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Accumulation Unit

A type of unit in a unit trust or pension in which the income is reinvested automatically, rather than distributed.

Active Management

An active fund manager is one who tries to outperform benchmark indices by selecting stocks. The other option is passive management offered by tracker funds. Active management tends to be more expensive than passive.

Additional Voluntary Contributions (AVCs)

AVCs are top-up payments made into pension schemes to boost eventual retirement income. Usually, AVCs are run by your employer’s pension scheme, but you can also have Free Standing Additional Voluntary Contributions (FSAVCs) which are run by investment firms. You get tax relief on your AVC and FSAVCs, just as with other pension contributions.


Annual equivalent rate. This is a percentage rate used to show what the annual rate would be on, for example, a bank or savings account which actually pays interest monthly.

Alternative Investment Market (AIM)

An AIM is a stock market for smaller start-up companies. AIM-listed companies tend to be a riskier investment than those on the main market, so the shares are really for experts only.

Annual General Meeting (AGM)

This is an annual shareholder meeting. Most companies, aside from very small ones, are required to have an annual general meeting by law. The company’s annual accounts are presented at the AGM, voting takes place for new directors, and shareholder questions are dealt with.

Annual management charge

This is a charge paid to a company for managing your investments. (This could be a fund manager, stockbroker or financial adviser.) The annual management charge can vary – typically from 0.5% to around 1.5% – and is dependent upon the type of investment and the degree of advice received.

Annual Percentage Rate (APR)

The APR is the interest rate plus any charges, to indicate the total cost of borrowing. When you borrow money, every lender is required by law to quote this rate. The APR can be used to easily compare different products, and is mostly used for credit cards, personal loans and mortgages.

Annual report

All companies that trade on the London Stock Exchange have to produce an annual report and accounts. The report shows all the financial facts and figures for the year, including profits and losses, and the directors’ salaries.


An annuity is essentially a regular income for life and is usually purchased with your pension fund when you retire. The income you receive from the annuity depends on how old you are, when you buy it and how much you invest. The older you are, the more you’ll get – because your life expectancy is lower. There are lots of annuity options: For example the income can be index-linked or remain the same throughout your life.


Your assets are everything you own and are owed, including your house, money in your bank account, investments and anything else of value.


Different categories of investments are described as asset classes: For example, cash, shares and bonds.


Automatic teller machines – more commonly known as cash machines – give out cash after you’ve put your card and personal identification number (PIN) in.



How much you have in your account or owe on a loan or credit card.

Balance sheet

A balance sheet is a summary of a company’s assets, liabilities and shareholders’ funds.

Balanced fund

This is a fund which invests in a mixture of shares, cash and other assets to produce a less volatile return than a share-only fund.

Bank base rate

The bank base rate is set by the Bank of England and determines the cost of borrowing money. An increase in the base rate will increase the rates for mortgages and loans. However, savers should receive higher interest rates on their savings.


If you are insolvent and cannot repay your debts, you can be declared bankrupt. See also IVAs and Debt management plans.


Term used for a share transaction.

Basis point

A hundredth of 1% (0.01%).

Bear market

This is when there is a widespread decline in share prices. Bears believe share prices will fall.


This is a standard against which the performance of shares or funds are measured. For UK funds, often it is one of the leading indices such as the FTSE 100.

Bid/Offer spread

The offer price is what you pay if you want to buy an investment and the bid price is what you get when you want to sell. The difference between the offer price and the bid price is known as the spread. The size of the spread depends on the sales, management and marketing costs of the investment, and the amount of profit margin built in by the market maker.

Blue chip companies

Large and creditworthy companies such as those listed in the FTSE 100.

Boiler room

Boiler room scammers typically use high-pressure tactics to sell shares which may not exist, by cold-calling potential victims.


A bond can mean several things. A fixed rate savings account is often referred to as a bond, as are many insurance company-investments. Strictly speaking, a bond is a long term debt such as a corporate bond: in return for you lending the company money, you are paid income for as long as that debt lasts.

Bonus account

A savings account where the rate quoted includes a bonus which will only be paid if, for example, you do not withdraw money during a set period.

Bridging loan

This is a short term loan, designed to provide temporary financing until more permanent financing is arranged. It is often used by purchasers of a property who need funds for a limited period of time – for example until they sell their existing home.


Short for stockbroker, but can refer to any intermediary selling financial products.


A written account of expenditure and income, whether personal or governmental.

Building society

This is a savings and mortgage institution which is owned by its members.

Bull market

This is when there is a widespread rise in the price of company shares and securities. Bulls expect share prices to rise.

