts where interest is paid net of basic rate tax, interest on offshore accounts is paid gross.
R
Regular savings account
An account which requires money to deposited on a monthly basis. The interest rate is usually set for a fixed term during which time withdrawals tend not to be permitted.
S
Shares
Shares are issued by a company to raise money. Investors that buy shares, own a stake in that firm.
Stocks and shares ISA
An ISA that invests in non-cash assets. These can include managed funds such as unit trusts, investment trusts, open ended investment companies; as well as exchange traded funds, bonds and direct equities.
T
Tracker rate
A rate that is set at a fixed margin to Bank rate. The rate on tracker account therefore only changes if the Bank of England’s Monetary Policy Committee vote to increase or reduce Bank rate.
Tiered account
Some accounts pay a different rate of interest depending on the size of the balance. Generally speaking the more money you have in the account, the higher the interest rate.
V
Variable rate
A rate that can move up or down at any time.
