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

Accumulation units

A type of unit in which any income is added to the value of the units. Designed for people who prefer their income to be reinvested. Only available on a limited number of funds.

Adverse Credit

This is the term used for people who have a poor credit history. This could include previous mortgage or loan arrears, CCJ's or bankruptcy.

AER

This stands for Annual Equivalent Rate. This rate is generally quoted on interest paid on savings and investments. Interest paid monthly, quarterly or half-yearly represents a higher true rate than the same stated interest rate paid annually. Thus, the AER allows you to compare interest rates across accounts and reflects not just the amount of interest but also how often it is paid. It shows what your interest return would be if the interest was compounded and paid annually instead of monthly (or any other period).

Affinity / Donation Cards

These are issued by credit card companies and operate as standard credit cards but a percentage of purchases made via card usage is donated to a charitable beneficiary by the issuer. A donation may also made to the beneficiary on issue or first use of the card.

Allocation Rate

The difference between the buying price ("Offer Price") and selling price ("Bid Price") of an investment, calculated as: (Offer Price-Bid Price)/Offer Price. This is the percentage of a payment that is invested once charges have been deducted.

Alpha

A statistical term used to measure the contribution to portfolio performance from good stock selection.

Annual Management Charge

This charge is deducted from an investment each year and is usually worked as a percentage of your investment.

Annuity

An annuity provides a guaranteed income for life in return for a lump sum invested. There are two types of annuities; Compulsory purchase and Purchased life. Compulsory purchase annuities are bought with a payment from an employer's pension scheme or personal pension fund. Part of the fund may be paid out as tax-free cash, the remainder must be used to buy an annuity.

APR

This stands for Annual Percentage Rate. Any firm that lends money is required by law to quote the APR. Introductory rates do not include arrangement fees you may be charged and also don’t reflect any higher rate of interest that your borrowings will ultimately revert to. The APR takes into account the interest on a loan plus and additional charges making it easier for you to compare products. In general, the lower the APR the better the deal.

Arrangement Fee

This is a fee you a Lender for providing you with a mortgage or loan. They are usually paid on completion and tend to apply when you take out a fixed rate, discount or cash back mortgage.

Asset Allocation

Shows the proportion of your portfolio invested in different geographical areas or sectors or in different types of investment (e.g. equities, fixed interest).

ASU

This stands for Accident, Sickness and Unemployment insurance. This insurance covers mortgage repayments in case of accident, sickness or involuntary unemployment.

AVC

This stands for Additional Voluntary Contributions. As a member of an Occupational Pensions Scheme these are payments made above the normal level of contribution to gain additional pension benefits.

Bank of England

The Bank of England is the central bank of the United Kingdom .

Bankers Draft

A bankers draft is a secure way of receiving money where you fear a cheque may bounce. The draft is a cheque which is drawn directly on the bank or building society against funds in a bank account. There is usually a fee for obtaining a bankers draft.

Base Rate

Base rate (sometimes called the repo rate) is the interest rate set by the Bank of England which determines borrowing and savings rates.

Bar Bell Strategy

An investment strategy that combines two types of investment at each end of a spectrum (e.g. high yielding equities and nil yielding growth stocks).

BBA

This stands for British Bankers' Association who are the trade association for British banks.

Benchmark Index

A designated index considered the most appropriate for comparing the performance of a fund. See Relative Performance.

Beta

A statistical term used to measure the sensitivity of an investment to market movements. A Beta greater than 1 indicates that the investment will amplify market trends.

Bid/Offer Spread

The difference between the buying price ("Offer Price") and selling price ("Bid Price") of an investment, calculated as: (Offer Price-Bid Price)/Offer Price.

Blue Chip Share

Usually used to describe a large company in the leading index, such as the FTSE 100.

Bond

This term can have different meanings. See Corporate Bond, Insurance Bond.

Bottom up

This describes a fund manager who selects stocks purely on the fundamentals of the company alone, as opposed to taking a view on the economic environment. See also Top Down.

