| Jargon
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Definition
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| Annual Equivalent Rate (AER) | All accounts are required to show an AER. This is a way of expressing the account’s interest rate over a one year period and includes the impact of any compound interest and bonus that may be received. The AER is a useful way of comparing the interest rates of two different savings accounts.
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| APR | Annual Percentage Rate (APR) is the figure that includes interest rates and any associated charges such as administration or redemption fees that may be applied to money you borrow. The APR shows the cost for comparison of borrowing money over a 1 year period. This figure can be used to compare costs between different lenders.
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| Authorised Overdraft | These are arranged in advance with the bank or building society that provide your current account. Your bank or building society will allow you to borrow money up to a limit. Fees and interest are often charged and you should review the terms of the overdraft before using it.
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| Balance Transfer | Transferring either all or part of the money owed on one credit card over to another credit card.
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| Balloon Payment | A large payment due at the end of a loan contract. If you wish to buy your car at the end of a PCP agreement, you will need to make a balloon payment.
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| Credit Card | A credit card can be used in a similar way to a debit card. Unlike a debit card, which is linked to your current account, a credit card allows you to pay for goods or services on credit. Each month you’ll be sent a statement showing all of your credit card purchases. You can choose to pay off the debt immediately or pay it off over a period of time. If you don’t pay it off immediately you will normally be charged interest, which can be high.
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| Credit Default | Failure to make an agreed repayment on time. For example a borrower failing to make the monthly repayments.
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| Credit Score / Credit Rating | A number that indicates whether you may be considered a high or low risk by credit providers such as banks and other lenders. This number is based on information including your previous credit history and applications.
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| Hire Purchase (HP) | A method of car finance where you pay a deposit up front and pay the balance of the car cost plus interest in fixed monthly instalments. You will not own the car until you’ve made the last payment.
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| In-store finance | In-store finance is a popular way to purchase items and spread the cost over a period of time, it is often referred to as ‘buy now pay later’ credit. You may be offered an interest free period meaning you won’t pay any interest if you pay back the loan before this ends. If you haven’t paid off the debt at the end of the interest free period you will start to pay interest, normally at a high rate. This will make paying off the debt even harder.
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| Loan Trap | If you have problems paying off a loan, the lender may offer you an extension or a further loan. You can end up being trapped in debt because you’ll have to pay further interest and fees. Debt can quickly spiral out of control.
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| Overdraft | An overdraft allows you to spend more from your current account than your balance. This is referred to as being ‘overdrawn’. There are two types: Authorised Overdrafts and Unauthorised Overdrafts – look up these definitions for further information.
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| Payday loan | Payday loans are short-term loans with extremely high interest rates, intended to fund small purchases (normally under £1,000) until your next payday. If you don’t repay the debt on time it can quickly spiral out of control. Due to the high interest rates often applied to payday loans these should usually only be considered as a last resort.
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| Percentage | A percentage means ‘out of 100’. For example, 20 out of 100 is 20%. Equally 20p out of £1.00 is 20%.
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| Personal Contract Purchase (PCP) | A method of car finance where you pay a deposit and make monthly payments for a fixed period of time. At the end of the contract you have the option to make a balloon payment and keep the car, return the car to the dealership and walk away or start a new PCP agreement.
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| Personal Loan | A loan made to an individual, usually for a fixed amount of money over a fixed time period. Personal Loans are normally offered by banks and building societies, however other high street retailers have begun to offer personal loans.
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| Secured Loan | These loans are borrowed against assets such as your home or car. If the terms of the contract are broken, the lender could seize the asset.
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| Unauthorised Overdraft | This is unplanned borrowing that your bank or building society has not agreed to. An unauthorised overdraft also applies when you exceed the borrowing limit on an authorised and is typically more expensive than an authorised overdraft.
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| Unsecured debt or Loans | A type of loan or debt not secured against any assets. Personal loans, credit cards and in store credit are typically unsecured.
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Jargon buster
| Jargon
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Definition
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| Beneficiary | A person or group of people that you would like to receive your pension savings or inheritance in the event of your death or the benefit in the event of an insurance claim. You can indicate who you would like to be the beneficiary of your pension and change this at any time.
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| Death Benefits | The benefits that are paid from a pension scheme in the event of your death.
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| Decreasing term insurance | A type of life insurance which pays out a tax-free lump sum on death, if you die within the term of the policy. The value of the lump sum decreases throughout the term.
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| Deed of variation | This allows beneficiaries to rearrange or vary their entitlement. A deed of variation can be used by any person who receives a gift under a will to redirect their inheritance to another person.
