Jargon Buster


6th April 2006 is the date when many of the existing pension rules were simplified or abolished.

This can be included as part of your home contents insurance if you pay an additional premium. It will pay out if you accidentally damage your furniture or possessions.

If you’re a member of a final salary pension scheme (otherwise called a ‘defined benefit’ scheme), the accrual rate is the rate at which you build up your pension. An accrual rate of 1/60th means you build up a pension equivalent to 1/60th of your final salary for each year that you’re a member of the scheme. An accrual rate of 1/80th is less generous.

A term used by medical insurance companies to describe short-term illnesses that they will cover the treatment of. Most insurers describe it as an illness, disease or injury that’s likely to respond quickly to treatment and where you’re able to be returned to the state of health you were in before you became ill. Unfortunately, it leaves room for lots of grey areas.

If you take out a credit or store card you can ask for an extra card for a second person (such as your husband or partner). He or she will be an ‘additional cardholder’, but they won’t be responsible – in law – for paying off any of the debts they run up. That remains your responsibility as the person who signed the credit agreement.

If you’re a member of an occupational pension scheme, your employer will normally let you pay extra money into your pension through an AVC. Some employers will match any payments you make into an AVC (although not all do) and others will negotiate lower charges.

The rate of interest you would receive on an account if interest was paid annually. Some savings accounts pay interest monthly (or more frequently than once a year) and the AER helps you compare accounts that add interest at different frequencies.

Credit cards that support a charity or organisation (such as a football team or trades union). A donation is normally made when you take out the card and the charity receives a small ongoing donation linked to the amount you spend.

Mortgage lenders take into account how much you earn and how much you have to pay each month to cover debt payments and/or commitments such as maintenance or child support, regular bills etc. when calculating how much to lend you.

An additional personal tax allowance for people aged 65 and over. There are two bands; one if you’re aged 65-74 and another for those aged 75 and above. This is the amount of income you can earn every year without paying tax.

A document that tells you how much a particular mortgage lender would be prepared to lend you based on information about your income etc. Neither you nor the lender is committed to the mortgage at this stage as a mortgage lender would want information about the property you are planning to buy (and to carry out additional checks on you) before agreeing the mortgage.

An annual limit set by HM Revenue & Customs each year on how much you can pay into your pension. It is well over £200,000 and rising every year.

If you buy an investment product, such as a pooled investment fund or pension, you will normally have to pay an annual management charge. This can vary widely from 0.2% to 2.5% and above. A low annual management charge doesn’t always mean you’re getting the best value, but there are plenty of funds with high annual management charges that are also badly managed.

This covers you for holidays you take throughout the year. It’s often better value than insurance for a single trip if you go on holiday twice a year or more.

The easiest way to think about this is as a policy that converts your pension lump sum into an income. Most annuities are designed to pay you an income for the rest of your life, although you can take out one that only pays for a specified period (called a ‘short-term annuity’).

If you’re converting your pension fund into a regular monthly income, the amount you get each year will depend on the annuity rate. The higher the rate, the more you will receive. Its level is based on the return generated by specific government bonds.

Some income protection insurers will only pay your claim if your illness means you cannot carry out any work at all (i.e. you cannot perform ‘any occupation’, no matter what it is). This sets the hurdle high if you want to make a successful claim. It means you have to fail a task-based test before the policy will pay out. Avoid this type of policy at all costs.

Some income protection insurers will pay your claim if you’re injured or ill and cannot do your own job or any related job for which your experience and training make you suitable. These policies are better than those that only pay out if you cannot perform any occupation.

The rate of interest you will be charged on a loan or debt. It takes into account extra charges that you have to pay, such as set-up costs. Lenders have to tell you the APR before you sign a credit or loan agreeement.

Many mortgage lenders impose an arrangement fee when you take out a mortgage. It can range from a flat fee of a few hundred pounds to over a thousand pounds or it can be calculated as a percentage of the mortgage.

This can either mean things you own (such as your home, car, money you have in the bank, jewellery etc.) or a type of investment. If it’s used in connection with investments, it normally means shares, bonds, cash, property etc.

The way your investments are spread across different types of investment – or asset classes – to reduce your risk. You may decide to split your investments so that a third goes into shares or share-based funds, a third into bonds and a third is held in savings accounts or cash-based funds.

Shares, bonds, property and cash make up different asset classes and if you invest in different asset classes, you are spreading your money around (normally to reduce risk).

Another word for insurance when used to in connection with life insurance policies.

A tax-free benefit that is not means tested and which is payable to those aged 65 and over who need help with personal care because they are physically or mentally disabled.

A new type of work-based pension planned for 2012 onwards, will automatically enrol anyone who qualifies for the scheme. You can always opt out afterwards, but the idea of auto-enrolment is that it stops those who don’t join a pension scheme purely because they don’t get round to filling in their pension forms from losing out.


Moving your credit card debt, overdraft or loan balance from one credit card to another, normally in order to pay 0% or a lower rate of interest than your existing card provider charges. You will normally be charged a balance transfer fee. Unless a balance transfer card also has a ‘0% on purchases’ deal, you should not use it for purchases or you will be charged interest on those.

If you transfer your balance from one credit card to another, the card company you move the debt to will often charge you a balance transfer fee. Typically, it will be between 2% and 3% of the balance you transfer. If you move to a credit card charging 0% on balance transfers, you will still be charged interest on the balance transfer fee.

This is a large final payment that some finance deals impose (such as personal contract purchase, which you might use to buy a new car). Having a balloon payment means the finance company can reduce the regular, monthly payments to a more affordable and attractive level.

Someone who has entered into a legal agreement to clear debts that they cannot pay. When you go bankrupt, you no longer have control of your assets or money. There are some restrictions on the jobs you can do while you’re bankrupt.

A way of clearing debts that you cannot pay. When you go bankrupt, you no longer have control of your assets or money. You will generally be discharged from bankruptcy a year after the date of the bankruptcy order. Bankruptcy has serious consequences; it will remain on your credit file for six years and affect your ability to get credit or a mortgage during that time.

Otherwise known as the Bank of England base rate or the base rate, this rate is set every month by the Bank of England’s monetary policy committee. When it changes, mortgage and savings rates will generally change as well, although not necessarily by the same amount (with the exception of tracker rate mortgages and savings, which have to mirror the base rate).

This is a pension that you are entitled to receive at state retirement age based on National Insurance contributions that you’ve paid, are treated as having paid or are credited with throughout your working life.

Someone who receives an inheritance when you die or money from an insurance policy when it pays out.

If you take out an investment, such as a unit trust or shares in a company, you buy units or shares at a higher price than you sell them at. This is called the bid-offer spread and it can be around 5% for unit trusts. It means if you invest £100 in a plan with a 5% bid-offer spread, you immediately lose 5% of its value.

The price at which you sell units in an investment fund, such as a unit trust, or shares in a company.

Blue chip companies are meant to be the biggest and safest companies in the UK. Well known high street names and other large companies may be described as ‘blue chip’. It’s not so reassuring when you realise that the term comes from the high value blue coloured chips at a casino!

A scam where brokers use high-pressure sales tactics to persuade investors to put money into worthless or non-existent companies. They often have plausible-sounding names (sometimes similar to regular stock broking firms) and employ very persuasive tactics. The average amount lost by victims who fall for their techniques is £20,000.

The term ‘bond’ is sometimes used to mean different things, but a true bond is an IOU for a loan, either to a company or a government. If you invest in a bond you receive interest on the loan (normally at a fixed rate), with the capital being paid back at the end of the term. A company bond is called a corporate bond and a UK government bond is called a gilt. Bonds are traded, so their value will rise and fall according to a variety of factors that influence demand (such as inflation etc.).

An investment fund that puts money into a variety of different bonds (which are IOUs for loans); normally a mixture of either company or government bonds.