Bridging Loan

This is a short term loan that 'bridges' the time period between two property transactions. It is used to cover shortfalls between buying one property and selling another. Major banks and building societies can offer bridging finance.

BSA

This stands for Building Societies' Association which is the trade association for British building societies.

Buffer Zone

These are facilities on some bank accounts whereby you can go overdrawn to a certain limit without being charged and sometimes without paying interest.

Building Society

A building society is a mutual organisation owned by its members - its savers and borrowers - and not by shareholders.

Buildings & Contents Insurance

This is a combined insurance policy that covers the cost of rebuilding or repairing a property and replacing damaged or stolen contents.

Business Current Accounts

Business current accounts are available to non-personal customers, for example clubs, charities, and companies. Availability may be restricted by customer type, minimum balance requirements or business turnover.

Buy-to-Let Mortgage

Buy-to-let mortgages are provided for property purchases or remortgages for investment in the private rental sector. Assessment of borrower affordability can be based on projected rental income and/or earnings, dependent on the lender's individual policy.

Call option

This is a financial instrument, which gives the holder the right but not the obligation to buy a security, or index, at a predetermined price, on or before its expiry date.

Capital

If this refers to borrowing this is the amount owing not taking interest into account. When investing, this is the original investment amount.

Capital & Interest mortgage

This is also known as a repayment mortgage. With a repayment mortgage, the money you pay each month covers both the interest and capital of the loan. This means that at the end of the term you don't need any extra money to pay off the loan.

Capped Rate Mortgage

A capped rate mortgage has a maximum interest rate for a given term. The interest rate you pay cannot go higher than the agreed capped rate, thus you know the maximum amount your monthly repayments could rise to. However, if the basic interest rate falls below the capped rate, repayments will also reduce.

Cash Back Mortgage

This gives you a cash rebate on completion of the purchase. The sum is either a percentage of the advance or a fixed sum. This cash back could help you to cover some of the expenses of setting up home but this bonus is often subject to higher repayment rates and may include penalties for repaying the loan early.

Cash Card

These are plastic cards used for withdrawing cash from Automatic Teller Machines (ATMs) - also known as hole in the wall machines.

Cashflow

The cash generated by a company, generally calculated as earnings before interest, depreciation, amortisation, tax and fixed asset additions.

CCA

This stands for the Consumer Credit Act. This legislation sets the rules for the way in which UK banks and lenders may lend money.

CGT

This stands for Capital Gains Tax. This is a tax on the increase in the value of an asset since it was purchased. Everyone is allowed to make a certain level of profit each year before capital gains tax is charged. The amount of the allowance is £8,200 for the 2004/2005 tax year. This amount is reviewed annually in the Budget.

CHAPS

This stands for the Clearing House Automatic Payment System. It is the electronic transfer of payment between two accounts.

Chargeable Event

The circumstance in which a higher rate tax liability may arise in the case of an Insurance Bond, usually being a surrender or withdrawal of more than 5% p.a.

Cheque

A written order directing a bank to pay money.

Child Trust Fund

The Child Trust Fund became effective on 6 April 2005, for children born on or after 1 September 2002. Children in receipt of Child Benefit will receive a sum of £250 in the form of a voucher to be used to open either a cash or equity based account on behalf of the child. Families in receipt of full Child Tax Credit or certain benefits when Child Benefit was first paid will receive a further £250. If an account is not opened within a year, the Inland Revenue will open a Stakeholder account on behalf of the child. Parents, grandparents and friends will be allowed to make additional deposits up to a maximum of £1,200 each year. At age 7 the Government will make a further payment to the account, currently proposed at a minimum of £250, at age 16 the child can begin to make decisions about how the money is managed, and at age 18 the account matures and the child receives the proceeds. No withdrawals are permitted during the 18 year term.