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| Estate | When you die your belongings are grouped together to make your estate. This includes money, property and valuables. Any debt reduces the value of the estate.
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| Family income benefit | A type of life insurance which pays a tax-free income on death if you die within the term of the policy.
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| Inherit | To inherit money, valuables or property is to receive them once a person has died.
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| Inheritance Tax | A type of tax that is charged at the point an individual dies. This tax is applied to the value of a person’s estate above a threshold called the nil rate band but there are a number of exemptions that could result in no tax being due. The value of any pension savings when someone dies are normally exempt from Inheritance Tax.
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| Intestacy laws | When you die without leaving a valid will, you are said to have died intestate. There is a legal process which decides how your belongings will be divided up, known as intestacy laws.
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| Nil rate band | The amount of an estate that is excluded from an Inheritance Tax charge on death. In the current tax year, the nil rate band is £325,000.
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| Over 50’s life insurance | A type of whole-of-life insurance designed to make a tax-free lump sum payment when the policy holder dies.
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| Power of Attorney | A legal document detailing a person you would like to help you with important decisions about your finances or health when you’re not able to make those decisions yourself. The document name varies depending on which region of the UK you live in and which type of Attorney you are appointing.
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| Probate | The legal right to deal with an individual’s estate when they die. The executor of a Will is responsible for applying for probate when an individual dies.
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| Residence nil rate band | An amount of up to £175,000 that can be excluded from an Inheritance Tax Charge on death in addition to the basic nil rate band. The Residence Nil Rate Band may be available where an estate exceeds the value of the basic nil rate band and the estate includes a home that is left to direct descendants.
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| Whole-of-life insurance | A type of life insurance which pays a tax-free lump sum on death. This policy does not have an end date and your policy will cover you for as long as the premiums are paid.
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| Will | A legal document that sets forth your wishes regarding the distribution of your property and the care of any children or minors. It can also be used to detail any funeral plans.
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| Will Aid | Solicitors involved waive their fee for writing or amending a basic will, and invite people to make a voluntary donation to ‘Will Aid’ which distributes funds to its partner charities.
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| Jargon
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Definition
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| Arrangement Fee | A fee that is applied to some mortgages for setting up the mortgage. This is sometimes referred to as a booking fee.
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| Arrears | A mortgage is referred to as being ‘in arrears’ when a scheduled payment has been missed.
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| Capital repayment mortgage | A mortgage that requires the repayment of the debt as well as the interest cost each month. The term of the mortgage is defined at the outset and the mortgage will be repaid at the end of the term provided all payments have been met.
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| Discount Rate Mortgage | A mortgage rate that is set at a pegged amount below the lenders Standard Variable Rate.
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| Fixed Rate Mortgage | An interest rate that is fixed and will therefore not change for an agreed period. Fixed rate mortgages are typically for period of 2, 3 or 5 years but other terms are offered by certain lenders.
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| Freeholder | The outright owner of the home and the land it is built on.
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| Help to Buy Equity Loan | A Government scheme aimed at helping people on to the property ladder. The Government lends up to 20% (40% in London) of the value of a newly built home.
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| Interest only mortgage | A mortgage that requires only the interest costs to be paid each month. The debt is not paid off by the regular payments made with an interest only mortgage.
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| Leaseholder | The owner of a long term lease for a property that is issued by the freeholder. A leaseholder is not usually the outright owner of the land the property is built on.
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| Legal fees | The costs for the legal work, searches and valuations that are required as part of the home buying process.
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| Loan to value ratio | The amount that is being borrowed as a percentage of the value of the home.
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| Mortgage | A type of loan used to purchase a house or land.
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| Negative Equity | Refers to the situation where a property’s value is below the outstanding mortgage amount.
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| Porting a mortgage | Moving a mortgage from one home to another.
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| Re Mortgage | The process of applying for a new mortgage deal when an existing deal comes to an end. Borrowers who do not remortgage are typically moved to the lenders standard variable rate.
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| Stamp Duty Land Tax | A tax that is payable by the buyer when the sale completes. You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England and Northern Ireland. A different type of tax and different rates apply in Scotland and Wales.
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| Standard Variable Rate Mortgage | An interest rate, set by the lender, that may go up or down during the term of the mortgage.
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| Tracker Mortgage | A mortgage that will rise and fall in line with the Bank of England base rate. Specific terms will vary between lenders, however variable rates that are set at an agreed amount above the Bank of England base rate are common.
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| Jargon
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Definition
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| Accident, sickness and unemployment (ASU) cover | A type of insurance which provides a regular income if you’re off work through an accident, sickness or if you become unemployed through no fault of your own. Also known as short-term protection insurance.
