Glossary

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APR - Annual Percentage Rate

APR stands for Annual Percentage Rate. A lender is always required to quote the APR when advertising a loan or borrowing rate. The APR calculates the total amount of interest that will be paid over the entire period of the loan. It must also take into account charges which the borrower has to pay in order to obtain the loan and during the loan period (such as lenders fees, valuation and legal fees etc). The purpose of APR is to help you compare the true cost of borrowing.

ATM

ATM stands for 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 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 (i.e. a direct debit, cheque or debit card purchase is paid when you don’t have enough money in your account).

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

Anyone borrowing money must be at least 18 years old.

Bank statement

Your bank will send you detailed information about all your transactions in the form of a bank statement (for a branch based account – internet based account statements may only be available online). 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 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.

Business plan

A business plan has many purposes including using it to measure the success of your business. A good plan will contain such things as: an overview and details of the business, including its objectives and key personnel; details of the products or services it will supply; details of target customers and estimated numbers; assessment of competitors; a marketing plan; how much money is needed and when.

Cash withdrawal card

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 cash cards.

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.

Cheque guarantee card

A plastic card that is used with a cheque to guarantee that your bank will pay the sum of money written on the cheque to the named individual or organisation. The card confirms the name of the account holder and guarantees a sum up to the limit marked on the cheque card. It is not possible to place a stop on a guaranteed cheque (up to the limit guaranteed by the card) and once the bank receives the cheque, they will have to pay it even if there is not enough money in the account. Cheque guarantee cards are available only to people aged at least 18. You have to apply to the bank for this and you must keep to the conditions about the proper use of the card.

Cirrus

Cash machines you can use abroad to get cash out of your account. There may be a charge for this.

Citizens Advice Bureau (CAB)

The Citizens Advice Bureau 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. The CAB are very good at helping customers do this and many banks will direct customers to the CAB for advice before entering into negotiations with them.

Cost price

The amount of money you can buy something for, especially in order to sell it on at a higher retail price.

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 judgements.

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 is often 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.

Disconnection

If a person has failed to pay for services such as gas, water or electricity the provider may decide to disconnect the supply until the debt is paid.

Doorstep lender

A company that offers small loans to individuals who would not necessarily qualify for a bank loan. The company normally collects the weekly or monthly repayments in person from the borrower’s home. The rates of interest charged by doorstep lenders are often higher than those charged by other lenders.

Finance Company

A company that offers secured loans to be paid back in instalments.

Fixed costs

Business costs that don’t change as sales go up or down.

Fraud

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

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).

Gross

The whole amount before any deductions e.g. tax / fees. In the context of tax, this means the amount before tax has been deducted.

Interest

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

Interest rate

The percentage paid on every £1 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.

ISA - Individual Savings Accounts

ISAs can be used for savings, just like a deposit account, but with the big advantage of having no tax to pay on the interest that your savings earn.

The rules on ISAs allow you to have what's called a 'Cash ISA' and a 'Stocks and shares ISA'
You are allowed to save up to £7,200 per tax year (this runs from 6 April to 5 April) in ISAs.

You can save money in both a Cash ISA and a Stocks and shares ISA each tax year although the maximum you can save in a Cash ISA is £3,600.

Loan Protection

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.

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.

Maestro

Maestro is an international debit card facility which allows you to withdraw money in local currency throughout the world at ATMs as well as pay for goods and services at overseas retailers, wherever the Maestro logo is displayed.

Mini statement

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

Money laundering

Money laundering is a term used to describe the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activity such as drug trafficking, theft, fraud, blackmail, tax evasion and so on. It often leads to criminals having a seemingly legitimate source of income.

The term is used as criminals try to turn their ‘dirty’ money into ‘clean’ money, i.e. money which has been come by honestly.

Mortgage

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.

National Insurance

An additional form of tax paid by most employers, employees, self employed (and some unemployed) people. Money is taken from wages and paid to the government in return for services like the state pension, and social security benefits.

Net

The amount after deduction e.g of tax/fees. In the context of tax, this means after tax has been deducted.

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.

Passbook

A book held by someone with a bank account in which his or her deposits and withdrawals are recorded by the bank. Passbooks are also sometimes called bankbooks. On many accounts customers receive bank statements which replace passbooks.

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. 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 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.

Profit

A profit is a financial gain. In business, it is the difference between how much money is spent and how much money is made.

Repossession

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

Retail price

The amount of money goods sell for.

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. A savings account is often the best account to have if you won’t be withdrawing money regularly. As of 7 October 2008 the Financial Services Compensation Scheme Deposit protection limit was increased from £35,000 to £50,000

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.

Solo

A card payment scheme.

Solo 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 from your account almost immediately.
You can also use your Solo card as a cash withdrawal card, to withdraw money from an ATM. Solo cards are similar to other debit cards, but cardholders can only spend what is in their account.

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.

Start-up costs

These are expenses incurred when a business is created and developed.

Student loan

A loan that can help pay for the costs of higher education courses. There are two kinds of student loans – loans for fees and loans for maintenance. They are issued by Student Finance Direct, a service managed by the Student Loans Company in partnership with local authorities and the Department for Children, Schools and Families.

The interest rate on student loans is linked to the rate of inflation, so in real terms you only repay the same amount as you borrow.

Students can take out a loan if they are an eligible full-time higher education student or a part-time initial teacher training student.

Switch

A debit card payment scheme.

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.

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. The standard rate of VAT is currently 15%. You do not have to pay VAT on some goods, such as some foods, books and children's clothing.

Variable costs

Cost that vary according to the activity of a business, e.g the cost of employing staff will vary depending upon the hours a business is open.