A form which tells you the state pension you are likely to receive at retirement.

Someone who acts as an intermediary between you and a company (such as a mortgage lender or insurance company). A good mortgage or insurance broker should be able to compare deals from many different companies before they make their recommendation. Always ask how many different insurance providers or mortgage lenders a particular broker deals with before you use them.

There are two kinds of budget; the annual Budget presented by the Chancellor, which sets out taxes etc. for the coming year and a personal budget, which helps you to work out how much money you can spend.

A way of working out how much you have coming in each month and therefore what you can afford to spend.

Insurance that covers the cost of repairs to your property if it is damaged by unforeseen events (flood, fire etc.). It will also pay the costs of rebuilding the property if it cannot be repaired. Buildings insurance generally covers anything that you wouldn’t take with you if you moved house (such as a fitted kitchen, bathroom suite, garden shed etc.). However, although hard flooring comes under buildings insurance, fitted carpets are covered by contents insurance.

A mortgage that you can take out if you want to buy a property as an investment. The interest rates are normally higher than those on an ordinary residential mortgage and you generally have to come up with a larger deposit.


This refers to the original amount you borrow (with a mortgage) or the original sum you invest (with an investment plan).

More commonly called a repayment mortgage, it’s set up so that you pay off some of the original amount you’ve borrowed, as well as the interest on the loan, every month. As long as you keep up the repayments your loan is guaranteed to be repaid at the end of the term.

If you sell certain assets, such as shares or investment property, for a higher price than you paid for them (once any expenses have been taken into account), you have made a capital gain.

The tax you pay on the profit you make when you sell particular assets, such as shares or investment property (as long as it isn’t your main home). You don’t have to pay tax on every penny of profit as you have an annual capital gains tax allowance. The current rate of capital gains tax is 18% for basic rate taxpayers and 28% for anyone on a higher rate of tax.

Every year (from April 6th to the following April 5th) you’re given a capital gains tax allowance. It’s the amount of profit or capital gain you’re allowed to make every year when you sell certain assets without being liable for capital gains tax. In the tax year 2010-2011 it is £10,100.

An increase in the value of your investment once charges and costs have been taken into account.

These cards give you back a (small) percentage of the amount you spend on your card. Typically, a cashback card may pay up to 5% of your spending, which will be credited to your account.

Funds offered by a pension or investment company as an alternative to riskier share or bond-based funds. Some of them work on a similar principle to keeping your money in a savings account, but others invest in riskier assets. You may also find them called ‘money market’ funds.

If you withdraw cash from a cash machine using your credit card, you’ll normally be charged a cash handling fee (which can be between 2% and 3%). It doesn’t just apply to times when you take out cash but to other transactions such as online gambling and money transfers. It’s also called a ‘cash advance fee’.

If you buy something using your credit card or Visa debit card, you may be able to get a refund from the credit card provider through chargeback if the goods are faulty or don’t arrive. Chargeback doesn’t apply to debit cards that are not under the Visa brand and it’s not something that’s set in law unlike Section 75 of the Consumer Credit Act, which also gives you rights if you want to dispute a transaction. Chargeback can be useful if you buy goods that cost less than £100 (as Section 75 only applies to those costing £100 – £30,000).

A little known legal process whereby a company that you owe money to can go to court to turn an unsecured debt that is not linked to your home (such as a credit card or personal loan), into a secured debt. It means that if you do not repay the money you owe, the creditor could go back to court and force your home to be sold.

A tax-free benefit paid to the main carer of a child. You are normally given forms for child benefit in the ‘bounty pack’ that you receive in hospital.

If you’re responsible for at least one child or young person who lives with you, you may qualify for child tax credit. It’s a government payment administered by HM Revenue & Customs.

A savings and investment account for children, abolished by the coalition government from January 2011. The idea was to encourage parents to save for their children. Friends and relatives can pay up to £1,200 a year between them into existing child trust funds and the money grows free of tax. It cannot be touched until your child’s 18th birthday.

Medical insurers use this term to describe an illness or disease that they will no longer pay for the treatment of. An acute illness or condition can become chronic after a certain length of time. The rules may vary from insurer to insurer. It means that funding for treatment for an illness such as cancer may stop after a while.

A financial settlement in divorce that aims to sort out all the money issues in one go so that the former husband and wife do not have to rely on each other for financial payments in the future.

This shows money that is available in your bank account for you to spend. If the balance is shown as ‘uncleared’ it is on its way from the person or company that paid you, but it is not yet available for you to spend.

A with-profits fund (which invests in a mixture of shares, bonds and cash) that is not taking on any new business. Closed funds normally give investors a far worse deal than funds that are still trying to attract new customers.

A way of negotiating a divorce where each partner has their own solicitor and meetings are carried out face-to-face. The solicitors also agree that if the negotiations break down and the couple go to court, they will not represent them and new solicitors would have to be appointed.

Sometimes also called a ‘pooled fund’, it allows a group of investors to combine their money into one fund. The advantage of a collective investment is that it lets you spread your risk by buying a range of different shares or bonds etc. It’s typically used to describe investment funds such as OEICS, unit trusts or investment trusts.

Office blocks, shops and factories all fall into this category. Individuals can invest in commercial property through specialist funds (which can be quite risky) and large investment and pension funds often spread their risk by buying commercial property as well.

Some financial advisers receive a commission when they sell you a financial policy or product, which is taken out of the premiums you pay, often in the first year or two. It can feel like a less painful way of paying for financial advice as you don’t have to hand over a cheque, but it can be more expensive in the long run. It could also influence the advice you’re given.

A loan that you can roll other debts into. They’re sold as a way of lowering your monthly payments, but that’s because you take often the loan out over a much longer period, secure it against your home or do both. Check what you’ll be giving up in return for lower payments.

This insurance covers the cost of replacing the contents of your home (from carpets and furniture to clothes and electronics). It does not cover fixtures and fittings that are attached to the structure of the property (such as kitchen units or bathroom suite etc.). Policies vary widely; for example, one insurer might pay for the replacement of a three-piece suite if one armchair was damaged, another might only cover the cost of the armchair.

If you contract out of the state second pension (or SERPS pre-2002), part of your National Insurance contributions are paid to a pension scheme or company to build up a private pension.

The legal process of transferring ownership of a property from the seller to the buyer. You don’t have to use a solicitor to carry out this transaction, although most people do.

A solicitor who carries out the legal process of transferring property ownership. Buyers are often recommended solicitors by the estate agent they are buying through. This can save the hassle of picking one yourself, but I’d recommend that you find out a little about how they work before you sign up (e.g. will they keep you informed of progress, how much will they charge if you send them an email to find out what’s going on etc.).

The time you’re allowed to cancel after agreeing to take out a financial product or insurance policy and get your money back without paying a penalty. Check how long the cooling-off period is before you sign up.

An IOU when you make a loan to a company. The lower the interest rate (i.e. the lower the income you receive), the less risky the company is perceived to be. Companies that are at the risky end of the spectrum issue high-yield bonds, otherwise known as ‘junk bonds’, although – for obvious reasons – some prefer not to use that term.

This is an order made against you after someone you owe money to has taken you to court to recover the debt. It may be for the amount you owe or a different amount set by the court.

This records a variety of information about you relating to how you have repaid money you’ve borrowed. Your credit file will also contain what’s called ‘publicly available information’, such as whether you have registered on the electoral roll and whether you have been declared bankrupt or had a county court judgement registered against you. In the UK, credit files are compiled by three different credit reference agencies. Only companies that provide credit repayment data are able to access information provided by other lenders. That means that employers and landlords can only see information that is publicly available.

A broad term describing how you’ve managed loans and other forms of credit. It includes information on how much you have borrowed (or how high the credit limit is, in the case of credit cards) and whether you’ve made your payments on time.