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| Annual policy | An annual insurance policy usually lasts for 12 months from the date of inception.
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| Buildings insurance | Insurance for home owners or landlords which covers the actual building and main fixtures and fittings like the bathroom or kitchen.
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| Car insurance | An insurance product which offers varying levels of cover and can protect a number of scenarios such as your car or someone else’s in the event of a fire, theft or accident.
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| Claimant | The person making an insurance claim is known as the claimant.
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| Contents insurance | Insurance which covers the contents of a home.
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| Critical illness insurance | A type of insurance which provides a tax-free lump sum payment if you’ve been diagnosed with a critical illness such as cancer or a heart attack. What you’re covered for varies amongst policies.
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| Deferred period | The amount of time between when an insurance product is bought and when the protection begins. In some insurance products this could be the amount of time between when a claim is made and when a benefit can be received.
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| Delayed period | The delayed period is the amount of time between when you make a claim and when you receive your benefit. In some insurance policies this is also referred to as the deferred period.
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| Dental Insurance | Claim back the cost of dental treatment received at either an NHS or private dentist.
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| Excess | In the context of an insurance claim, the excess refers to the amount the claimant contributes towards a claim. Some insurances have both compulsory and voluntary excesses.
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| Exclusions | Specific terms, conditions or items not included in what the policy covers.
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| Health screening | For detecting the early signs of illness and disease with a check-up on your physical wellbeing.
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| Home insurance | An insurance policy designed to cover your home or the belongings inside it. For further details see the definitions of Buildings insurance and Contents insurance.
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| Insurance | An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.
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| Insurance Claim | To use an insurance policy to make a claim. This pays a pre-agreed benefit to you from the insurer, normally after paying an excess, if a specified event occurs.
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| No claims bonus | Also known as a NCB. This is a discount applied to some insurance policies as a reward for not making a claim previously.
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| Pet insurance | An insurance policy designed primarily to cover the costs of medical treatments for pets. Policies may cover other scenarios but these will vary between policies.
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| Policy | In the context of insurance – this document normally includes details of the product and lists what you are insured for and what you are not insured for as well as the start and end date.
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| Pre – existing medical condition | A condition or situation that existed and was known about prior to taking out an insurance policy.
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| Premium | This is the amount you pay for the policy. Some policies have one-off premiums, some are paid yearly and some are paid monthly.
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| Quote | A quote or quotation for an insurance policy based on your circumstances which provides an indicative price for the policy, often guaranteed for 28 days.
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| Self-insurance | When you save enough money to cover your outgoings for a set period of time.
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| Sum assured | This is what the insurance company has agreed to pay you if you needed to make a claim. It is sometimes called the benefit or pay out.
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| Tech insurance | An insurance product designed to cover a piece of tech like a mobile phone, tablet or laptop in a number of events such as loss, theft or accidental damage.
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| Term | This is the length of time the insurance policy runs for.
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| Travel insurance | Covers problems you may face whilst travelling such as flight cancelations, loss or theft of your belongings or getting injured. Also known as holiday insurance.
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| Warranty | A written guarantee, issued to the purchaser of a product by its manufacturer, promising to repair or replace it if necessary within a specified period of time.
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| Jargon
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Definition
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| Annual Allowance | The total amount that can be paid into a Defined Contribution pension scheme each year before a tax charge is applied. The current limit is £60,000 each tax year. This may be reduced if your annual earnings exceed £200,000 or if you have already started to access your pension savings. For members of Defined Benefit schemes, a formula is used to calculate the value of any increase in benefits each year.
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| Annuity | An insurance product that enables you to use your pension savings at retirement to guarantee an income for the rest of your life. These products can offer a number of additional features, including an income to a dependant on your death.
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| Automatic Enrolment | A policy that applies to all UK employers and requires them to enrol their employees into a workplace pension. There are certain employees that are exempt from being automatically enrolled into a pension. All employees have the option to opt out once they have been enrolled.
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| Cash lump sum | This refers to receiving part or all of your pension in the form of a cash lump sum. The first 25% of your pension savings (subject to HMRC limits) can normally be taken tax-free but tax is applied to the remainder at the plan holder’s highest rate. In relation to an insurance pay out, this means receiving part or all of the benefit claim as a cash payment.
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| Contracted Out (National Insurance Contributions) | Members of a pension scheme who were ‘Contracted Out’ paid lower National Insurance contributions and, in return, didn’t earn the Additional State Pension. It is no longer possible to be ‘Contracted Out’ however; members with historic periods of ‘Contracting Out’ may receive a lower State Pension as a result.
