Annual Percentage Rate (APR)

Where interest on loans is expressed as other than a yearly rate, for example 1.5% per month, APR is the equivalent rate over a year, in this case 19.56%.  The Consumer Credit Act 1974 requires companies that advertise loans or credit cards to state what the APR rate is. This enables would be borrowers to compare rates and to see the true rate of interest repayment they would incur over the full year.

Annuity 

The payment of a regular income by a life company to an annuitant in exchange for a lump sum either for life or shorter periods.  Annuities are typically used for pensions and the individual receiving the annuity is known as an annuitant.

Assets

The main sense in which the term asset is used is to describe anything owned by an individual or business which has a monetary value.  More generally, 'asset' is used to describe a class of investment product. So, shares, property, and bonds are all asset classes. Hence the phrase used in portfolio management - 'asset allocation'.

Cat Standard 

Cat standards signify that a financial product meets certain standards on Charges, Access and Terms.

CREST 

Crest is an electronic system of settlement for the equities market in the UK and Ireland which was set up in 1996 to replace the Stock Exchange's Talisman system.

Critical Illness 

Insurance which covers the insured against specified critical illnesses such as cancer, heart attack and multiple sclerosis etc. In the event that the insured contracts one of the specified illnesses, the insurers would pay a lump sum rather than an income as in the case of permanent health insurance.

Current Account 

A bank account which offers a number of facilities including cheque book for debt settlement, deposits, direct debits and where applicable, overdrafts. This type of account is normally used for ongoing transactions (for example monthly direct debits and writing of cheques etc.) as opposed to a deposit account.

Debt 

Money owed by an individual or company to another individual or company.

Dividend 

The distribution of part of a company's earnings to shareholders, usually twice a year in the form of a main dividend and an interim dividend.

Earnings Cap 

A term which relates to a person's final salary in an occupational pension scheme taken out on or after 1st June 1989 (or 14th March 1989 if the scheme was new at that time) and is the upper limit of earnings allowable under the scheme.

Endowment Policy

A fixed term life assurance policy in which provision is made for premiums to pay for life cover plus a savings/investment element. The policy pays out a sum of money (the sum assured) on the death of the life assured or at a specified date (the maturity date) if the life assured survives the term. If an endowment policy is encashed in its early years any proceeds returnable to the policyholder will normally be below the value of the premiums paid up to cancellation.

Equity 

The amount which shareholders own in a publicly quoted company. Equity is the risk-bearing part of the company's capital and contrasts with debt capital which is usually secured in some way and which has priority over shareholders if the company becomes insolvent and its assets are distributed.  For most companies there are two types of equity: ordinary shares, which have voting rights, and preference shares which do not. Owners of preference shares rank ahead of ordinary shareholders in a liquidation.

Income 

Money received by an individual as a salary, or from investments. Cash deposits and bonds will provide income in the form of interest. Shares will, in most but not all cases, provide income in the form of twice-yearly dividends. This income is subject to income tax.

Individual Savings Account  (ISA) 

A tax-favoured savings account introduced on 6th April 1999 which replaced PEPs and TESSAs. ISAs are not an investment in their own right. They are a tax-free wrapper in which you can shelter investments.

Inland Revenue 

The government department responsible to the Treasury for the collection of direct taxes which include income tax, capital gains tax and inheritance tax etc.

Insurance 

A contract in which payment of premiums covers the insured against something which may, or may not occur. For example motor insurance covers the insured against accidents which may occur. In the UK insurance is differentiated from assurance (life assurance) which is protection against something which will inevitably occur.

Interest 

The charge you pay if you borrow money, and the income you receive if you lend it or invest it in an income-producing bank account or in a security like a bond or a gilt.  For example if you borrow £1,000 at an interest rate of 10% per year, the interest payable is £100 per year. Loans are sometimes made at fixed rates of interest, and sometimes at variable rates.

Life Assurance 

An insurance policy which, in return for the payment of regular premiums, pays a lump sum on the death of the insured. In the case of policies limited to investments which have a cash value, in addition to life cover, a savings element provides benefits which are payable before death. In the UK endowment assurance provides life cover or a maturity value after a specified term, whichever is the sooner.

Mortgage 

A loan in which the borrower (the mortgagor) offers a property and land as security to the lender (the mortgagee) until the loan is repaid. Repayments of the loan are usually made on a monthly basis over a long period of time, typically 25 years. In the UK, the most common forms of mortgage are the repayment mortgage and the interest only mortgage.

National Savings 

A variety of savings schemes, backed by the government, in which the public can participate. National Savings publishes a booklet entitled 'Investor's Guide' which describes in detail how it operates and the products it offers.

Overdraft 

A facility (usually at a bank or other financial institution) enabling an account holder to borrow up to an agreed amount and often for an agreed time.

Personal Equity Plan (PEP) 

A plan where people over the age of 18 could formerly invest in the shares of UK and other EC companies via an approved plan manager or through qualifying unit trusts and investment trusts and receive both income and capital gains free of tax.

Personal loan 

Loans available from banks and other financial institutions to private individuals for personal use such as the purchase of a motor vehicle, holiday or similar item. Repayment periods vary from one year to five years. No collateral is asked for or given for the loan.

Premium Bonds

See National Savings

Premium 

A measure of how far the share price of an investment trust is above its net asset value, expressed as a percentage of the net asset value per share.

Savings Account 

An account with a bank or financial institution which pays interest on balances held, usually once or twice per year, the amount of interest usually depending on to the amount of money in the account and the 'base rate' of the Bank of England. There is often a notice period required for withdrawals and in most cases the longer the notice period, the higher the interest rate.

Shareholder 

The owner of shares in a company.

Stakeholder Pension 

On offer from April 2001, stakeholder pensions aim to provide a low-cost, transparent and flexible way for people to save for their retirement.  Anyone in a company pension scheme earning less than £30,000 a year next year will be able to pay into a stakeholder pension at the same time as they make contributions to an occupational pension scheme.

Stamp Duty 

A tax imposed on the buying of shares and property. As far as shares are concerned, the tax is collected by brokers on behalf of their clients, and appears on the contract note which they send out to clients when they buy shares.

State Pension 

Regular income from the state paid to retired people who have made contributions during their life.  To qualify individuals must have made full National Insurance contributions. Men must have worked for 44 years and women for 39 years, or have received a special waiver such as invalid care allowance.

Stock Exchange 

A market where securities are bought and sold. In the USA, the New York Stock Exchange is the largest exchange and in the UK, the London Stock Exchange is the equivalent largest exchange.

Stockbroker 

A broker dealing in stocks and shares on behalf of a client.

Tax 

There are many different types of tax.  Please see our tax focus for a general overview of the most common taxes.

Tax Exempt Special Savings Account  (TESSA) 

A five year tax free savings scheme for people aged 18 and over, introduced by the government in January 1991 and operated by banks and building societies, but terminated in 1999.