We hope you find this A-Z of terms a concise, comprehensive and easy to use guide. If you come across a term or acronym that you feel should be included, please let us know.

acceptance letter
An offer of life assurance, setting out the terms.

actuary
A person who calculates life insurance premiums, basing them on life expectation and likely investment returns.

additional borrowing
Similar to a traditional current account overdraft. It is the extra money you can borrow on top of what you've already borrowed. Your Additional Borrowing = Your Agreed/Total Facility - Total Borrowing.

additional voluntary contributions (AVCs)
Where a member of an employer's pension schemes chooses to boost their retirement benefits by making additional payments into their employer's AVC scheme.

advice
Where an authorised adviser looks at your individual circumstances and advises on suitable products for your financial needs.

allocation rate
This is the percentage of your payment that is actually invested (e.g. 75%) after initial charges have been taken into account.

annual management fee
A charge made every year for running your fund. It is usually a percentage of the amount you've got invested.

annuity
The investment of a lump sum to provide you with a regular income for the rest of your life or for a fixed number of years. When you retire, you must use at least 75% of your pension fund to buy an annuity (in this case, the income you get from it is subject to tax).

APR
The Annual Percentage Rate aims to estimate the real cost of borrowing so that you can compare different products on the market. It takes into account most set up and ongoing costs of a mortgage.

B

bank giro credit (BGC)
A one-off cash or cheque payment to an organisation or individual. Processing a payment made using a Bank Giro Credit takes three working days.

bankers' draft
A guaranteed payment delivered to your home address by registered post. If we receive the request before 4 pm we'll send the draft to you on the same day.

base rate
This is set by the Bank of England and represents the cost of borrowing money from the money market.

bid price
The price at which you can sell a security or a unit in a unit trust.

bid/offer spread
A form of charging where there is a difference between the price at which you can buy and sell units in a unit trust. On any given day the price at which you can buy units will be higher than the price at which you can sell them.

bonus
A sum added to the savings element of your 'With Profits' life insurance policy.

buy-to-let
This is when you buy a property to rent it out rather than live in.

C

capital gains tax (CGT)
If you sell an investment for more than you have paid for it, you make what's called a capital gain. If your capital gains amount to more than a certain amount in each year, you have to pay tax on those gains. You can avoid CGT by investing in certain kinds of investments (including ISAs and pensions) which are not liable for CGT.

capped rate
Like a fixed rate, but the rate is guaranteed not to go above a certain level for a set period of time. It can, however, move downwards.

cashback
A payment (either a fixed or a percentage of the mortgage amount) offered by some lenders as an incentive to borrow from them. Sometimes there are redemption penalties associated with these types of deals.

CAT standards
CAT stands for low Charges, easy Access and fair Terms. The standards were brought in by the government as an incentive to offer savers an even better deal, and to make it easier for you to spot the best value ISAs.

chaps (clearing house automatic payment system) payment
An electronic transfer of money between two bank accounts that will clear the payee's account on the same working day provided instructions are received before 3.15 pm.

charges
Companies can charge for financial services in different ways, some more straightforward than others.

collective investment
Investments such as unit trusts and investment trusts schemes

commission
When you buy an investment or policy, some companies pay a commission to the adviser or salesman who recommended the products to you. If you buy or sell something through a middleman (e.g. an IFA or broker), commission will often be included in the price you pay or receive

company representative
A financial adviser who can only advise on their own company's products.

compound interest
Compound interest is interest earned on interest and makes a huge difference to the value of long term savings. Say you've invested £100, which is earning 10% interest each year.
Year 1, you earn 10% on £100 = £110
Year 2, instead of earning another 10% on your £100, you earn 10% on £110 = £121
Year 3, you earn 10% on £121 = £133.10
And so on, so longer you leave it, the more you benefit from compounding.

compulsory purchase
An annuity you buy with the fund built up in your personal pension scheme annuity

contracting out
Redirecting the part of your National Insurance contributions which funds your State Earnings Related Pension Scheme (SERPS), into another pension scheme.

convertible term
Life insurance which pays out if you die within the period of protection, but which insurance also gives you the option to convert to an endowment or whole of life policy.

conveyancing
The legal process involved with buying and selling of a property.

corporate Bond
companies issue bonds to raise money and pay interest on the bonds. Usually bonds expire on a fixed date, when the company repays you. You can buy and sell bonds easily (like shares). Bond prices tend to change when interest rates change and are usually not as risky as shares because a company will pay off all it's debts (including bonds) before the shareholders get anything.

corporation tax
A tax any limited company or public limited company has to pay on any income or capital gains it makes.

critical illness cover
An insurance policy which pays you a fixed amount, normally a lump sum, if you are diagnosed as suffering from one of a number of specified severe illnesses.

