A

Annual Allowance – Annual Allowance refers to the maximum amount of money you can put into your pension funds in a given tax year, and still claim tax relief.

Annuity Rate –  The factor that determines how much annual income you get from your pension.

Asset Allocation – An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets according to an individual’s goals, risk tolerance, and investment horizon.

Asset – Items of value that are owned by an individual or company such as property or investments. 

 

B

Balance Sheet A statement of the assets, liabilities, and capital of a business or other organisation at a particular point in time.

Bankruptcy –  Bankruptcy is a legal proceeding initiated when a person or business is unable to repay outstanding debts or obligations.

Base Rate – The base rate refers to the interest rate set by the Bank of England and is in turn used as a benchmark for lenders.

Basic State Pension – The pension you receive from the government as a result of paying National Insurance (NI) contributions throughout your working life.

Bonds – Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you’re giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you interest in installments.

Budget – A financial plan for a period of time which usually determines how much money is planned to be spent over a particular period.

C

Cancellation Period – The period in which you are entitled to change your mind and cancel a financial commitment. Any money already paid will be returned although there is a risk that less may be returned.

Capital – Wealth in the form of money or other assets which can be used to produce more wealth.

Capital Gains – The increase in value of an asset or investment above its initial purchase price. 

Cash Flow – The way that money moves in and out of a business and its bank accounts.

Compound Interest – The amount of interest earned on a loan or deposit based on the initial amount plus the interest accumulated over time.

Credit – The system of allowing customers to receive goods or services before payment with the trust that it will be paid back in the future. You may have to pay added interest on top of it.

D

Debt – Debt is a sum of money that is owed or due to a person or business.

Defined Benefit Pension Scheme – Also known as a DB, a defined benefit pension scheme is a pension scheme where the amount you’re paid is based on how many years you’ve been a member of an employer’s scheme and the salary you’ve earned when you leave or retire.

Defined Contribution Pension Scheme – Also known as DC, a defined contribution pension scheme can either be a workplace pension (set up by your employer) or a private pension (set up by you). The money put into the pot is then invested by the pension provider and therefore can both rise and fall in value. The amount you will get when you retire then depends on how much you put in and how much this money grows.

Deposits – Money that is invested with banks, building societies and other organisations to earn interest.

Dividend – Payments that are made to shareholders by a company from any profits that the business has made.

E

Equity – The value of the shares issued by a company.

Estate – An estate refers to the assets owned by an individual at death.

Expenses – The costs of operating a business and are related to generating revenue such as rent, utilities and employee wages.

F

Fixed Rate Mortgage – A fixed rate mortgage means that the interest rate on your borrowed loan does not change throughout the duration of your borrowing period.

G

Gross Earnings – Earnings before income tax and other deductions are taken.

I

Income – The amount of money earned from work or through methods like investing.

Income Drawdown – Enables people with a certain type of pension to draw an income and/or cash lump sums from their pension fund rather than buying an annuity and to take income directly from their pension fund.

Independent Financial Adviser – Also known as an IFA, Independent Financial Advisers provide unbiased financial advice that considers the whole market and a range of financial products.

Individual Savings Account – Also known as an ISA, an Individual Savings Account is a long-term, tax-free savings account. There are many different types of ISA on the market.

Interest Tax – Tax paid by individuals on income received over a certain amount and is dependent on the tax thresholds in place for the year in question.

Interest Rate – The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Investing – The process of purchasing assets such as stocks and shares with the expectation of future income and/or capital gains (growth in value).

L

Liability – Money owed by an individual or business that decreases net worth.

Life Insurance – A contract with a life insurance company where a policyholder pays a premium in exchange for an amount paid to his/her/their beneficiaries in the event of death.

Loan – A loan is a sum of money which is lent to a person or business and is expected to be paid back with interest.

M

Mortgage – A legal agreement by which a bank, building society, etc. lends money at interest in exchange for taking title of the debtor’s property.

N

Net Worth – The total wealth of an individual, company, or household, taking account of all financial assets and liabilities.

P

Pension Fund – A general term used to describe the investment fund built up in a pension plan and used at retirement to provide a continuing income.

Personal Allowance – The amount of income you can earn before paying tax.

R

Recession – A fall in economic activity.

Retirement Planning – The process of planning one’s finances and making lifestyle decisions for later life.

Return – A measure of performance. It is the total of increase in value and any income received over a given period, expressed as a percentage against the price paid.

T

Trust – An arrangement whereby one person or persons (trustees) agree to take care of assets and to use those assets in particular ways for particular people (beneficiaries).

W

Withdrawal – The process of taking money out of a financial account, thus lowering the balance.