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| Default fund | The investments that your Defined Contribution pension savings are held in if you haven’t made an investment decision yourself. You have the option to change the fund your pension savings are invested in at any time. As a member of the LSEG Pension Plan, the default fund is the L&G Multi Asset 3 Fund.
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| Deferred Member | A member of a pension scheme who has stopped building up benefits in the scheme but whose pension savings are held securely for them to access in the future. Employees of a company who end their employment usually become deferred members of the employer’s pension scheme.
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| Defined Benefit Pension Scheme | A type of pension scheme that provides members with a guaranteed income for life at an agreed retirement age. Most UK private sector employers no longer offer these types of pension scheme.
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| Defined Contribution Pension Scheme | A type of pension where contributions are made by you (the member) and possibly by your employer. These contributions are invested and you can choose how you would like to receive your savings at retirement (subject to scheme rules). As the money held in this type of pension is invested there is no guarantee of how much the pension will be worth at retirement. This has become the most common type of pension offered by UK private sector employers.
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| Early retirement on medical grounds | A member of a pension scheme can usually only begin to receive a pension from age 55. Where a member has serious ill health they may be given the option to retire early on medical grounds. In this case, a pension can be received before the age of 55.
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| Final Salary Scheme | See Defined Benefit Pension Scheme.
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| Income Drawdown | A method of drawing money from Defined Contribution pension savings at retirement. This normally involves drawing a regular amount, for example, monthly, to create an income. It is your responsibility to ensure you do not spend your pension savings too quickly.
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| Lifestyle investment approach (Lifestyle Strategy) | This approach automatically manages the way pension savings are invested up until retirement, gradually moving your savings into lower risk investments. As a member of the LSEG Pension Plan, you have the option of choosing from 3 different lifestyle approaches. Each approach targets a different method of accessing your pension savings at retirement. |
| Money Purchase Annual Allowance (MPAA) | The amount that can be made in Defined Contribution pension savings by an individual after they have begun drawing taxable money from a Defined Contribution pension through a flexible arrangement. (This excludes purchasing a lifetime annuity or income withdrawn from a Defined Benefit pension scheme). The MPAA is currently set at £10,000 pa.
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| Pension transfer | Transferring your pension savings from one provider or pension account to another.
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| Pension Wise | Free and impartial government guidance about your Defined Contribution pension options which is available from age 50.
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| Phased retirement | An approach to receiving your pension whereby retirement begins by receiving only a part of your pension income. This may be done in conjunction with continuing to work on reduced hours.
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| Salary Sacrifice | A way of making contributions into your workplace pension scheme. This is where you ‘sacrifice’ part of your salary in return for your employer making your pension contributions on your behalf. By using Salary Sacrifice, the contributions paid into your pension scheme are normally free from Income Tax and National Insurance. However, there are certain rules that limit the amount you can contribute before incurring a tax charge.
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| Selected Retirement Age (SRA) | The age that you would like to start drawing your pension savings. You should think about when you would like to start receiving your pension and tell your pension scheme to update your SRA, as it may affect the investments your money is held in. You can normally choose to begin drawing your pension at any time from age 55, however, this age is expected to increase in the future.
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| State Pension Age | This is the age that you can start receiving a State Pension and is determined by your date of birth. You can choose to delay receipt of your State Pension but cannot receive it before your State Pension Age.
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| Tapered Annual Allowance | A reduction to the standard Annual Allowance of £60,000 that applies to higher income earners.
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| Tax Relief (on contributions) | This refers to the special tax treatment that applies to contributions made to a personal pension arrangement.
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| Jargon
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Definition
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| Bonds | The word bond is often used to refer to either corporate bonds or government bonds. Both are a type of investment that involves lending money to either a large company or government for a defined period of time at a fixed interest rate. Returns are normally expected to exceed the interest from a savings accounts but this is not guaranteed. There is always the risk of default i.e. companies may not be able to meet their debt obligations.
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| Bonus account | A type of savings account that offers a bonus payment after a certain period of time. This is often in addition to an interest rate that may be paid. You will normally miss out on the bonus if you withdraw your savings before the end of the specified savings period.
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| Currency exposure | The extent to which an investment value is influenced by currency exchange rates. This would normally apply when an investment is made in an overseas company or an investment into an overseas property.
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| Easy access account | A type of savings account that provides immediate access to your savings without any penalty or loss of interest.
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| Emergency fund | An easily accessible sum of money, normally recommended to be equivalent to at least 3 months’ worth of outgoings or salary.
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| Fixed rate account | A type of savings account that provides a guaranteed rate of interest for a specified term. Penalties often apply for withdrawing funds before the end of the agreed term.