D

decreasing term
Life insurance which pays out a lump sum if you die within the term, but where the insurance sum assured reduces during the term. The earlier you die in the term, the bigger the payout your dependants get.

deflation
Deflation is the opposite to inflation and means that the money you have today will be worth more tomorrow. Unfortunately, it isn't as good as it sounds, because it makes people reluctant to spend, which is harmful for the economy. It is also very uncommon.

deposit account**
An account with a bank or building society, which pays a variable rate of interest. Higher rates are often available if you are willing to give notice before withdrawing your money.

derivatives
A collective name for futures, options and warrants.

disclosure
Where an investment company is legally required to show you the total cost of taking out a product or policy with them, including details of any commission paid to an adviser.

discounted rate
A guaranteed reduction in the standard variable rate which last for a set period of time but then returns to the standard variable rate. Sometimes there are redemption penalties associated with this type of deal.

dividend
A dividend is the pay out a company makes to its shareholders and is normally determined by the amount of profit the company has made (although they don't have to pay a dividend at all).

E

endowment
An endowment policy will pay you a fixed amount on a set date or if you die before that date, in other words it's both a way of saving and life insurance. People often use endowments to repay interest only mortgages. The drawback of them is that it is often unclear how much you are having to pay in charges and the plans are often very rigid, so if you start an endowment and then decide to cancel it, you might not get back what you paid in.

equity release **
A type of remortgage where you own your home outright but wish to use it as security for new borrowing.

execution only
Where a customer buys a financial product without receiving advice on its suitability.

express money transfer
This is a foreign currency payment to an individual or organisation delivered electronically to a bank. It takes around 2-5 days, depending on the currency and destination.

F

family income policy
Life insurance that pays out a regular income rather than a lump sum, if you die within the term. The income is paid for the remainder of the term assured.

final salary schemes
An employer's pension scheme where your retirement benefits depend on the number of years you've worked for a company and your final salary just before retirement.

financial services authority (FSA)
The main function of the FSA is to protect investors. They regulate all investment businesses in the UK.

fixed rate
A guaranteed rate that is normally set just below the standard variable rate and is guaranteed for a certain period of time. If the standard variable rate falls below the fixed rate you will still have to pay the fixed rate. Once the fixed rate period ends you will normally pay the lender's variable rate. Sometimes there are redemption penalties associated with this type of deal.

flexible mortgage **
A feature of some mortgages that gives you freedom to change the amount and frequency of your mortgage payments.

foreign draft
This is similar to a bankers' draft, but is in a foreign currency. Foreign drafts take around 5 days to arrive depending on where it is sent.

freehold
If you buy a property which is freehold it means that both the land and the property is yours, unlike leasehold where the land would not belong to you.

free standing additional voluntary contributions (FSAVC)
Where a member of an employer's pension scheme chooses to boost their retirement benefits by making additional payments into an independent scheme, outside their employer's scheme.

FTSE Actuaries' All-Share Index
This is an index compiled by the Financial Times and is made up of all the companies listed on the UK Stock exchange (currently around 835). The purpose of the index is to provide a benchmark of the performance of the stock market as a whole. This benchmark is often used to measure the effectiveness of a fund manager.

fund manager
A fund manager is employed to invest money for (amongst other things) unit trusts and investment trusts. Fund managers aim to outperform their chosen index by buying shares, which they think will do particularly well. They can also choose to keep a percentage of their fund in cash if they're not optimistic about the outlook for the stock market. Naturally, fund managers get paid to do this, so charges for an actively managed fund tend to be higher than for an index tracker.

futures
A contract where you agree to buy or sell assets at a set price on a fixed date in the future.