Bureau de change

A dealer in foreign exchange. Bureaux de change can be online, in banks or in larger shops.


A company may buy back its own shares in order to reduce the overall number of shares available on the market. This will usually have the effect of increasing the share price.



A ceiling on an interest rate. This usually applies to mortgages, where a rate may be ‘capped’ so it cannot move above that level. You can also have a collar: A level the rate cannot move below.


The money that is invested in a company. Your own money – such as capital gains tax – can also be called capital.

Capital growth

The increase in the value of assets and investments.

Capital gains tax (CGT)

Tax paid on the profits or gains made from the sale of investments and some fixed assets. There is an annual CGT-free allowance.

Car insurance

Insurance which covers your car if it is stolen, damaged or you injure other people (third parties) while driving. There are different levels: You can have third party cover, third party fire and theft or comprehensive cover. Car insurance is compulsory and to drive without it is breaking the law: You can be fined and your car confiscated if you do not have it. Do shop around as costs will vary widely between companies.

CAT mark

CAT is an acronym for ‘Charges, Access, Terms’ and the mark is a government seal of approval on an individual savings account (ISA).


A method of payment likely to be obsolete within a few years.


A term used to describe the excessive trading of a client’s account by a broker in order to increase their commissions.

Closed ended fund

This is a fund with a fixed number of shares, such as an investment fund. The opposite is an open ended fund.


The charge made by a stockbroker or the fee a financial adviser makes from a company whose products have been sold, generally based on the value of the sale.


Goods that have been mined, produced or harvested, like gold or coffee beans. These are bought and sold in dedicated commodities markets.

Company share option scheme

A scheme offered by companies to employees to encourage better performance. Participants are given the right to buy shares in the company in the future, usually at a discount.

Compound interest

This means interest that is earned on the principal amount plus the accumulated interest of prior periods.

Consumer Credit Act

This provides legal protection for you when taking out credit such as a personal loan or credit card: If you buy items or services for more than £100 but less than £30,000 on credit, you are covered if they are not supplied or something goes wrong.

Consumer Prices Index

This is the Government’s favoured measure of inflation.

Continuous authority

Authority given by you to a retailer or other merchant to take regular payments from your credit card. It has to be cancelled with the merchant, not with the bank issuing the card.

Contract note

The confirmation of your share purchase transaction.

Cooling off period

The time you have in which to change your mind about whether you want a financial product. The length of the cooling off period depends on how you bought the product: Some agreements may not have a period in which you can change your mind.

Corporate bond

Bonds issued by a public company. In return for you lending the company money, it pays you an income in the form of a coupon. Corporate bonds are usually safer than investing in shares, but less safe than leaving money on deposit in a savings account. The easiest way to invest is through a corporate bond fund.

Corporation tax

Tax chargeable on the profits of a UK company.


A reverse movement in the value of shares or securities, usually a sharp downturn in the value.


The interest rate on a fixed-interest security.


The ability to borrow money. If you find it easy to get it, you are creditworthy.

Credit card

A card used to buy goods and services. Spending on a credit card means that purchases over £100 are covered by the Consumer Credit Act. Unless you pay your balance off in full, you will be charged interest.

Credit card cheques

These are cheques provided by credit card providers, which can be used to pay for goods and services. Beware: you may have to pay interest when you use them in the same way as you would when making a cash withdrawal. The interest rate is usually higher than the one charged when paying for goods or services on a credit card.

Credit limit

The maximum amount of money a financial institution will agree to lend to you.

For example, with credit cards, it’s the most a card provider will let you borrow at any one time on a particular card.

Credit history

A record which shows how you have handled credit in the past, including how much credit you have available and whether you’ve kept up repayments. This will be used to give you a credit rating.

Credit rating

Your credit rating, also known as your credit score, measures how reliable you are as a borrower by looking at your credit history.

It is found on your credit report which all lenders access via one of three main credit reference agencies when you apply for credit.

The lender will use the score to decide whether or not to accept your application for a credit card or loan – and what your credit limit and interest rate will be.

You can find out about your credit history by applying for your credit report.

Credit reference agencies

There are three main agencies: CallCredit, Equifax and Experian. They provide details of your credit record and history to companies.

Credit unions

Locally-run savings and loan companies usually with a common bond between customers, such as location or employment. Regulated in the UK by the Financial Services Authority.


Someone you owe money to.

Critical illness cover

An insurance policy which will pay out a lump sum if you are diagnosed with or suffer from any of the life-threatening conditions (such as cancer, heart attack or stroke) listed on the policy.

