Savings & investments Glossary

Term

Description

A

AER

Annual Equivalent Rate – this shows what the interest rate would be if we paid interest and added it to your account each year. This allows you to compare what return you can expect from your savings at the end of the year.

Annual interest

Interest that is paid on a yearly basis.

Averaging

The use of an average is designed to smooth the performance of the Index and shelter your investment from any sudden fluctuations. This means that you will be protected from any sudden drops in the Index. This also means that you may not get the full benefit of any sudden increases.

B

Bank of England base rate

The interest rate published by the Bank of England.

Bonus

The opportunity to earn an additional rate of interest each year by meeting account conditions. Or an introductory additional rate as a welcome to your savings accounts.

C

Capital

The amount of money you originally invest.

F

Fixed rate

This is a rate of interest that will not change during the term of the account investment.

Fixed term

The period of time that money is invested – this is agreed on opening the account and stays the same until maturity.

Fund

Money which is pooled together (collected from investors/policyholders) for the purpose of purchasing shares and bonds.

Fund Manager

The individual or team responsible for generating a profit with your money. Fund Managers buy and sell shares and bonds in various stockmarkets around the world.

G

Gross

The contractual rate of interest payable before the deduction of income tax at the basic rate specified by law (currently 20%).

Growth

The return over and above your original capital.

I

Investment

Typically the placing of money with a firm over a medium to long term who buy and sell assets such as bonds or stocks and shares with the aim of achieving growth and/or income for the investor.

ISA

Individual Savings Account (ISA) that allows you the opportunity to save without paying income tax or capital gains tax on the return from your savings.

ISA Limits

Each tax year you get an ISA allowance.  A tax year runs from 6th April in one year, to 5th April the next. You can invest up to £10,200 tax efficiently. Up to £5,100 of this can be saved in a cash ISA, with the remaining balance in a stocks and shares ISA, or the whole £10,200 can be saved in a stocks and shares ISA.

L

Lump sum

A single amount of money an individual wants to put into an account or an investment.

M

Management Charges

Charges deducted from funds to cover the costs of managing the investment. They cover things like audit fees, stamp duty, costs associated with buying and selling of shares and Financial Services Authority fees.

Monthly interest

Interest that is paid on a monthly basis.

N

Net

The rate of interest payable after allowing for the deduction of income tax at the basic rate specified by law (currently 20%).

O

OEIC

OEIC stands for Open Ended Investment Company. OEICs are managed by Fund Managers and, when investing in an OEIC, you are buying shares in a company which is buying shares in other assets, such as bonds.

P

p.a.

'per annum' means every year.

R

Retirement Age

Your retirement age is the chosen date to start receiving benefits from your pension. This is currently a minimum age of 50 but will change to 55 in 2010. Benefits must start being taken by age 75.

S

Stakeholder Pension

Introduced by the Government in April 2001, Stakeholder Pensions are a simple way to save for retirement. These include a limit on charges, flexible terms and you can make contributions from as little as £20.

T

Tax-free allowance

The amount you are able to invest in an ISA account on which the returns are free of income tax and capital gains tax. 

Tax-free lump sum

A maximum lump sum equal to 25% of your pension fund which can be taken tax free once you reach your chosen retirement age.

Tax Relief

Payments made into your plan by Her Majesty’s Revenue & Customs in addition to your own contributions. These payments are equal to the basic rate of income tax, so if you contribute £80 to a pension the Revenue will add £20 on your behalf. Additional tax relief is available for higher rate taxpayers.

V

Variable rate

A rate of interest that can change over time.

W

Withdrawal

When instructions are carried out to pay money out of your account.