G

gilts
A gilt is effectively a loan to the British Government, in return you get a fixed rate of interest. Gilts are the same as corporate bonds except for their issuer.

gross
A gross interest rate or dividend is one that doesn't take into account the tax you'll have to pay on that income.

group personal pension
Personal pension plans set up by an employer on behalf of its employees. Membership is voluntary and the employer may or may not contribute. Contributions are normally deducted from salary for all members and the total sent to the pension provider.

guaranteed growth bonds
Fixed term investments, typically between 3 and 5 years, where you invest a lump sum and are guaranteed either a minimum return or that you won't lose capital.

guaranteed income bonds
Fixed term investments, typically between 3 and 5 years, where you invest a lump sum and are guaranteed an income for the a set period.

H

I

illustration
An estimation of the returns you might get from an investment, based on standard growth rates and taking charges into account. The actual returns you get may be higher or lower than this.

income tax
This is tax you pay on the income you earn each year above a certain amount. As well as your salary, income tax is also charged on interest and dividends you receive. The amount of tax you pay depends on the amount of money you earn and on your allowances.

independent financial adviser (IFA)
IFAs are advisers who give advice about all aspects of your finances. They are not limited to the products of a particular company.

index tracking
An index tracking fund aims to follow a particular index as closely as possible. It does not aim to beat it. It invests only in the companies that make up that index. Index tracking removes the need to employ fund managers, which means charges tend to be lower.

individual savings account (ISA)
ISAs are savings accounts that let you save in cash, equities (bonds, gilts and shares), life insurance policies or any combination of the three, without having to pay tax on the income you get from them or on any gain you make when you sell them. There are limits on how much you can invest in an ISA each year.

inflation
An increase in the price of goods and services over a period of time. Put simply, inflation means the money you have today will be worth less tomorrow.

inheritance tax
A tax on the value of your estate when you die. It only applies to large estates (over £234,000 in 2000/2001) and is not payable on the passing of your estate to your spouse.

instant access**
Accounts where you don't lose interest even though you withdraw money without giving the bank notice. The One account gives you instant access to your funds. All you have to do is write a cheque, arrange a transfer or use your Switch or VISA cards.

interest only method
One of two ways used to pay off your mortgage, the other being the Repayment method. Your monthly payments are solely used to pay off the interest you owe on your borrowings. This means, you'll have to make provision to pay off the amount you actually borrowed at the end of your mortgage term, for example using an ISA, a pension or an endowment.

intestate
Dying without making a Will(q.v)**.

Investment Management Regulatory Organisation (IMRO)
A regulatory body which governs the way investors money is handled and invested.

investment trust
A company that invests in the shares of other companies. Investment trusts differ from
unit trusts because if you invest in a unit trust, your money is used to buy shares, so the more people invest in a particular unit trust, the bigger the trust will get. But if you invest in an investment trust, you are buying shares in the investment trust itself.

J

K

L

land registration
A record, held by the Land Registry, which lists the registered owner of a plot and whether there are any legal charges upon it.

leasehold
If you buy a property that is leasehold it means that you own the property but not the land the property is on, unlike freehold where you would own both.

legal charge
The legal document held by the Land Registry that identifies who has a claim on your property. The main lender will normally be identified as the first charge (i.e., have first claim to the property) but there may also be other charges registered (i.e., second, third, etc.).

level term insurance
The simplest form of life insurance, it pays out if you die during the term of protection.

life insurance
An insurance policy that pays a fixed amount of money if you die during the term of the policy.

low cost endowment
A savings plan which includes decreasing term insurance (see above). It pays out at the end of the term, and also if you die within the term. Usually used to pay off an interest only mortgage (see above).

M

managed fund
A fund where the fund manager decides where to invest your money, for example in property, shares or fixed interest investments etc.

MIRAS
MIRAS (Mortgage Interest Relief at Source) is tax relief on your mortgage. You currently get 10% tax relief on the interest you pay on the first £30,000 of your mortgage. MIRAS ended in April 2000.

money purchase scheme
An employer's pension scheme where your payments are used to buy other investments. Your retirement benefits depend on the amount you've paid in, how much the investments have grown, and annuity rates when you retire.

mortgage **
A loan used to buy your house, where your house is used as security until you've paid off the loan (usually after a fixed period). There are three main types of mortgage:
• A repayment mortgage - you pay off the loan by instalments of capital and interest so that after the agreed period you have paid off all the loan
• An interest only mortgage - you pay only interest on your mortgage and make other arrangements to repay the capital, like an endowment policy.
• A flexible mortgage - allows you to make overpayments and take payment holidays.

mortgage deed
This is the legal document that you sign to say that the lender has a legal charge over your property.

mortgage indemnity premium (MIP)
Insurance that covers the lender in case your property is repossessed and the lender cannot get the money.