Current account

A bank account which allows you to withdraw money from ATMs, by cheque, via the internet or in-branch. Your pay can be put into it and bills automatically paid out by direct debit every month. If you withdraw more money than you have, you will have an overdraft and may be charged high rates of interest for borrowing the money. A basic bank account does not allow you to go overdrawn.

Cyclical stocks

These are shares which move in line with the economy. Non-cyclical stocks are those which are immune to such pressures.


Death in service benefit

If you’re in a company pension scheme when you die, your spouse, children or other dependents may get a payout under this benefit.

Debit card

This is a card linked to your current account, used for paying for goods and services. Debit cards can also be used to withdraw cash from ATMs.


An obligation to repay an amount you owe.

Debt management plan

A method of arranging to repay your debts without resorting to bankruptcy. It is not a legal arrangement, unlike IVAs and bankruptcy.

Decreasing term insurance

This is usually sold to run alongside a mortgage, with the aim of paying it off should you die while it still has years to run. The amount covered falls in line with the decreasing size of the mortgage. It is usually cheaper than standard term insurance.

Defined benefit scheme

Another name for a final salary pension scheme. The amount you will receive depends on the number of years you have worked for the firm and your salary.

Defined contribution scheme

Another name for a money purchase pension scheme based on how much you and your employers have paid into it, rather than being based on your salary and years of service.


The rate at which the general level of prices for goods and services is decreasing – the opposite of inflation.


A sum of money saved in a bank or building society account, or the amount put down as security for a property or other transaction.


Accounting procedure that spreads the cost of an asset over the lifetime of the asset.


An investment contract, such as futures and options, which involves the right to buy or sell the underlying instrument at an agreed price.

Direct debit

Authority given by you to a retailer or other service provider – such as an energy supplier – to take a sum directly from your bank account. Direct debits should always be cancelled with your bank, not just the service provider. They are like standing orders, but with direct debits the merchant can alter the amount taken from your account, which is why they are used for bills which change regularly.

Discounted rate mortgage

A mortgage which guarantees the interest rate charged will be at a set discount to the lender’s usual variable rate. The discounted rate is usually set for a specified period of time and reverts to the standard rate after that period.

Discretionary management

A broker who has authority to execute all decisions regarding stocks and shares on behalf of his client, without getting prior approval.


The distribution of part of the company’s profits to the shareholders. Dividends are usually paid twice a year as an interim and final dividend. There is no guarantee a company will pay a dividend.

Dividend yield

The dividend yield is the return that you get for investing in a company. It is calculated by dividing the dividend by the current share price, expressed as a percentage.

Dow Jones Industrial Average

‘The Dow’ is one of the main USA share indices which monitors the performance of 30 industrial companies traded on the New York Stock Exchange.


Early-redemption penalty

This is a financial penalty payable on certain types of loans (such as discount and fixed interest rate mortgages) if you switch deals or pay them off before the end of the pre-arranged period.

Earnings per share (EPS)

The EPS is calculated by dividing the earnings (pre-tax profits) by the number of shares in issue.

Emerging markets

The stock markets based in developing countries such as Asia and South America. They offer investors the potential for high returns, but at a greater risk. There are many funds which specialise in these markets.

Endowment policy

This is a policy which combines investment with insurance and runs for a specific period. It builds up a cash value – generally on either a with-profit or unit-linked basis – and is paid out at the end of the policy term or when you die (whichever happens first).


Equity is the value of your ownership: So, if your house is worth £250,000 and your mortgage is £150,000, you may have £100,000 of equity in your home.


Another name for shares in a company.

Equity release

This is a way to free up the equity in your home without having to sell it. It’s usually only available to elderly people.


For inheritance tax purposes, all your belongings, properties, investments and cash make up your estate.

Ethical investments

Investments in companies that make a positive contribution to the world, and/or that are kind to the environment.

Exchange rate

The price at which one currency can be converted to another.

Exchange traded funds (ETFs)

These are basically tracker funds which are structured like companies and trade their shares on the market. You can get ETFs tracking all sorts of indices and commodities, from major stock markets to the price of pork bellies.


A share sold without the right to the next declared dividend payment.

Execution only

A type of share-dealing or investment service in which the customer makes his or her own investment decision, and the stockbroker or adviser just carries out the transaction.

Exit charge

A payment that someone selling an investment may have to make.

Extraordinary general meeting (EGM)

A meeting called either by the board of directors or the shareholders of a company, to discuss special business.


Face value

The term used to describe the value of a bond when it matures, also known as the ‘nominal’ or ‘par’ value.

Fee-based adviser

An independent financial adviser who charges a fee for advice, rather than earning commission from financial companies for selling their products.