In the UK, there are three credit reference agencies (Experian, Equifax and Call Credit). They store and compile detailed credit files on adults in the UK from information that is publicly available and credit repayment data provided by lenders.

This is a number between 0 and 1,000, which represents how good or bad a risk a credit provider believes you to be. The higher the credit score, the better the risk you are and the easier (and cheaper) it will be to get credit. The complicating factor is that lenders and credit providers use different systems to work out your credit score and they’re pretty secretive about what goes into them. It means that if you are turned down by a lender on the basis of your credit score, it may be difficult to work out exactly why.

A community-based finance organisation that provides savings accounts and loans. Credit unions may be set up in a particular neighbourhood or may be linked to your job (for example, several police forces and fire brigades have their own credit unions).

A policy designed to pay out a lump sum if you are diagnosed with a serious illness. Some policies cover more illnesses than others, and some are stricter than others in terms of how serious the disease should be before it triggers a payment. Always check exactly what is covered (and have conversations confirmed in writing, if you’re buying over the phone), before you sign up.


The date you and your husband or civil partner physically separate (i.e. you don’t share time together or cook together, if you are still living in the same property). It is relevant if you divorce on the grounds of separation.

Employers often offer a lump sum of between two and ten times your salary if you die while you’re still employed by them. The lump sum will be paid to your husband, partner or dependants.

This normally involves taking out one loan to pay off several other loans or debts. It may be a good idea for some people in limited circumstances, but it certainly isn’t the answer for everyone. If you’re being encouraged or advised to consolidate your debts into a secured loan (i.e. one where the value of your property acts as a security), think very carefully about doing so.

A way of paying off debts, such as personal loans, store card and credit card debts that you cannot make the full payments on. It’s normally something you would sort out with the help of a debt adviser who will look at how much you pay for rent or mortgage, gas and/or electricity and other priority payments, such as council tax. Some creditors may freeze interest and other charges.

If you buy a property with, for example, your partner and want to split the ownership unequally, your solicitor should suggest you draw up a document that spells out the percentage of the property each of you owns.

Life insurance that is designed to run alongside a repayment mortgage (where amount you owe reduces over time). If you die within the term of the life insurance policy it will pay out a lump sum, but the amount decreases every year. Don’t expect the premiums you pay to fall over the term of the policy; they won’t.

A document that shows a marriage has been ended by divorce. For civil partnerships, the equivalent document is a ‘final order’.

A document giving a preliminary declaration that a marriage has been ended by divorce. Once the decree nisi has been issued, there is a period of six weeks and one day before the decree absolute is granted. For civil partnerships, the equivalent document is a ‘provisional order’.

Otherwise called ‘title deeds’, these documents record who owns a property. Until fairly recently, if you had a mortgage on your property, the mortgage lender would keep the title deeds until you had paid it off. However, these days mortgage lenders seem happy to rely on the fact that the Land Registry (or Register of Scotland) records ownership of properties, including whether or not there is a mortgage on it.

If you break the terms of a loan agreement (by not making the payments you are supposed to), you are said to have defaulted on the loan. A lender wouldn’t necessarily describe you as being ‘in default’ if you missed one payment, but you would risk being in default if you missed a series of payments. Once you are in default, it will normally be registered on your credit record for up to six years.

This is the period of time between you making a claim on an insurance policy, such as income protection or accident, sickness and unemployment cover, and the payments being triggered. A deferred period normally lasts for 4, 13, 26 or 52 weeks; the longer it is, the lower the premiums.

The new(ish) name for a final salary pension. The pensions industry is moving away from calling them ‘final salary’ schemes because some employers link the amount you get at retirement to an average of your salary, rather than your salary at retirement (or when you left the company).

The new(ish) name for a money purchase pension. With a defined contribution pension, your employer pays a specified amount into the pension every month on your behalf, but makes no promises or guarantees about how much the pension fund will be worth when you retire.

The opposite of inflation. With deflation, prices fall over time. It sounds like a good idea, especially if you’re planning a major purchase as you just sit back and wait for prices to fall. Unfortunately, it has a negative effect on the wider economy precisely because it makes people reluctant to spend (which means demand falls, so companies make people redundant, which reduces demand etc.).

Someone who relies on you for financial support. It could be your husband, partner or a child/children.

A way of paying regular bills (such as gas, electricity etc.). Be aware that you give the company you’re paying via direct debit the right to take ‘variable amounts’ from your account as long as they inform you in advance within a specified period. There are guarantees to guard against abuse and fraud, but the fact payments are not fixed can make budgeting difficult.

A tax-free benefit paid to children or adults aged under 65 who need help with personal care or walking and those who need to be supervised.

If you buy an insurance policy, you are normally expected to make a disclosure of your circumstances. It means that if, for example, you’ve had an illness and you’re applying for medical insurance, you would have to tell the insurance company. Increasingly, insurance companies are asking for detailed information about minor illnesses, routine tests and scans (even if you were given the all clear afterwards).

Someone who sells or buys investments or insurance without giving advice. They are also known as ‘execution-only brokers’. They will often give you a discount on some or all of the charges on an investment plan.

A mortgage where the interest rate you pay is less than the standard variable rate. The level of the discount is set for the term of the deal, but the rate you pay could rise or fall depending on whether the Bank of England varies interest rates and/or if the mortgage lender decides to raise or lower its standard variable rate.

If you have a large amount of money that you want to invest in shares and investment funds etc., you can ask a stockbroker to manage your investments for you without checking with you every time she or he wants to sell or buy shares.

If you own shares in a company, you may receive a dividend as a share of the profits. Dividends are normally paid twice a year; either as cash or as additional shares, but their level (and, indeed, whether there is a dividend at all) is not guaranteed.

The process of spreading your money around several different assets (such as shares, bonds and cash) to reduce the risk of losing money if one of them falls in value.

A bank or building society account that hasn’t been used for a number of years. If an account has not been active for 15 years, the money can be used to fund ‘good causes’, although if the customer claims it after that date, they must be given any money they are owed.


A fee you have to pay a mortgage lender if you pay off your mortgage early or switch to a different lender. In general terms, the more competitive the mortgage deal, the more likely it is to have an early repayment charge. Fixed rate mortgages invariably have an early repayment charge.

In Scottish law, if a cohabiting couple break up, one partner may be able to bring a claim against the other if they can show they lost out financially as a result of the relationship. The terms are quite narrow but, for example, one partner might have given up work to bring up their child or children and been economically disadvantaged.

A card that entitles you to free or reduced cost emergency treatment in the countries that make up the European Union, plus Iceland, Lichtenstein, Norway and Switzerland. You can order it online free of charge.

A list of everyone in the UK who is registered to vote. You’re not automatically registered, instead you have to fill in a form from your local council or go online. There are two versions of the electoral roll; the full version, which lenders check to verify who you are and the edited version, which is sold to commercial companies for marketing purposes and which you can opt out of.

Money you set aside in a savings account (normally in an easy access account). In an ideal world, you should have enough in your emergency savings account to live on for three to six months, but anything is better than nothing.

Benefits offered free or subsidised by an employer, such as life insurance while you still work for the employer (called a death-in-service benefit), income protection insurance, medical cover, discounts etc.

A state benefit you can claim if you can’t work due to illness. It replaced incapacity benefit for anyone who started claiming after October 2008.

An interest-only mortgage (where the original amount you borrowed isn’t paid back by your monthly payments) sold alongside an endowment policy, which is a combination of a life insurance and investment plan. Endowment mortgages have high upfront charges, do not guarantee to pay off the original amount you borrowed and are inflexible. They turned out to be an appalling product for many homeowners.

This certificate shows how energy efficient a property is on a scale of A-G, where ‘A’ is the most energy efficient and ‘G’ is the least. It forms part of the home information pack in England and Wales and the home report in Scotland.