N

national insurance
A form of taxation which you pay as you earn, used to fund certain state benefits.

national savings **
A range of savings products issued by the Government, available at post offices.

net
Interest received from a bank or building society account after basic rate tax has been deducted. If you're a higher rate taxpayer, you will have to pay more tax.

O

occupational pension
A pension scheme set up by an employer for employees. It is run by Trustees and usually provides life insurance as well as pension benefits. The pension earned by the employees is usually based on a percentage of final salary or on the amount paid in (money purchase basis). An occupational pension can either be contributory (where members contribute to the fund) or non-contributory, which is entirely paid for by the employer.

offer price
The price at which you can buy a security or a unit in a unit trust.

open ended investment company (OEIC)
A collective fund similar to a unit trust where people pool their money to invest in a wide range of investments. Like a unit trust, it is open ended (i.e. the size of the fund is not fixed), but instead of buying units, your money buys shares in the company managing the fund.

opinion status enquiry
A reference given by a bank or building society to confirm a customer has run their account responsibly.

options
A contract where you get the option to buy or sell a fixed number of shares at a fixed price within a certain period, typically three months.

P

payment holiday
A feature offered by some mortgages that allow you to miss monthly payments on your mortgage. Payment holidays are particularly useful if you have some other major expense - like a new baby or a wedding - to cater for!

permanent health insurance (PHI) *
Permanent Health Insurance will pay you an income if you become ill for a long period or if you become disabled and can't work.

personal equity plan (PEP)
Personal Equity Plans (PEPs) were replaced by ISAs in April 1999. You can no longer invest new money in a PEP, but can continue to hold an existing one for as long as you like, or transfer an existing PEP to a new provider

personal pension
A personal pension is a tax efficient way of saving for your retirement. When you retire you get a lump sum, which has to be used to provide you with an income for the rest of your life.

polarisation
Where an adviser is required to let you know if they can provide fully independent financial advice, or advice on one company's products only.

pound cost averaging
Pound cost averaging is a benefit of making regular savings in the stock market, especially when the market is volatile. In practice it means that you can get more for your money by investing in smaller, regular amounts.

private medical insurance (PMI) **
Pays towards private medical treatment if your condition is covered by the policy.

purchase life annuity
An annuity you choose to buy with your spare capital, rather than one you're required to buy with a pension fund.

Q

quotation
A document which illustrates the cost of life insurance protection at a particular company.

R

redemption penalties
Charges levied by some lenders if you decide to move lenders within a set time period - usually when (or for some time after) the rate you are paying is fixed, capped or discounted.

redemption amounts
The amount that would be redeemed if you held the assets for their full term - to their redemption date.

redemption yield
An estimate of the total long term returns, including income and capital, on fixed income investments like corporate bonds and gilts.

redundancy protection insurance **
Insurance that continues to meet mortgage payments, usually for a limited period, if you are made redundant.

remortgage **
A special case of a mortgage where you change lenders but stay in the same house.

renewable term insurance
Life insurance which pays out if you die within the period of protection, but which gives you the option to renew the cover at the end of the term.

repayment (Capital & Interest) method
One of two ways used to pay off your mortgage, the other being the Interest only method. Your monthly payments are used not only to pay the interest on your borrowings but also a proportion of the actual amount borrowed. At the end of the term, both the borrowing and interest on this borrowing would have been paid in full.

repayment plan
A schedule you agree with us for repaying your One account borrowings over the mortgage term. Your monthly One account statement will help you to keep track of whether you are ahead or behind your repayment plan.

repossession
This is when a borrower fails to pay back their loan in accordance with the Terms and Conditions of that loan and the lender exercises their legal charge over the borrower's property by taking legal ownership.

reversionary bonus
A bonus added to the value of your With Profits policy each year.

running yield
An estimate of the annual rate of interest paid out by fixed income investments like corporate bonds and gilts. It doesn't take into account any increases or decreases in the capital value of the investment.

S

Securities & Futures Association (SFA)
A regulatory body which polices investment businesses like stockbrokers.

Securities & Investment Board (SIB)
Regulatory organisation directly responsible to the Chancellor of the Exchequer. They supervise other regulatory organisations and also recognised professional bodies like The Law Society. Now superceded by the Financial Services Authority (FSA).

segmentation
The option to take a proportion of the investment and leave the rest invested, i.e. to take 10% of your pension and leave the other 90% still invested.

sealing fee
A charge made by some lenders when they release their legal charge over the deeds.

self-select PEP
A general PEP where you can choose which funds you'd like to invest in.

