The finance world is full of words, terms, and phrases that to a lot of people make no sense. At some point in life, you might come across some of the following bits of financial jargon when applying for loans, signing agreements, or setting up accounts…
A
APR
APR stands for annual percentage rate. It gives people borrowing money an idea of how much they will be paying back to the lender.
Annual General Meeting
An AGM is the yearly meeting of an organisation and its members. The AGM will usually include some sort of approval from the members.
Assets
Things which an individual owns, e.g. property, cars, stock, etc.
B
Bond
A written promise to repay a debt on a particular date, and at a pre-agreed interest rate.
BACS Payment
BACS stands for Bankers Automated Clearing System, this is a system for sending money between bank accounts electronically. This can be done via online banking.
C
Condition
A condition is part of an agreement or contract. If the condition is broken, then there may be legal or financial consequences.
Credit Agreement
This is an agreement between someone borrowing money, and a lender (e.g. a bank or phone company). The customer must sign a contract or agreement in order to borrow the money or goods.
Creditor
Someone who is owed money.
D
Debtor
Someone who owes money.
Default
When someone fails to do something they agreed to do, e.g. breaking their contract.
Dividend
When a company makes a profit, they can pay this out to their shareholders. In our case, we pay a dividend to our members if we make a profit, this is because credit unions are owned by their members.
E
Endorsement
A change to the original terms in a contract.
Excess
The amount someone has gone over their agreed overdraft agreement. It is also the first amount of a claim that an insurance policyholder has agreed to pay.
F
Facility
The maximum amount a bank will let a customer borrow.
Fiscal
Finances controlled by the Government.
Fixed Interest Rate
An interest rate that does not change throughout the time of the contract.
G
GBP
British Pounds Sterling is the official currency of the UK. It is often abbreviated to ‘GBP’.
Guarantee
Some banks or lenders will ask for a guarantee, to make sure they receive repayments. Some may ask for a guarantor, which is another person who agrees to make repayments if the customer cannot.
H
Hire Purchase
A type of credit that allows the customer to have an item, e.g. a car, but pay it off gradually after signing an agreement. The customer will have full ownership of the item when they have paid off all the instalments and any extra fees.
I
ISA
ISA stands for Individual Savings Account. Any money earned on the savings in an ISA is tax-free.
Income Tax
The tax you pay, which is based on a percentage of how much you earn through salaries, rents and other forms of income.
IVA
Individual Voluntary Agreements are a form of debt management.
J
Joint Account
A bank account that is opened by two or more people.
K
Know Your Customer (KYC)
Know Your Customer (KYC) is a requirement for all banks and financial institutions to know the identity of their customers and to carry out appropriate checks if needed. This is an important part of tackling fraud and other types of financial crime.
L
Liabilities
A type of debt that a person or business owes.
Lien
The right to keep the possessions of someone who owes debt until it has been settled.
M
Members
The shareholders of a company are its members. The credit union is a not-for-profit organisation and is owned by its members.
N
National Insurance Contributions
Most employees, employers, and self-employed individuals will pay National Insurance. Like income tax, this is based on a percentage of your income, but unlike income tax, your employer also contributes. National Insurance (NI) helps to fund the NHS and welfare benefits.
Non-Profit
An organisation that is not intended to make a profit, e.g. credit unions.
O
Out of Date
If a cheque is over six months past its payment deadline, the bank might refuse to check it in.
Overdraft Facility
When a bank makes an agreement with a customer, allowing them to spend over the amount in their bank account. There will be a limit on the amount the customer can spend and in some cases an interest rate on the overdraft.
P
PAYE
Pay As You Earn (PAYE), is when an employer deducts income tax and national insurance from an employee’s pay on their behalf. This money is collected by Her Majesty’s Revenue and Customs (HMRC).
PIN
This stands for Personal Identification Number and is given to an account holder to use with their bank card or credit card.
Q
Qualifying Policy
This is a policy that can pay its proceeds, free of tax if the conditions have been met.
R
Rate of Risk
If an agreement or investment comes with a greater risk, it is expected to bring in a better return compared to a low-risk agreement.
Redemption
When someone has paid off all of their debt.
S
Security
An asset owned by someone borrowing from a bank, that they pledge to the bank if they cannot repay their debt. An example of this is a mortgage, where the house is held as security against the money borrowed.
Standing Order
When a customer instructs their bank to pay a regular amount from their bank account to another bank account.
Surcharge
A charge which banks make when a customer does not keep their agreement with them.
T
Tax Year
The tax year starts on 6 April and finishes on 5 April in the following year
Term
A term in anything that makes up a contract.
U
Underwriting
The process through which an individual or institution takes on financial risk for a fee.
Unpaid Item
An item which the bank refuses to pay e.g. direct debit or cheque.
V
VAT
Value Added Tax is a form of tax that is charged to customers on goods from most UK traders. This is then paid to HM Customs and Excise.
W
Winding Up
Winding up a company is when you distribute money left between members, after paying the company’s creditors.
X
XCD
XCD is the symbol for the Eastern Caribbean Dollar. It is used in 8 countries including Grenada, Dominica, and St Lucia.
Y
Yield
Yield is the income return on an investment.
Z
Zero-Rated
When the rate of interest is 0%, or when the VAT rate is 0%.
