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Glossary

AER - Annual Equivalent Rate. This shows what the interest rate would be if interest were paid and added to your account each year.

APR - Annual Percentage Rate. The interest payable on what you've borrowed is added up along with other charges (e.g. arrangement fees) and then expressed as an annual rate of charge. The APR helps you compare the true cost of borrowing, for example for a mortgage. The APR takes into account all fees and charges applied to the mortgage as well as the monthly payments over the life of the loan.

arrangement fee - a fee to cover administration.

arrears - money that was due to be paid but has not been paid. When you are behind in payments, you are in arrears.

assets - your money, property, goods and so on that have a financial value.

assurance - a policy that you pay for, and that pays money to your next of kin when you die.

banker's draft - a cheque drawn on the bank (or building society) itself against either a cash deposit or money taken directly from your own bank account. A banker's draft is a secure way of receiving money from someone you don't know and where a cash is inconvenient. Banker's drafts are commonly used for large purchases such as homes and cars.

base rate - the interest rate from which lenders set their rates for lending and savings products. It's usually based on the base rate set by the Bank of England.

capital - money that you've invested or borrowed (e.g. to buy a home). It doesn't include the income or profit you get from an investment, or the interest you have to pay on a loan or mortgage.

CHAPS - Clearing House Automated Payment System. This is a system that enables money to be transferred from one bank account to another on the same day.

chip and PIN - a system to reduce card fraud. A chip and PIN card has a 'smart' chip that holds your four-digit Personal Identification Number (PIN). When you pay in a shop with a chip and PIN card, you'll be asked to enter your PIN into a keypad instead of signing a receipt. This PIN is the same number that you use to withdraw money at a cash machine.

cleared balance/cleared funds - includes credits (cheques and cash) that have completed the clearing cycle. You can only withdraw or transfer money to another account with money from your cleared balance. The cleared balance is updated during the day as you make payments into and out of your account.

clearing cycle - the process that your cheque goes through when you pay it into your account. A cheque won't be cleared if, for example, the person who gave it to you doesn't have enough money in their account.

credit card - allows you to borrow money to pay for goods and services without using cash or cheques.

credit balance - the amount of money in your account.

credit limit - the maximum amount of money that you may borrow.

debit card - allows you to pay for goods and services without writing cheques or using cash. The money is taken directly from your current account (you don't borrow the money as with a credit card). Some debit cards can also be used to guarantee cheques.

debt - an amount of money that you owe to a person or company.

Direct Debit - an instruction from you to your bank or building society allowing someone to take money from your account. The amount of money taken can vary, but you must be told the amounts and dates beforehand. Direct Debits allow you to pay bills automatically from your account on a regular basis.

discounted rate - a variable rate that is set at a fixed percentage amount below the lender's standard variable rate for a period of time. At the end of the period, the mortgage goes back to the lender's variable rate.

EAR - Effective Annual Rate. This is the amount of interest charged on an overdraft and is stated as an annual rate. Unlike the APR, the figure does not include any fees or charges.

Equity (in property) - the difference between how much your property is worth the balance of your outstanding mortgage and any other debts secured on the property.

Equity release - a way of releasing extra money by borrowing against the equity in your home.

ERTF - Exchange Rate Transaction Fee. This is a fee that you pay when withdrawing foreign currency from a cash machine or when paying for something in another currency (e.g. when you're on holiday abroad). The foreign currency is converted into pounds sterling (using the bank's exchange rate) and a fee for doing this is added.

fixed-rate interest - an interest rate that stays the same throughout an agreed period.

flexible mortgage - a mortgage that allows you to make overpayments and underpayments on the mortgage without penalty, and, in some cases, to take payment holidays.

gross - the whole amount before any deductions (such as tax or fees) are made.

gross interest rate - interest before income tax is deducted.

Insurance policy - a policy that you pay for, and that pays money to you to cover possibilities such as theft, damage to property, loss and so on.

interest - the amount that you pay when you borrow money. It's expressed as a percentage rate over a period of time.

interest-free - no interest is charged on money that you borrow.

interest-only mortgages - a loan on which you only pay the interest element. The amount of capital you owe remains the same throughout the term of the mortgage and is due to be repaid at the end of the term.

interest rate - the rate at which you pay back interest, expressed as a percentage of the amount you borrow.

investment - something you put money into that will provide income in the future (such as savings) or gain in value so that you can sell it at a higher price later (such as a house).

loan - money that you borrow (e.g. to buy a new car) on condition that you pay it back.

lifetime mortgage - a type of equity release product for the over 60s, which allows you to release money by borrowing against the value of your home. There are no monthly repayments, instead the interest is added to the loan and the whole amount is repaid when you die or move into long-term care, usually from the sale of the house. This means more interest will build up than with a conventional mortgage.

mortgage - a loan to help you buy property on condition that the company giving you the loan has certain rights, including the right to sell the property if you don't pay back the loan.

net - the amount after deductions (such as tax or fees) are made.

net interest rate - the rate payable after the lower rate of income tax is deducted. (NB the rate of tax may vary, so a net rate is usually only given as an example.)

nominal annual rate - the rate of interest that would apply if the interest were not added each year and if there were no inflation.

overdraft - borrowings from your current account.

overpayment - higher or extra mortgage payments that you make (usually to pay off your loan or mortgage early).

p.a. - 'per annum', which means 'each year'.

payment holiday - a period of one or more months when you don't make repayments on your loan or mortgage, although interest continues to accrue during that time.

PIN - Personal Identification Number. This is the four-digit number that you enter into a cash machine when you want to take out cash, and that you use when you pay with your chip and PIN card. Never give this number to anyone, or write it down.

rate - the percentage interest rate charged by a lender.

remortgage - replacing a mortgage with a new one (from your existing or a different lender), without moving home. You use the money you borrow for the new mortgage to repay the old one.

repayment method - the means by which a mortgage is repaid. The two main repayment methods are 'interest only' and 'repayment'.

repayment mortgage - a loan where you pay back some of the capital as well as interest each month. The amount you owe is gradually reduced.

return - the profit you get, for example, when you invest money.

share - a unit of ownership in a company.

share certificate - shows the amount of ownership.

share dealing - the process of buying and selling shares.

standing order - a method of making regular payments directly from your bank account. It's a fixed sum and you tell your bank when to start and stop paying it.

stock - another term for share.

transaction - each time you pay money into or take money out of your account, it's called a transaction.

unarranged borrowing - an overdraft that is higher than your bank or building society has agreed to.

uncleared balance - the amount of money in your account including all the uncleared items in your account and any items paid in during the day.

underpayment - a loan or mortgage payment that is less than the amount that you should normally pay for that month.

variable-rate interest - the interest rate that you pay on your loan or mortgage and that rises and falls roughly in line with a stated index, such as the base rate set by the Bank of England.