SERPS (State Earnings Related Pension Scheme)
If you're employed, part of your National Insurance contributions go towards the State Earnings Related Pension Scheme, which is paid on top of your basic state pension when you retire. You can choose to contract out of SERPS, in which case the Government will pay the money that would have gone into SERPS into a personal pension of your choice.

shares
Shares are issued by a company to raise money. Unlike bonds, which are a straightforward loan, shares give you ownership of part of the company. Most shares are listed on a stock exchange, which makes them easy to buy and sell, although dealing costs may be expensive, which is another attraction of investing in a unit trust as the costs are shared with lots of others.

sickness and accident **
Pays you a benefit if you're unable to work through sickness or accident. Normally pays out for a set period, i.e. one or two years.

single company PEP
A tax efficient investment where you invest in the shares of only one company.

special presentations
A service to inform a customer paying in a cheque that the payer's bank will make the payment. This does not reduce the time taken for the cheque to clear - this will still take three working days.

stakeholder pension
The name given to the new personal pension, which will be introduced by the government in two years' time. The details are not yet finalised, but it promises to be one of the biggest shake-ups of the pensions industry for years.

state pension
The basic state pension is paid to everyone. The level of pension you get depends on the amount of National Insurance contributions you pay over your working life.

stamp duty
The tax a buyer pays if the property they're buying costs over £60,000.

surrender
Where you cancel an investment or policy and usually receive a reduced payout, due to the impact of charges.

switch card
A card linked to the UK Switch network. If you pay for goods and services with a Switch card, the money leaves your account straightaway. You can use your One account Switch card in just about every cash machine in Britain and tens of thousands of Cirrus machines worldwide, and to pay for goods abroad wherever you see the Maestro sign.

T

tax credit
The amount which an ISA manager can reclaim from the Inland Revenue in respect of share dividends received. This is 10% of the amount received until April 2004, when it will no longer be available.

term
The maximum length of time agreed by us both for you to repay your borrowings.

TESSA **
A deposit account run by banks and building societies where the interest is paid to you tax free. As of April 1999, no new TESSAs can be taken out, but the proceeds of maturing TESSAs can be paid in to a TESSA-only ISA.

terminal bonus
A bonus added to the value of a With Profits policy at the end of the policy term.

title deed
This is the legal document that not only identifies the owner of a property but also other details about the property and the land it is built upon. This will be kept by the lender until your borrowing and interest on that borrowing has been repaid.

trust
You can put a life insurance policy in trust so the proceeds of the policy go straight to your chosen beneficiaries when you die.

trustee
A person who you nominate to carry out your instructions as given in your trust.

U

underwriting
Where an insurance company takes into account known facts like your age, sex and health, in order to assess the likelihood of you making a claim on the policy. Your insurance premiums are calculated after taking these factors into consideration.

unit linked endowment
A fixed term savings plan with an element of life cover. Your savings go into an underlying fund of investments like shares and the eventual return you get depends on the performance of these investments.

unit trust
A fund which pools investors' money, making it easier for them to buy into a wider range of investments and reduce the costs of investing .

V

valuation
Carried out by a professional surveyor to establish how much the property is worth and whether it is suitable to lend a mortgage on. There are 3 types of valuation that can be done, a basic valuation, homebuyers report or full structural survey.

value added tax (VAT)
An indirect tax payable by adding it onto the value of most goods and services.

variable rate
A rate that can move up or down at any time. Usually linked to changes in the Bank of England Base Rate.

VISA card
A card linked to the VISA network worldwide. Payments made using your One account VISA card are added to your account the following Thursday. You can use your One account to pay for goods and services or to withdraw cash anywhere in the world you see the VISA sign.

W

warrant
A security issued by a company, allowing you the right to acquire ordinary shares.

whole of life
Life insurance that you pay all your life, rather than for a fixed term. It pays out whenever you die. It also builds up a cash value and can be used as an investment.

with profits
In return for a higher premium you get a share of the profits of a life fund, as well as life insurance cover.

with profits endowment
A fixed term investment with life cover. The guaranteed sum insured is increased by bonuses, representing a share of the profits of the life fund.

X

Y

Z