If you invest in shares, you may also hear them described as equities and/or stocks.

If you own your own home, the word ‘equity’ normally refers to the difference between the value of your mortgage (and any other loans secured on your home) and the value of the property.

A generic term for a range of products that let you release some of the value (or equity) in your home. It can mean remortgaging to increase your borrowing, but more commonly it refers to schemes that are offered to older homeowners (normally 55-60+) so they can receive a lump sum or income without selling up and downsizing. The money is repaid when the homeowner dies or – sometimes – when they move.

The money and property that you leave when you die, minus anything that you owe.

Investment funds that refuse to invest in certain companies (such as those that have a significant impact on the environment, manufacture weapons or are involved in the tobacco industry). In reality, it’s much broader than that. Many ethical funds also positively select companies that they believe are trying to operate in a sustainable way and an increasing number will try to influence companies they invest in.

The interest rate that banks in the euro zone lend to each other at. The rates vary according to the length of the loan (with one, three and six-month Euribor rates being commonly quoted).

The first part of an insurance claim that you have to pay. It’s normally a fixed amount (rather than a percentage of the claim) and you can choose to pay a higher excess if you want to reduce your premiums. Beware that some travel insurance policies may charge several different excesses – depending on the type of claim – with no upper limit.

Low-cost investment funds that track or mirror a particular index. They’re not as well known as other tracker funds (such as OEICS and unit trusts) and are traded in the same way as shares on the stock market.

An event or condition that is not covered by an insurance policy. There may be standard exclusions that apply to all policies of a particular type sold by an insurer and/or exclusions that apply solely to policies you take out.

Selling or buying shares, investments or insurance through a broker without receiving advice.

A brokers who sells or buys investments or insurance without giving advice. If they give you a discount on some or all of the charges on an investment plan, they’re known as ‘discount brokers’.

Someone who deals with a person’s affairs after their death. Most people would appoint more than one executor and will state who they are in their will. Being an executor can involve a lot of form-filling etc., so make sure you ask the person if they’re happy to take on this role.


A type of life insurance policy that pays a monthly tax-free income, instead of a lump sum, when the policyholder dies.

This enables money to be transferred between accounts in hours (rather than days). However, both the sending and receiving bank or building society have to be members of the service in order for this to happen.

Otherwise known as a defined benefit scheme, it’s a pension you may be offered by your employer where the pension you receive is based on the salary you earn at retirement. Many firms are now closing their final salary schemes.

Someone who is authorised by the Financial Services Authority to give financial advice. You can check the Financial Services Authority’s register to make sure an adviser is authorised before you sign up with them.

If you have taken out joint debts or opened a joint bank account with someone else, you have a financial association with them. This means that a credit reference agency can link your credit file with theirs. If you no longer have any joint debts or accounts with them you can ask the credit reference agency to create a ‘disassociation’ to break the link.

An independent and free adjudication service if you have a complaint about a financial product. It covers most financial products (bank accounts, credit cards, insurance, mortgages, pensions etc.), although some are excluded, and certain types of complaint will not be allowed. For example, you cannot complain about the fact that a stock market investment has fallen in value if you knew the risks, although you could complain if you were told by the sales adviser that it was a risk-free investment.

The main financial regulator, which regulates most financial markets, standards and firms. It’s also responsible for helping consumers get a fair deal. There are some types of financial transaction that aren’t regulated by the FSA.

An independent scheme designed to compensate savers and investors who lose money because a bank or investment firm goes out of business. There are limits on how much you are entitled to depending on whether you have a savings account or investment product.

Those involved in the financial industry often refer to bonds (which are simply loans to a company or government) as fixed income.

As the name implies, this mortgage is fixed and doesn’t rise or fall during the term of the deal. They’re a good idea if you need the certainty of knowing that your mortgage payments will not increase, but they’re often more expensive than variable rate mortgages (such as tracker or discount rates).

A mortgage that lets you overpay, underpay and take payment holidays. The lender should also calculate interest on a daily basis, which means that if you make extra payments, your balance is reduced immediately. Beware that some mortgages brand themselves as flexible when they don’t offer many of these features.

When you use your credit card abroad, the cost of your purchase shows up on your credit card bill in the local currency (euros or dollars etc.), but you’re billed in pounds. The foreign exchange fee is a charge of (typically) up to 3% that credit card companies add when they’re converting currencies.

An individual or company that owns a leasehold building (such as a block of flats) and the land that belongs to it. The freeholder is ultimately responsible for maintenance and repairs to the property, although leaseholders (those who have bought a leasehold flat) normally have to pay for them.

The FTSE is an independent company owned jointly by the Financial Times and the London Stock Exchange (hence the name). In the UK, it provides stock market indices such as the FTSE 100 index (made up of the 100 largest publicly quoted companies), the FTSE 250 (the next largest 250 companies) and the FTSE All-Share, which represents 98-99% of UK companies.

Either one person or a team of people who run an investment fund. He or she decides which companies to invest in, when to invest and how much of the fund’s money to commit to a particular company. As in many walks of life, there are good, average and pretty awful fund managers around.


When someone makes a higher offer for a property that you’ve already had your offer accepted on. It can only happen before contracts have been exchanged.
When a buyer and seller agree a price for a property and the buyer drops the price at the last minute; just before contracts have been exchanged.

Tax relief on money you give to charities. Charities can claim basic rate tax relief from the government on behalf of taxpayers, while higher rate taxpayers can claim tax relief via their self-assessment tax form.

A bond (which is an IOU for a loan) issued by the UK government.

If you die without a will, a close relative can apply to the probate registry to deal with money and/or property etc. you leave behind. The grant of letters of administration gives them that authority.

The legal document to show that authority has been given to one or more people (the executors) to pay off any debts and distribute money and/or property that’s been left after you die if you have a will. In Scotland, it is called ‘grant of confirmation’.

Interest that is paid to you before tax has been taken off. Many savings products have basic rate tax deducted before you receive the interest. If you’re a non-taxpayer, you should fill in a form called R85, which is available from HM Revenue & Customs’ website, so that interest is paid gross.

A pension plan that your employer may offer. Although it’s a pension that you can join through your work, it’s not classed as an occupational scheme (but as a personal pension). As a general rule, it’s normally worth joining if your employer makes contributions on your behalf.

With some insurance policies (such as those that pay out an income if you can’t work because you’re ill), you can opt for guaranteed premiums, which will not go up by more than a specified amount during the period of the guarantee. Guaranteed premiums are more expensive at the beginning, but non-guaranteed premiums can rise dramatically after a number of years.

If you don’t earn enough to take out a mortgage in your own right, you can ask someone else (a parent or friend) to act as a guarantor, who agrees to pay off the loan if you cannot. It’s a serious responsibility and one they should not take lightly. The mortgage lender will want to know that the guarantor is able to afford the full mortgage payments (and not just the part not covered by your income).


In Scottish law, this refers to land and buildings that you own when you die.

A fee that many mortgage lenders will make you pay if you want to take out a large mortgage relative to the property’s value. Some banks and building societies impose the charge if you want to borrow more than 90% of the property’s value, others if you want to borrow more than 95% and some don’t impose a higher lending charge at all.

A credit agreement that’s often used for buying a car. The rules and regulations around hire purchase are more complicated than for many types of finance. Under the rules, you don’t own the goods until you have made the last payment and you have the right to hand them back once you’ve paid 50% of the total amount you owe under the agreement.

A set of documents that sellers of all houses and flats in England and Wales had to provide for prospective buyers. The pack included details about the property being sold, local authority searches and an energy performance certificate. HIPs were abolished in 2010.

Properties in Scotland must have a home report when they are put up for sale. The home report includes a survey, an energy performance certificate and a property questionnaire.

A type of equity release scheme where you sell all or part of your home in exchange for an income or a cash lump sum. It can be an expensive way of releasing cash from your home and the younger you are the less you will receive. The debt is repaid when the homeowner dies.