Closed End Fund

An investment plan where the number of shares or units is fixed, e.g. an Investment Trust. New investors must buy shares or units from existing holders. The price of shares or units may be higher or lower than the underlying asset value.

Collective Investment

A structure that allows individuals to have a proportionate interest in a pool of investments, e.g. Unit Trust, OEIC, Investment Trust, or Insurance Bond.

Commercial Mortgage

Commercial Mortgages are used to purchase a business property or going concern, for the expansion of existing business premises or for property development. Commercial property includes shops, public houses and farms.

Commission

This is an amount paid to a provider or intermediary for placing business.

Company Pensions

A pension scheme set up by an employer to provide retirement benefits to employees.

Completion

Once the purchase of a property is complete and you are the new owner.

Compulsory Purchase Annuity

Compulsory purchase annuities are bought with a payment from an employer's pension scheme or personal pension fund. Part of the fund may be paid out as tax-free cash, the remainder must be used to buy an annuity. The income payments (usually monthly) from this type of annuity are taxed as earned income and are usually paid to the recipient net of basic rate tax. Higher rate taxpayers may be liable for additional tax which at present has to be collected separately.

Consolidated Loan

This is a loan taken out to consolidate debts.

Convertibles

Convertibles are fixed interest securities, which pay a fixed amount of income until maturity. They can, however, be converted into ordinary shares of the underlying company during certain times.

Conveyancing

The legal process involved in buying and selling a property.

Corporate Bonds

Fixed interest securities issued by companies. They usually pay a fixed rate of interest but capital values fluctuate broadly in line with Gilts.

Corporation Tax

This tax is payable by companies on their profits.

Cover Note

This is a temporary certificate that shows an insurance policy is in place.

Credit Card

Credit cards are a form of borrowing used to purchase goods and services, to obtain cash advances and for consolidating debt.

Credit Rating

This is a scoring system that lenders issue people with to determine how credit worthy they are.

Credit Search

This is a check a lender may take out to determine whether a person has any County Court Judgments or a record of not repaying debts.

Critical Illness Cover

This insurance pays out if the holder is diagnosed with an illness covered by the policy.

Current Account

These accounts offer the facility of a chequebook / cash card and do not require any notice to be given to withdraw funds. The accounts vary in the facilities offered such as cheque guarantee cards, debit cards and overdrafts etc

Current Account & Offset Mortgage

A current account mortgage allows you to operate your mortgage borrowing through a current account. This method enables you to save interest as your normal cash-flow will alter the outstanding debt. You will be required to pay your salary into the account. An offset mortgage allows you to keep your balances e.g. mortgage, savings, current account etc in separate accounts but all balances are offset against each other thus allowing the possibility of reducing the interest paid and could result in the mortgage being repaid early.

Currency hedge

This is a method to reduce the uncertainty about the future direction of a currency. This can be achieved by purchasing the currency in the forward market, or taking out an option which limits the option holder's exposure.

Cyclicals

Shares which are closely linked to the business cycle, generally found in old economy sectors such as chemicals, paper & packaging and construction.

Death Benefit

A sum paid when the insured life deceases.

Death in service benefit

A sum paid by an employer to beneficiaries if the insured person dies whilst still under their employment.

Debit Card

A debit card allows you to make purchases and withdraw cash by using funds from your bank account. These funds are automatically withdrawn from the connected account. They act as an alternative to cash and cheques.

Decreasing Term Assurance

Decreasing Term Assurance indicates that the sum assured decreases over the term of the policy. This is commonly used to protect a capital & interest repayment mortgage, where the outstanding balance reduces during the life of the borrowing.

Deed

This is a legal document that shows who legally owns a property.

Deed of Assignment

A form of gift, allowing an insurance bond to be transferred from one person to another without any transfer tax charge

Direct Debit

This allows an organisation to take money directly for a persons bank account.

Discounted Mortgage

A discounted mortgage offers you reduced repayments for a given term. The lender gives a discount off a variable rate. For example, the variable rate may be 5% with a discount of 1% making your initial interest repayment rate 4%.