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| FSCS | Stands for Financial Services Compensation Scheme. This is the scheme that protects your savings up to certain limits, in the event that your bank or building society fails.
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| Gross interest | The interest that is received on a savings account before deducting any tax that may be due.
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| Index linked | A product that is index linked has its value adjusted according to the value of an inflation index such as the CPI.
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| Inflation | The rising cost of goods and services over time. Where the cost of the things you buy increases, the amount you can buy with your savings reduces.
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| Interest rate (savings) | The return that will be paid on savings you hold in a bank or building society. Interest rates are always shown as a percentage.
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| Investment | The action or process of investing money for profit.
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| Investment Growth | The term used to refer to how much an investment rises in value. As investments can also fall in value, the holder of an investment can experience an investment loss.
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| Investment risk | Sometimes referred to as market volatility, this is a term used to describe how much an investment is likely to rise and fall in value. High risk investments are expected to make large rises and falls in value over a short space of time. They represent the greatest potential returns but also the greatest risk of loss.
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| ISA | ISA stands for Individual Savings Account. This is a type of account that shelters your savings from any tax that may ordinarily be due on your returns. There are a number of different types of ISAs with each having a limit on the amount that can be paid in each tax year.
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| Lifetime ISA | A specific type of Individual Savings Account (ISA) that benefits from a 25% bonus from the government. This type of ISA is intended for people who wish to save towards their first home or retirement, with penalties applying to those who use the savings for any other purpose. There are strict rules relating to the maximum age to qualify for this account and the amount that can be contributed each tax year.
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| Liquidity | Refers to how quickly and easily an investment can be sold. An investment that can be sold quickly is described as liquid.
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| Personal Savings Allowance | This is a tax-free allowance that can be used against any interest you receive from savings. This means that up to £1,000 of interest from savings will be tax-free for basic rate tax payers.
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| Sharesave | The LSEG sharesave plan is a type of Save As Your Earn savings plan. The plan has a 3 year term that enables you to save up to £500 per month for 3 years directly from your net salary.
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| Variable rate account | A type of savings account that offers an interest rate that could increase or decrease in the future. These types of accounts do not normally apply penalties for early access to your savings, however you should always check the terms before opening an account (e.g. 90 day accounts).
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| Void periods (property) | A period of time that a buy to let property is vacant, meaning the landlord is not receiving a rental income.
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| Jargon
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Definition
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| Additional rate tax band | The amount of earnings that are charged at the additional rate of tax which is currently 45%.
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| Basic rate tax band | The amount of earnings that are charged at the basic rate of tax which is currently 20%.
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| Capital Gains Tax | The tax that is payable when certain assets, such as shares and buy to let property, are sold for a profit.
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| Capital Gains Tax Exemption | The amount of gains (or profit) that can be realised in a tax year through selling certain assets, before a tax charge is applied. The CGT exemption for the current tax year is £3,000.
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| Class 1 National Insurance | Refers to the rates of National Insurance that are paid by a person in employment.
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| Gross Income | Income or salary received before the deduction of tax or National Insurance.
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| Higher rate tax band | The amount of earnings that are charged at the higher rate of tax which is currently 40%.
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| Income Tax | The tax that is applied to any income you receive above your Personal Allowance. This is likely to apply to your earnings from LSEG but may also apply to income you receive from savings and investments.
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| Marriage Allowance | Refers to the facility for non-tax payers to pass any unused Personal Allowance to their basic rate tax paying spouse or civil partner.
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| National Insurance Contributions | National Insurance is a form of tax that is paid on income you earn from employment. You and your employer pay National Insurance contributions to qualify for certain benefits and the State Pension. You may be able to get National Insurance credits if you’re not paying National Insurance contributions, for example when you’re claiming benefits because you’re ill or unemployed.
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| Net Income | Refers to your income after all deductions that are taken from your salary. This would include any income tax and National Insurance that is deducted from your salary, together with any other deductions such as pension contributions and student loan repayments you may be making.
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| Personal Allowance | The amount that can be earned in a tax year before income tax applies. This Personal Allowance for the current tax year is £12,570.
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| Personal Savings Allowance | The amount that an individual can receive in savings interest in a tax year before a tax charge is applied. The Personal Savings Allowance is £1,000 for a basic rate tax payer and £500 for a higher rate tax payer. Additional rate tax payers do not receive a Personal Savings Allowance.
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| Tax Free Dividend Allowance | The amount that an individual can receive in dividends in a tax year before a tax charge is applied. The Tax Free Dividend Allowance is £500 for the current tax year.
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