A type of long term care insurance where you pay for the cost of your care once you need to go into a care home. It’s designed to cover care costs for the rest of your life, but won’t necessarily cover everything. Most policies pay out an amount that rises in line with inflation every year, but if care costs rise above inflation you might have to make up the difference.

Mortgage lenders traditionally work out how much they will lend you according to the amount that you earn. Although income multiples are still used, an increasing number of mortgage lenders base the amount they lend on affordability, which takes into account your existing debts as well.

This pays out a monthly income if you cannot work due to serious illness or because you’ve been injured. The payments normally continue until you’re able to work again or you retire. They can kick in after a relatively short time (a few weeks) or after a year or longer.

Instead of converting your pension fund into a monthly retirement income by buying an annuity, you take income directly from the fund. It’s not suitable for everyone, so take specialist advice if you’re thinking about it.

An adviser who is able to look at what’s available across the whole market (not just the products sold by a handful of companies). They must let you pay for the advice by fee or commission. If you pay by fee you know they’re under no pressure to sell you something to pay their own bills.

Premiums into or payments from an investment or insurance policy that rise in line with inflation (based on a particular inflation index).

An investment fund that’s designed to mirror the performance of a particular stock market index (such as the FTSE 100) by buying the same or similar shares. These funds generally have much lower charges than those where a fund manager decides which shares to buy and sell.

A legally binding agreement that is an alternative to going bankrupt. The person owing money agrees to pay off a percentage of their debts every month for a fixed period of time. The consequences of taking out an IVA are not as serious as those of going bankrupt, but it’s not always the answer to debt problems that it can be portrayed as.

A tax that your heirs must pay if your money and property are worth more than a certain amount when you die, once any debts you have are taken into account. You can leave money and property up to a certain value and there will be no inheritance tax to pay. The current inheritance tax rate is 40%.

The value of assets (such as cash, shares, property etc.) that you can leave to others when you die without them having to pay inheritance tax on it. Money and/or property you leave to your husband or civil partner are free of inheritance tax so aren’t included in your inheritance tax allowance.

If the money and property etc. that you leave when you die is worth less than the inheritance tax threshold, there will be no inheritance tax to pay. In the current tax year, 2010-2011, the inheritance tax threshold level is £325,000. Anything you leave to your husband or civil partner is free of inheritance tax so isn’t included.

An upfront charge that is taken from your premiums when you first take out a policy (such as a unit trust). The level of initial charge varies between different products and different companies, but it can be up to 5%. It’s possible to avoid some or all of the initial charge by going direct to a discount or execution-only broker.

The period before your credit card provider starts charging interest. It runs from when you buy something with your card until the date you settle your bill and can be up to 56 days. It only applies if you pay your bill in full every month.

A home loan where you only pay the interest. The original amount you borrow – called the capital – has to be repaid separately, usually by an investment plan.

A complex set of rules that set out who should inherit the money and property you leave behind if you die without a will. In very simple terms, money goes to your husband or civil partner and family (while friends and step-children will not inherit). There is one set of rules covering England and Wales and another for Scotland.

If you die without a will, you die intestate. It means that money and property etc. that you own will be distributed to your family according to intestacy rules, which may mean friends and some family members miss out.

A pooled fund (often made up of shares or a mixture of shares and bonds) which itself issues shares to investors. Investment trusts tend to have relatively low charges but may be riskier than some other pooled funds (such as OEICS and unit trusts) as fund managers are allowed to borrow against its value. It’s like buying a property with a mortgage: if prices move up, you could make big profits from a relatively small deposit, but if prices fall your losses could be much larger than the original deposit you put down.

A tax-efficient account. There are two different types of ISA, a cash ISA, which is a tax-free savings account and a stocks and shares ISA, where you don’t have to pay any extra tax when you cash it in. There are limits on how much you can pay into your ISAs every year.


A bank or savings account that you can open with one or more others. Each of you is responsible for any debts that are run up on it. It can be set up so that each of you can sign cheques etc. or so that more than one of you has to agree a transaction.

An annuity that converts a pension fund into a monthly income for life, where your husband or partner will receive an income from the pension fund after you die.

This type of policy is often taken out if a couple have a mortgage on their property. It pays out if either one (or both) of you dies. It’s cheaper than buying two separate life insurance policies, but it may be a false economy because if you split up you cannot divide the policy and if one of you dies the other is left without cover.

A loan where two or more people are named on the contract. Each of you is ‘joint and severally liable’ which means you’re each responsible for the entire debt should the others not pay.

A mortgage where two or more people are named on the contract and are responsible for the debt. With any joint debt, each person is ‘joint and severally liable’, which means you’re each responsible for the entire debt if others default on the loan.

If you and your husband, partner or friend own a property as joint tenants, it means that the ownership is split 50:50 and that your half of the property will go to them when you die and vice versa. It’s not affected by whether or not you have made a will.


If you ask for information or a quote about a financial product (such as a mortgage or pension) you will be given ‘key facts’ documents, which set out the information in a standard way so you can compare several different options. The financial regulator, the Financial Services Authority, lays down the rules about how the information should be set out.


The Land Registry records land ownership details in England and Wales. It also records how property is owned (whether it is owned by one person or by two people jointly) and whether there is a mortgage secured on it.

If you’re late paying a debt, such as your credit card bill or mortgage, you will normally be charged a fee. The levels can vary depending on the type of contract.

If you own your property on a leasehold basis, you own the building for the length of the lease (which is typically up to 99 years), but you don’t own the land that the building stands on. Crucially, once the lease runs out, the property belongs to the freeholder.

A document which sets out who has a financial claim on your property. If you have a mortgage, the mortgage lender will have a ‘first charge’. If you take out another loan with a different lender, it is a ‘second charge’ and so on.

Under Scottish law, when someone dies, their husband/wife or civil partner and children are entitled to part of their ‘moveable property’ or ‘moveable estate’ – namely, money, jewellery, shares, cars and furniture they may own. The amounts vary depending on whether or not the person who’s died has any children.

A life insurance policy that will pay out the same level of lump sum throughout the term of the policy. It’s traditionally sold alongside an interest-only mortgage, unless the borrower is using an endowment to pay it off (as endowments have life insurance included).

Something that’s offered as an option on some pension funds. As you get closer to retirement (typically between 10 and 5 years before you retire), money is moved away from shares and share-based investments into lower risk gilts and other bonds. The idea is that the fund you’ve built up is given some protection if the stock market plummets before you retire.

A limit on the amount you’re allowed to have in your pension fund before you have to pay tax penalties. In the current tax year (2010-2011) the lifetime allowance is £1.8 million.

A type of equity release product where you can take out a mortgage if you’re aged 55-60+, but don’t make any payments while you’re alive. Interest is rolled up and the total amount you owe is repaid when the property is sold after you die. It can be a useful way of getting extra income or a lump sum without having to sell up and move house, but it can be expensive and sometimes, inflexible. Take advice from an expert independent financial adviser who specialises in this area if you’re considering it.

The extent to which you pay higher insurance premiums than someone who is seen as a ‘standard’ risk. Your premiums might be higher if you’ve had a medical condition (if you’re taking out travel or medical insurance) or if your property is in a flood risk area (if you are buying buildings or contents cover).

The percentage of the property’s value that a mortgage lender will let you borrow. Mortgage rates are often tiered so the higher the loan to value, the more expensive the mortgage is likely to be.

Someone employed and paid for by the insurance company to calculate the value of a claim. They’re generally used on large household claims, but may also be used on smaller claims if they’re complicated.

If you’re making a claim against an insurance company and you think it’s trying to wriggle out of the claim or pay you less than it should, you can hire a loss assessor to work out the value of a claim and provide evidence to support this figure.


