When choosing where to invest your savings, it’s useful to understand the most commonly used terms.
Here’s a quick run-through to help you.
Glossary of savings terms
• Annual Equivalent Rate (AER)
The AER is a figure showing the annual rate of interest received for a fixed deposit.
• Annual Interest
Annual interest is the interest earned in a savings account. It doesn’t factor in fees or compounding.
• Bank of England Rate
This is the base rate used by the Bank of England as the official borrowing rate.
• Base Rate
The base rate (sometimes also called the base interest rate), is the interest rate that the Bank of England charges when lending money to a bank.
• Branch-Based Account
This is an account held at a storefront location, rather than the bank’s head-office. Branch-based accounts were introduced to make banking more convenient and accessible.
• Cash ISA
This form of ISA is used to hold money, not other forms of investment, like shares of a stock.
• Clearing House Automated Payments (CHAPS)
CHAPS is a UK company that assists with the trading of currency in Europe. It offers same-day transfers for both the pound and the euro.
• Data Protection Act (DPA)
The DPA controls (and limits) how personal information is used and stored by businesses and the government.
• Deposit
A deposit is either funds used as collateral for a product or service, or a transfer of funds (e.g. to a bank).
• Easy Access
An easy access account enables individuals to withdraw their savings whenever they choose, without forfeiting interest or paying a penalty.
• Financial Planning
This refers to the act of calculating financial requirements or aims for the future, then identifying how to achieve them. Financial planning is often carried out with the help of an industry professional.
• Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS) provides protection for investors when financial services providers fail.
• Fixed Rate
If a loan or savings account is fixed rate, that means that interest is set at a specific rate for a defined period of time.
• Fixed Term
A fixed term contract is an agreement between parties that lasts for a set duration of time.
• Gross interest
This is the annual rate of interest paid before taxes and other fees are deducted.
• Help to Buy ISA
A Help to Buy ISA (no longer available) provides assistance with purchasing a first home. The government increases all funds saved into the account by 25% (up to £3,000).
• Identification
For many financial transactions, identification is required. This may be a passport, driving licence, or a bank statement, displaying a home address.
• IFA
An IFA is an independent financial advisor.
• Individual Savings Account (ISA)
An ISA offers payments tax-free, but there’s a cap on how much money can be invested into it.
• Instant Access Account
An Instant Access Account lets individuals take out money when they need it, without incurring any fees. Typically, these accounts offer lower interest rates.
• Interest Certificate
An interest certificate states how much interest has been accrued on an account.
• Interest Rate
An interest rate is an amount charged by a lender (or given to a buyer), which is a percentage of the money loaned or saved.
• ISA Allowance
An ISA allowance is the maximum an individual is permitted to pay into their ISA each tax year.
• Lifetime ISA
The lifetime ISA is another ISA product (tax-free) that helps people aged between 18 and 39 save for a first home or retirement.
• Monthly Interest
The term ‘monthly interest’ refers to the amount of interest paid or earned during the period of a month.
• Mutual Building Society
A mutual building society is an organisation where there are no shareholders. Instead, the policyholders share the costs and profits.
• Net Interest
This is the rate of interest earned after tax and other fees have been deducted.
• Notice Accounts
To take money out of a notice account, the individual must notify the savings provider, rather than having instant access.
• Personal Savings Allowance
The PSA was introduced in 2016, and permits basic-rate taxpayers to receive as much as £1,000 a year without paying income tax. Those on a higher tax rate have a PSA of £500.
• Postal Account
With a postal account, all transactions are carried out by post. This is cheaper than traditional banking, and as such, means that these accounts usually offer a higher rate of interest.
• Regular Savings Account
This form of bank account earns interest, but may come with restrictions (e.g. limiting the amount of transactions you can make in a month).
• Tax-Free Interest Rates
In this instance, the interest is exempt from tax (income and capital gains).
• Tiered Interest Rates
Accounts with tiered interest rates mean that the amount of interest received is dependant on the amount of money in the account.
• Trustee
A trustee is someone who looks after money or property on behalf of another person.
• Variable Rate
This is the interest rate on a loan that fluctuates, depending on a pre-agreed index (e.g. the Bank of England rate).
• Withdrawal
When money is removed from a savings or current account, this is called a withdrawal.