Glossary

AER - Annual Equivalent Rate. This shows what the interest rate would be if interest were paid and added to your account each year.

APR - Annual Percentage Rate. The interest payable on what you've borrowed is added up along with other charges (e.g. arrangement fees) and then expressed as an annual rate of charge. The APR helps you compare the true cost of borrowing. The APR takes into account all fees and charges applied to the mortgage as well as the monthly payments over the life of the loan.

arrangement/administration fee - a fee to cover administration costs.

arrears - money that was due to be paid but has not been paid. When you are behind in payments, you are in arrears.

assets - your money, property, goods and so on that have a financial value.

banker's draft - a cheque drawn on the bank (or building society) itself against either a cash deposit or money taken directly from your own bank account. A banker's draft is a secure way of receiving money from someone you don't know and where a cash is inconvenient. Banker's drafts are commonly used for large purchases such as property or vehicles.

base rate - the interest rate from which lenders set their rates for lending and savings products, normally based on the base rate set by the Bank of England.

capital - money that you've invested or borrowed (e.g. to buy a property). It doesn't include the income or profit you get from an investment, or the interest you have to pay on a loan or mortgage.

CHAPS - Clearing House Automated Payment System. This is a system that enables money to be transferred from one bank account to another on the same day.

cleared balance/cleared funds - includes credits (cheques and cash) that have completed the clearing cycle. You can only withdraw or transfer money to another account with money from your cleared balance. The cleared balance is updated during the day as you make payments into and out of your account.

clearing cycle - the process that your cheque goes through when you pay it into your account. A cheque won't be cleared if, for example, the person who gave it to you doesn't have enough money in their account.

credit balance - the amount of money in your account.

credit limit - the maximum amount of money that you may borrow.

debt - an amount of money that you owe to a person or company.

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.

EAR - Effective Annual Rate. This is the amount of interest charged on an overdraft and is stated as an annual rate. Unlike the APR, the figure does not include any fees or charges.

fixed-rate interest - an interest rate that stays the same throughout an agreed period.

gross - the whole amount before any deductions (such as tax or fees) are made.

gross interest rate - interest before income tax is deducted.

interest - the amount that you pay when you borrow money. It's expressed as a percentage rate over a period of time.

interest-free - no interest is charged on money that you borrow.

interest rate - the rate at which you pay back interest, expressed as a percentage of the amount you borrow.

investment - something you put money into that will provide income in the future (such as savings) or gain in value so that you can sell it at a higher price later.

loan - money that you borrow (e.g. to buy a new vehicle) on condition that you pay it back.

net - the amount after deductions (such as tax or fees) are made.

net interest rate - the rate payable after the lower rate of income tax is deducted. (NB the rate of tax may vary, so a net rate is usually only given as an example.)

nominal annual rate - the rate of interest that would apply if the interest were not added each year and if there were no inflation.

overpayment - higher or extra payments that you make (usually to pay off your loan early).

p.a. - 'per annum', which means 'each year'.

payment holiday - a period of one or more months when you don't make repayments on your loan, although interest continues to accrue during that time.

rate - the percentage interest rate charged by a lender.

return - the profit you get, for example, when you invest money.

share - a unit of ownership in a company.

share certificate - shows the amount of ownership.

share dealing - the process of buying and selling shares.

stock - another term for share.

transaction - each time you pay money into or take money out of your account, it's called a transaction.

underpayment - a loan payment that is less than the amount that you should normally pay for that month.

variable-rate interest - the interest rate that you pay on your loan and that rises and falls roughly in line with the base rate set by the Bank of England.