Money paid by one person to another following a divorce or breakup of a relationship. There are different types of maintenance

A type of pooled investment fund that is actively managed (as opposed to one that tracks a stock market index). Some financial companies also describe some funds they offer as ‘managed funds’, in which case it normally refers to a fund that invests in a variety of shares and other assets (such as bonds and cash-based investments) to reduce the risk.

If you have a with-profits policy, the insurance company that runs the with-profits fund may apply a penalty (insurers prefer the term ‘reduction’) if you cash it in when or after the stock market has fallen.

A reduced rate of National Insurance that married women could pay. Women couldn’t pay it for the first time after 1977, but they could continue paying it if they’d already started. Instead of receiving a basic state pension in their own right, women who paid the married women’s rate could only receive a reduced pension based on their husband’s National Insurance contributions.

Pay that you’re entitled to receive if you are working and are pregnant, as long as you can meet the conditions relating to how much you earn etc. There are minimum levels of maternity pay (statutory maternity pay), although your employer may offer you more.

The amount that an investment plan is likely to pay out when the policy matures. Unfortunately for consumers, the maturity value is not generally guaranteed.

A way of negotiating anything from a financial settlement to access to children during a divorce through a series of face-to-face meetings. Typically, there will be one or two trained mediators at each meeting. Anything agreed at mediation will have to be turned into a legally-binding document by a solicitor.

The amount you must pay your credit or store card provider every month if you want to avoid penalty charges. This can range from 2% to 5% of the balance (generally with a minimum level of around £5). Never pay the minimum (unless you’re on a 0% interest deal) as you will rack up hefty interest charges.

The old name for a defined contribution pension. With a money purchase or defined contribution pension, your employer agrees to pay a specified amount into the pension on your behalf, but makes no promises or guarantees about how much it will be worth when you retire.

Someone who will recommend and arrange a mortgage for you and who may be paid by the lender they recommend, by the client or by a mixture of both. They should give you details of who pays and how much they receive. What’s also important is how many different lenders’ products they have access to. Some only deal with a limited panel of lenders (as few as a dozen). Make sure you check.

A type of insurance policy that pays your mortgage if you cannot work due to an accident, illness or unemployment. Payments normally stop after 12 or 24 months. It can be an expensive option.

In Scottish law, this refers to anything you leave when you die that is not land or property; such as money, jewellery, shares, cars and furniture.

Financial advisers who can sell products from a limited range of firms (typically up to half a dozen; made up of banks, investment and insurance companies). They may be paid by a mixture of salary and commission and are unlikely to be able to get you the best deal as they don’t have access to the whole market.


When the value of your property is worth less than the value of the mortgage or mortgages secured on it.

If you don’t pay off your credit card bill in full every month, most credit card providers will allocate your payments so that you pay off the cheapest borrowing first. It means more profit for them and a higher interest bill for you. If you have a 0% balance transfer card that charges interest on purchases, your payments will clear the 0% debt before they pay off the purchase debt. The law is changing early in 2011 so that credit cards will have to pay off the most expensive debt first.

A new type of work-based pension that is due to be launched in 2012. It’s designed to help people on a lower income who have not joined their employer’s pension scheme. If your employer offers a personal account, you will be automatically enrolled into it, although you can opt out afterwards.

Interest on savings accounts is normally paid net, i.e. after basic rate tax has been deducted. If you’re a higher rate taxpayer you will have to pay additional tax on interest you receive.

The basis on which an insurance company will settle a claim, so that items that are stolen or damaged will be replaced with new ones. Generally, linens and clothing won’t be replaced on a new-for-old basis on contents policies.

Another term for your inheritance tax allowance. It means that you can leave anything you own up to the inheritance tax threshold level to friends or relatives without them paying inheritance tax. Money and/or assets that you leave to your husband or civil partner are free of inheritance tax anyway, so aren’t included in the nil-rate band.

A reduction in the premium charged by an insurance company if you haven’t made a claim within a specified time period. Car and household insurance policies typically offer a no-claims discount. You can normally pay extra to protect your no-claims discount if you have a car insurance policy, although your premiums may still rise if you make a claim.

If you buy shares through an online broker, they will normally be held in your name in a nominee account. It’s a way of cutting down on administration (and the costs that go with it). Nominee accounts usually give you fewer rights; for example you may not be able to vote at the company’s annual general meeting and you will not generally receive any perks that shareholders are entitled to.

Occupational pension schemes normally set a date when scheme members should retire. You may be able to retire earlier but the terms will be down to the scheme itself.

A bank or building society account where you have to let them know in advance that you want to withdraw money. Typically, these accounts have a 30, 60 or 90 day notice period. You can take out money earlier but you lose interest for a number of days equivalent to the notice period.

A 200-word statement that you can add to your credit reference file to explain your circumstances if you have debt problems (perhaps because you lost your job or got divorced). Prospective lenders will see this notice, although there’s no guarantee it will make a difference to their decision.

A note on your credit reference file that states that you are no longer financially linked with someone you may have been married to or had a relationship with in the past, where you had joint accounts or debts. You can only create a notice of disassociation once you’re financially independent of each other. It’s worth doing if you can, otherwise any credit problems your ex has could affect you.


A particular type of pension that your employer offers. Not all pension schemes arranged by employers are occupational ones; only those that are run by a group of people called the scheme ‘trustees’. There are two types of occupational pension scheme; a defined benefit (or final salary) scheme and a defined contribution (or money purchase) scheme.

A type of pooled investment fund. It’s similar to a unit trust except that an OIEC has a simpler and more transparent charging structure. Reassuringly, the word is pronounced ‘oik’!

The price at which you buy a share or a unit in a unit trust. The offer price can be up to 5% higher than the bid price (which is the price at which shares or units are sold).

A type of mortgage where you keep your savings and mortgage in the same account. Your savings are used to offset the mortgage debt (so you only pay interest on your mortgage debt minus your savings) but you don’t earn any interest on your savings. It’s useful for people who have savings worth around 10% or more of the value of their mortgage.

When you retire, if you have a pension other than a final salary or defined benefit scheme, you have to convert your pension fund into a monthly income. You don’t have to buy your income from the same company you built up your pension fund with, instead you are able to shop around for the best deal. It’s really important to do this because once you’ve made your decision you’re normally locked into it for the rest of your life.

If you owe money to a creditor such as a credit card company or personal loan provider, they may ultimately have the right to go to court and force you to sell your home, something many people don’t realise. There are a number of stages and procedures before a company can get an order for sale, but it does mean that ultimately you could lose your home.


If you have a flexible mortgage, some lenders will let you take a break from paying your mortgage, generally for between one and twelve months. It can be useful if you need to reduce your outgoings (perhaps because you’ve had your working hours reduced or are on maternity leave), but you may not qualify for a payment holiday if your mortgage is in arrears. The unpaid interest is added to your mortgage balance, so your monthly payments will rise in the future.

A form of insurance that pays off your debts (or, more commonly, makes the minimum repayments) if you can’t work because you’re ill or have been made redundant. It may be expensive in relation to the benefits you get and some policies have lots of exclusions. If you’re keen on this type of policy, make sure you shop around for the best deal.

A state benefit paid to people aged 60 or over who receive other benefits or who are on a low income.

A way of splitting a pension in a divorce. Instead of the pension being divided at the time of divorce, one partner agrees to pay the other a lump sum or a pension income when they retire.

A way of dividing assets on divorce so that the value of the pension can be offset against, for example, the value of the family home. It means that one person will be able to keep their pension intact while the other receives a bigger percentage of the property (and/or other assets).

A way of dividing a pension at divorce so that some of the money in one partner’s pension fund is transferred to the other. It means that both parties have a pension in their own right after the divorce.

A pension that you take out directly with a pension provider. Confusingly, this may be offered through your work, in which case it’s called a ‘group personal pension’.

