The world of money can be confusing at times and it can be hard to understand the words and phrases. Try our A-Z of some words and phrases you should look out for when signing up for a loan, opening an account, dealing with banks, lenders and other financial services.
A
APR
APR stands for annual percentage rate. It gives an idea of the total cost of a loan over a year. This includes the standard fees and interest you'll have to pay.
Annual General Meeting (AGM)
An AGM is the yearly meeting of an organisation and its owners or shareholders. The AGM will usually include some sort of approval from the owners.
Arrears
Money that is owed and should have been paid earlier.
Assets
Things which an individual owns, e.g. property, cars, shares, stock, etc.
Attached savings
Savings that are secured against a loan. These savings can't be withdrawn while a loan is outstanding. This helps reduce the lending risk to the credit union and keeps the cost of borrowing low for the Member.
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
Cheque
An order to a bank to pay a stated sum from the drawer's account, written on a specially printed form. Usually takes a number of days for the money to appear in the depositor's account.
Condition
A condition is part of an agreement or contract. If the condition is broken, then there may be legal or financial consequences.
Contactless
Contactless payment systems are built into cards and devices to make secure payments up to a fixed limit. Devices can include credit cards debit cards, key fobs, smart cards, smartphones, smart watches and other devices. The device uses radio-frequency identification (RFID) or near field communication (NFC) for making secure payments.
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.
Credit card
A thin rectangular plastic or metal card issued by financial institutions, which lets you pay for your purchases up to a pre-approved limit. The limit is decided by the institution issuing the card based on your credit score and history. No interest is charged if the full statement balance is paid by the due date, usually about 30 days. Interest is charged on any outstanding balance. Can be useful for items costing £100 or more as the card issuer is jointly liable with the retailer under Section 75 protection if something goes wrong with the product.
Creditor
Someone who is owed money.
D
Debit card
A thin rectangular plastic or metal card issued by financial institutions that deducts money directly from your current account to buy goods or services. You can also withdraw cash from an automated teller machine (ATM) or a merchant who'll let you have cashback when paying for your purchases at the till.
Debtor
Someone who owes money.
Default
When someone fails to do something they agreed to do, e.g. breaking their contract by not making on a loan payment on the agreed date.
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.
Faster Payments
These are electronic payments. As long as the receiving bank or building society uses Faster Payments too, the payment will arrive almost immediately (though sometimes, it can take up to 2 hours).
Financial Conduct Authority (FCA)
The conduct regulator for financial services firms in the UK, ensuring that the markets are honest, fair and effective so that consumers get a fair deal.
https://www.fca.org.uk/
Fiscal
Finances controlled by the Government. e.g. taxes and public spending.
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 (HP)
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.
Interest
The interest rate is the amount a lender charges a borrower and is a percentage of the amount borrowed.
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.
Loan Shark
An unlicensed and unregulated lender, often charging very high interest rates, may not produce loan paperwork and may use illegal means to enforce the loan. Anyone lending as a business must be authorised by the Financial Conduct Authority (FCA) to lend money legally. Money lenders who aren’t authorised by the FCA are breaking the law. If you think you may know a loan shark contact the Illegal Money Lending Team in confidence at
https://www.stoploansharks.co.uk/ or call 0300 555 2222.
M
Members
The shareholders of a company are its members. The credit union is a not-for-profit financial cooperative organisation and is owned by its members.
Money Laundering
Concealment the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses.
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.
Pound Sterling
British money. Uses the symbols £ or GBP.
Prepaid debit card
Similar to a debit card, prepaid cards can be used to make purchases or withdraw cash. The difference is that you can only spend money you have already put onto the card; there is no overdraft or credit facility. This means you cannot borrow money or get into debt with a prepaid card.
Prudential Regulation Authority (PRA)
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%.