Discrete year performance

Breaks down fund performance into individual years. Usually more informative than cumulative figures which emphasise recent performance.

Diversification

Holding more than one asset to broaden overall risk of failure

Dividend

Money paid to shareholders.

Dow Jones

An index of some of the largest companies listed on US stock markets. It is simply calculated taking the arithmetic mean of 30 shares and so its performance can differ markedly from more broadly based indices such as the S&P 500. Values are real time.

Duration

A term used to measure the average maturity of a fixed interest bond. This is usually shorter than the period to redemption, reflecting the cashflow benefit of interest payments.

Early Exit Penalty

A special charge made when an investment policy is surrendered.

Early repayment charge

If you repay (redeem) your mortgage at any time prior to the end of the mortgage term you may have to pay certain fees or an interest penalty (redemption penalty). If the mortgage is repayed in the early years there may be a heftier penalty, a product penalty. An extended redemption tie-in means that this penalty will continue to be payable beyond the initial term of the mortgage.

EASDAQ

This is a Pan European regulated stock market. Trading takes place through member firms in 15 countries.

Endowment

An endowment policy is a savings policy which provides life assurance cover for a policyholder. The policy exists for an agreed term, the minimum term usually being 10 years. A cash sum is paid out at the end of the policy term (on maturity), or in the event of the earlier death of a policyholder, either a predetermined sum (in the event of death) or an agreed capital sum on maturity.

Enterprise Investment Scheme (EIS)

A tax incentive to encourage investment in smaller, unquoted companies.

Enterprise Zones

Certain regions of the UK designated by the Government for preferential tax and rates treatment for ten years.

Enterprise Zone Property Trusts

A collective investment to allow private individuals to invest in properties situated in Enterprise Zones.

Equities

See 'Ordinary Shares'.

Equity Release

This is the process in which a new larger mortgage or an existing mortgage is increased to release some extra funds.

Estate

This is the money, property, belongings and debts belonging to a person when they die.

Euro

The basic monetary unit of most members of the European Union (introduced in 1999)

Financial Ombudsman Service

The body that handles complaints about financial firms.

Final salary scheme

This is a pension scheme where the amount of benefit is based on final salary.

Financial Strength

A way of measuring whether a Life Office is capable of meeting future liabilities.

Fixed rate account

These accounts offer a fixed rate of interest over a defined period. This means that the interest paid on the account will not be affected by changes in interest rates for a specified term.

Fixed rate bonds

Fixed rate bonds are savings products where you deposit a lump sum for a specific period. In return you get a fixed rate of interest.

Fixed rate mortgage

If you choose a fixed rate mortgage your monthly repayments will not change for the period of the fixed rate, regardless of the interest rate in the market place. This may be important to you if you have a limited budget as you are protected from rising interest rates. However, if the variable rate falls below the fixed rate level, your repayments will not fall.

Flexible Mortgage

The main feature of a flexible mortgage is the facility to make extra payments when you have extra money. You may also be able to reduce monthly repayments or even take repayment holidays, although you will normally have to build up a reserve through making overpayments before this arrangement is allowed. Such mortgages are usually offered on a daily interest basis. Flexible mortgages usually provide a loan drawdown facility that allows you to borrow extra funds at a set predetermined rate.

Franked Income

Dividends received from shares or unit trusts, net after corporation tax has been deducted.

Free Asset Ratio

The term given to the reserves a Life Office possess [assets minus liabilities]. The larger the free asset ratio the better.

Freehold

Freehold means that you own both the building and the land it is on.

FSA

This stands for Financial Services Authority who regulates the UK financial services industry.

FTSE 100

This index is designed to represent the performance of the 100 largest UK companies listed on the London Stock Exchange by market capitalisation. This index is calculated in real time.

FTSE 250

This index represents the next largest 250 UK companies after the top 100. Like the FTSE 100 it is calculated real time.