Emails sent by fraudsters that try and con you into giving personal or financial details. Typically, they pretend to be from your bank or credit card provider.

A way of pooling your money with that of thousands of other investors so that it can be spread between a number of investments. There are different types of pooled fund (such as OEICS, unit trusts and investment trusts) and they can invest in different assets (such as shares, bonds, commercial property or a mixture of them all).

An agreement made after marriage between a husband and wife (or civil partners) relating to – typically – money, property or a business that one partner owns. It is most likely to be drawn up when one partner is due to inherit a significant sum of money and it’s often the parent, rather than the husband or wife, who insists on the agreement. They are thought to be generally enforceable.

If you give away money, property or other assets and survive for seven years afterwards, the person who receives it may not have to pay any inheritance tax. The rules are more complex than they first appear, so take advice.

The term is not particularly user friendly, but the principle behind it is a useful one. If you pay a regular amount into an investment plan every month (say, £100), you get fewer units or shares when prices are high and more when prices are low. The clever bit is that you avoid some of the effects of volatility in the stock market that you’d have experienced if you’d invested a lump sum instead.

Any illness or medical condition that you suffer from before you sign up to certain types of insurance policy. If you don’t tell the insurer about a pre-existing medical condition, your cover could be void.

A legal document that you can draw up before you get married, where you agree that you will divide what you own in a particular way or that certain assets (such as a business or property) will be kept out of the financial settlement in the event of a divorce. It’s not currently legally binding in England or Wales, but is considered legally binding in Scotland (with certain stipulations relating to where the agreement was drawn up).

Debts that should be paid first if you’re struggling to make all your debt payments. They include rent or mortgage, council tax, electricity or gas and court fines. The consequences of not paying them can be serious.

In Scottish law, your husband or civil partner has certain rights to a percentage of any property you owned at the time of your death. He or she can claim the house, if it’s worth less than £300,000 (or £300,000 of its value if it’s worth more), furniture and furnishings worth up to £24,000 and up to £42,000 or £75,000 of any money you had depending on whether or not there are any children.

Insurance that pays for the cost of treatment of medical conditions. These policies tend to be heavy on the small print so it’s important to check exactly what you’re buying. PMI is an annual policy, which means insurers can change the terms at renewal. A disease that was covered one year may not be covered the following year.

A catch-all term that can have two meanings. Some people use it to mean any pension except the state pension, others to mean any pension not provided by the state or your employer.

The authority given to one or more people (the executors if you’ve made a will and administrators if you haven’t) to administer your estate when you die. In Scotland, the process is called ‘confirmation’.


If you join a defined benefit pension scheme, this refers to the length of time that you have been a member of the scheme plus any additional years you’ve bought or acquired by transferring your pension from a previous job.

When investment funds are ranked according to their performance, they will be placed in one of four quartiles. The top quartile represents the best performing 25% of funds (generally in a particular sector and across a particular time frame).


The cost of rebuilding your home if it was damaged beyond repair. This is normally less than the market value of the property (including the cost of the land). If you’re considering buying a property, ask your surveyor for a rebuilding valuation, if you already own your home you can find a ‘rebuilding calculator’ on the internet.

The date, which is set in advance, when a bond will be repaid by the company or government that issued it.

More commonly called an ‘early repayment charge’, it’s a fee you have to pay a mortgage lender if you pay off your mortgage early or switch to a different lender. In general terms, the more competitive the mortgage deal, the more likely it is to have an early repayment charge. Fixed rate mortgages are most likely to have an early repayment charge.

A measure of the impact of costs and charges on the return you might get from an investment product. Investment firms might state something like ‘this would have the effect of reducing the investment growth from 7% to 5.5% a year’. It’s a useful way of comparing investment products that have different costs and charges.

The process of switching your mortgage from one lender to another. You might do this to save money by switching to a better rate or so that you can borrow more money (for example, to improve your home).

Term insurance normally runs for a specific period, but renewable term insurance lets you continue the policy at the end of the term. Your premiums are likely to rise each time you renew because you’re older and therefore a higher risk.

A type of care home where those who live there are given help with washing and dressing etc., but not nursing care.

A bonus payment that’s added onto a with-profits policy every year. Its level is not guaranteed, but once it’s been added it cannot be taken away. It is also known as a ‘regular bonus’.

A way for a company that sells shares to investors to raise money from those investors by issuing extra shares. Existing shareholders are normally given the opportunity to buy these shares at a preferential price.


A pension scheme where the amount you receive at retirement is linked to your salary. It may be based on your final salary or an average of your salary throughout your time with that employer. ‘Final salary’ or ‘defined benefit’ pension schemes come into this category.

Searches are normally carried out by your solicitor as part of the house-buying process. They should show that the property you’re buying is the owner’s to sell and whether there are any outstanding charges registered against it. A search can also show whether there are any planning restrictions and tell you about planning applications and proposals that may affect the neighbouring area.

Part of the Consumer Credit Act that gives you protection if you pay for goods using your credit card. If the goods cost between £100 and £30,000, you can make a claim against the credit card company if the supplier goes bust or the goods don’t arrive. You don’t have to have paid the full price by credit card, just the deposit.

A loan where part or all of the value of your home is put up as security. If you cannot keep up the repayments, the lender can repossess your home.

A tax form that around 8 million people – mainly those who are self-employed – have to fill in. You may also have to fill one in if you receive income from a source other than your employment (e.g. interest from a savings account if you’re a higher rate taxpayer etc.). Don’t assume that you don’t have to fill in a self-assessment return just because you don’t receive one. It’s up to you to tell HM Revenue & Customs about income you receive (that’s not already correctly taxed), not for them to find out.

A mortgage specifically designed for people who want to build their own home.

A personal pension that lets you invest your pension contributions in a wide variety of investments while giving you more control about how your money is invested. The costs and charges tend to be higher than with standard personal pensions.

A stocks and shares ISA (individual savings account) where you can choose the investments that go in it. You can pick from a range of investments including individual shares and pooled funds, such as OEICS, investment trusts and exchange traded funds (ETFs). There may be higher charges and fees than with an ordinary stocks and shares ISA.

The process whereby a couple who are married or in a civil partnership, split up. You’re able to divorce your husband or dissolve your civil partnership if you’ve been separated for a certain length of time (it varies according to whether one or both of you agree etc.).

This was replaced by the state second pension in 2002. It is an additional element of your state pension related to your income from employment. Anyone who is self-employed doesn’t build up this type of pension.

A payment that owners of leasehold flats often have to make to a landlord or managing agent. It normally covers the cost of buildings insurance, lighting etc. for communal areas and maintenance and may include repairs.

It literally means a share in the company. If you own shares you own a percentage of the company (probably a miniscule fraction of a percentage, unless it’s a small company). You can vote at annual general meetings, may receive dividends (a share of the profits) twice a year and if the value of the shares increase, you should make a profit (assuming taxes and charges don’t wipe it out).

An occupational pension scheme where the only people who are allowed to join it are the directors or key staff at a company. It gives them more control over the assets the pension invests in and is more flexible.

A low-cost and flexible pension that you can buy directly from a pensions provider although you may be offered it through your workplace. If it is offered through your workplace, your employer doesn’t have to pay any money into it on your behalf. If that’s the case, you may be better off sorting out your own pension.

A tax you pay when you buy property or shares. If it relates to property, its correct name is ‘stamp duty land tax’ but it’s rarely called that (except by tax and legal experts). The amount of stamp duty you pay when you buy a property depends on the price of the property. If you buy shares you pay stamp duty or stamp duty reserve tax at 0.5%, depending on how the shares are transferred to you.

The mortgage rate that you end up on if you don’t take out a special deal (or sometimes, once your preferential deal comes to an end). It’s not normally particularly competitive and there’s no guarantee that it will fall when the Bank of England cuts base interest rates although it usually rises, sometimes by more than base rates, when they go up.

A way of making regular payments from your bank account. You decide when you want the money to leave your account and how much you want your bank to pay. It will carry on making payments until a pre-determined date or until you change the standing order.

The age at which you can receive your state pension. It’s gradually increasing from 60 to 65 for women over a ten-year period, up till April 2020. There are plans to raise it to 66 in the near future, and higher still later on.

An additional pension paid on top of your basic state pension and related to your earnings, which replaced the old SERPS system. You don’t earn a state second pension while you’re self-employed.

If you’ve been employed for at least two years, you have the right to redundancy pay if you’re made redundant. You’re also entitled to it if you’re on a fixed-term contract of at least two years that’s not renewed due to redundancy.

If you’re an employee and you’re unable to work because you are ill, you may be able to get this pay from your employer, as long as you have been off sick for more than four days in a row and you earn more than a minimum threshold level.

A tax-efficient wrapper that you can put a variety of investments into. These include shares (either shares in individual companies or share-based funds) and bonds (either company or government bonds). There are limits on how much you can invest in one every year. You don’t have to pay any income or capital gains tax on the proceeds once you cash it in.

A lender that specialises in lending money (often in the form of a secured loan or mortgage) to people with a history of debt problems. Before the credit crunch, some companies were falling over themselves to lend money (sometimes without checking that the borrower had a hope of repaying it). Post credit crunch, there are rather fewer of them around.

The amount you would receive if an insurance policy pays out. If it is a life insurance or critical illness policy, you choose the amount.

The amount you would get back if you were to cash in or cancel an insurance policy, such as life insurance or a with-profits plan. It’s invariably less (sometimes a lot less) than the value of the policy at the time.

A report on the condition of the property you are considering buying. Don’t confuse this with a mortgage valuation, which is a very brief assessment of the property to make sure it’s worth more than the mortgage you want to secure on it. A buildings survey (which used to be called a ‘structural survey’) is the most detailed report, while a homebuyer survey and valuation (also called a ‘homebuyer’s report’) is often used for flats and newer houses.

If you own property in Scotland with someone else, your share of that property will automatically pass to the other owner(s) when you die if there is a survivorship clause in the deeds.


Money you can take from your pension at retirement. With personal or stakeholder pensions it is up to 25% of the value of the fund, with occupational pension schemes, it’s the equivalent of up to 25% of the fund.
April 6th to April 5th the following year. Tax allowances usually run out at the end of the tax year.

If you and your husband/partner/friend own property as tenants in common, you can specify how much of it each of you will own (e.g. a 60:40 or 25:75 split). You have to do this in a separate document called a declaration of trust. When you die, your share in the property does not automatically pass to the co-owner. It will only do so if you have drawn up a will that says that you would like this to happen.

A payment that’s added to a with-profits policy when it matures. There’s no guarantee that the with-profits provider will pay a terminal bonus from one year to the next; neither is its level guaranteed.

This is normally included in life insurance policies so that if you’re diagnosed with a terminal illness, you can be paid the policy benefits. In some cases, you may receive less than the policy would have paid out when you die.

A life insurance policy that runs for a specified term (for example, ten or 25 years). It’s the cheapest form of life insurance and is useful if you want to ensure that a debt, such as your mortgage, will be paid off should you die.

Financial advisers who work for one company (e.g. a bank or insurance company) and who can only sell and advise on its products. They may be paid by a mixture of salary and commission or performance-related bonus.

A legal document identifying the owner of a particular property. Until fairly recently, if you had a mortgage on your property, the mortgage lender would keep the title deeds until you had paid it off in full. However, these days mortgage lenders seem happy to rely on the fact that the Land Registry (or Register of Scotland) records ownership of properties, including whether or not there is a mortgage on it.

A measure of the annual costs and charges of an investment plan. Normally, funds that track a share index have a lower TER than those that employ a fund manager.

An investment fund that buys shares in companies that make up a particular share index (such as the FTSE 100 or the FTSE All-Share). Different tracker funds have different ways of operating. Some buy shares in every single company that make up an index (and sell it as soon as the company is no longer included in that index), others use a sampling technique and buy shares in all the big companies, but only in a selection of smaller ones.

A mortgage where the interest rate rises and falls in line with the Bank of England base interest rate. It’s normally higher than the Bank of England base rate, but there is a guarantee that when base interest rates fall, so will your tracker mortgage (and vice versa when base interest rates rise).

The amount an investment policy would be worth if you were to move it to a different company. It takes into account any penalties or charges for transferring from your current provider.

Insurance that pays out if you have to cancel your holiday, you lose your baggage or money or fall ill. It sounds like it’s relatively straightforward, but it’s actually a very complex policy. The most important element is the amount of medical cover (especially if you’re travelling to the United States, where medical costs are high). Reading the small print is very dull, but it’s important that you know what you will be covered for as some policies that look similar on the surface can be very different.

A legal arrangement that allows you to hold money or assets in one person’s name (called the beneficiary), while they are controlled by others, who are called the trustees. There’s lots of jargon around trusts and they can be complicated.

If you belong to an occupational pension scheme it will be run by a group of people known as trustees. The law states that at least one third of trustees have to be nominated by scheme members (as opposed to the employer). The term also refers to people who make decisions about a trust.


A form of pooled investment that lets you combine the money you pay into the fund with that of thousands of other investors. The money may be split between a number of different assets (such as shares, bonds and/or cash-based investments) or different companies (in the case of shares and bonds). Unit trusts have a complicated pricing structure and so many fund management companies sell OEICS, or open-ended investment companies, instead.

A personal or bank loan that is not secured on the value of your property. The interest rates tend to be higher than for secured loans because the risk to the lender is greater. It’s possible for unsecured loans to be converted into secured debts if you get into arrears, via a charging order.

A way of taking income from your pension fund (if it’s a personal, stakeholder or money purchase pension) between retirement age and 75. The advantage is that you can leave the rest of your pension fund invested; the disadvantage is that your fund is at risk of losing some of its value if stock markets fall.


An assessment of the value of your property or one you’re considering buying. It may involve a visit by a surveyor or may be done on the basis of the post code (a ‘desktop valuation’). The term can also be used to describe an assessment of the value of investments in an investment fund.

A reflection of how changeable share prices are. The more volatile the stock market (or a particular stock market index) is, the more of a roller-coaster ride you’re likely to experience. Shares are by nature, fairly volatile investments, so if the idea of volatility would worry you, don’t invest in them.

Many insurance policies impose a compulsory excess, which is the first part of the claim that you have to pay. However, you may also be able to reduce your premiums by having a voluntary excess as well.


If you have a policy (such as life insurance or a pension) that includes a waiver of premium, you won’t have to continue paying the premiums if you become ill and are unable to work. Instead, they’re paid for you.

As the name implies, it’s a life insurance policy that lasts throughout your life. It is more expensive than term assurance because it guarantees to pay out when you die whereas term insurance only pays out if you die within a specified number of years.

A legal document that sets out what you would like to happen to your assets (such as property, shares, pension and/or cash) and who should look after any children you have. If you don’t have a will, the law decides who gets what.

Many people use a solicitor to draw up a will, but there are other options, such as a professional will writer. Some will writers are very good, but will writers are unregulated and there are some companies around that do not offer a very good service. Do some research if you decide to use a will writer.

The process of closing a firm’s occupational pension scheme. It is normally done because the employer doesn’t want to operate the pension scheme any longer or because the scheme’s insolvent.

A type of investment (such as a pension or endowment) where the return is ‘smoothed’ over the years. In good times, some of the return is held back so you receive something when investments are not performing well. The theory sounds OK, but with-profits policies are often very opaque and it can be impossible to work out whether or not the return is a fair one.



The return on an investment (whether it is a share-based fund or property) after charges have been taken into account.