Final salary scheme

An employer-provided pension, in which your retirement income depends on how long you’ve been in the scheme and how much you’ve earned in the last few years. Also known as a defined benefit scheme.

Financial Ombudsman Service (FOS)

This deals with complaints from customers of all UK-regulated financial firms, and can order firms to compensate customers if it finds them to be in the wrong.

Financial Services Authority (FSA)

The UK financial regulator, which authorises all investment firms.

Financial Services Compensation Scheme (FSCS)

The safety net for savers and investors in UK regulated firms. It will pay out – up to certain limits – if a firm collapses. It is funded by a levy on financial services firms.

FTSE 100

The index which tracks the share prices of the 100 largest listed companies in the UK. The FTSE 250 measures the performance of the next 250 and the FTSE All Share covers all UK listed companies.

Fixed rate mortgage

A mortgage where the rate of interest is fixed for a set period of time. There may be early redemption penalties if you want to get out of the deal during the fixed rate period.

Fixed rate savings account

An account where the interest rate is guaranteed for a set period at the outset. If you want to withdraw your cash during the fixed rate period, you may face a financial penalty for doing so.


Flotation is the process of making a company’s shares available to the general public by obtaining a quotation on the Stock Exchange.

Front-end loading

The initial sales charge you have to pay when you invest in certain funds, such as unit trusts. This charge is mainly for the cost of the adviser. You can avoid paying much of this by investing through a fund supermarket.

Fund supermarket

A platform through which you can invest in Oeics, unit trusts and other investments cheaply. The value comes from the fact that the initial charge is rebated partly or wholly to you.


A form of forward contract to buy or sell a set quantity of shares or commodities in the future, at a pre-agreed price.



These are secure bonds issued by the UK government, also known as ‘gilt edged securities’ or ‘fixed interest securities’. Gilts are bought at their par value or at face value. Most gilts are ‘dated’, which means that at a fixed date in the future, the par value will be repaid to the investor.


The gross amount is the amount before the deduction of tax.

Gross redemption yield

The return on a fixed interest security such as a gilt, expressed as an annual percentage.

Gross yield

The gross yield on an investment is the annual gross dividend or income received, expressed as a percentage.

Guaranteed income bond

A single premium insurance bond which pays out a fixed amount of annual income and returns the original sum invested at maturity.


Health insurance

This is cover taken out to pay bills for private medical treatment.


Buying one security and selling another in order to reduce risk.

High yield bonds

A class of corporate bonds which pay a relatively high level of return. This is because the underlying risk of the bonds defaulting is higher than on other grades of bonds. They are also called junk or sub-investment grade bonds.

Home insurance

This pays out for damage, destruction or theft that occurs in or to your property. It’s split into buildings and contents cover: The first covers the structure and immoveable objects (such as fitted kitchen units) and the second covers your possessions. Buildings insurance will be compulsory if you have a mortgage, as your lender will demand you have cover.


Identity theft

When a fraudster steals your identity, using it to make purchases or obtain credit in your name.


The difficulty experienced when trying to change an investment back to cash.

Immediate vesting annuity

A quick way to get a pension. You buy the annuity with a lump sum and the income is paid straight away.

Income fund

A fund which focuses on achieving a high level of income.

Independent financial advisor (IFA)

An investment adviser who can make recommendations across the entire market, and who isn’t tied to advising on one company’s products (unlike a tied agent). Can be paid by commission or on a fee basis.

Index-linked investment

An investment with a return linked to the rate of inflation. The best known example is index-linked government gilts.

Individual savings account (ISA)

A way of protecting some of your savings and investments from the taxman – up to a limit set by the government. The current limit is £10,200. Up to half of this can be saved in a cash ISA, with the rest in a shares ISA. Alternatively, you can use up your whole allowance in a shares ISA. Cash ISAs are offered by banks and building societies and are essentially savings accounts with the bonus of tax-free interest. Shares ISAs are ‘wrappers’ within which you can hold shares, funds or certain other investments – and any gains are free from tax. They are sold by investment firms, advisers, stockbrokers and banks.

Individual voluntary arrangement (IVA)

A way of repaying your debts without having to resort to bankruptcy. Most of your creditors have to agree to accept the repayment plans. IVAs are usually only suitable for reasonably small levels of debt.


The general increase in prices over time. Inflation has the effect of reducing the buying power of money. The most common measure of inflation is the Retail Prices Index (RPI). Negative inflation is called deflation.

Inheritance tax (IHT)

This is a tax that is levied on the value of your estate when you die. It is currently paid at 40% on anything above a threshold of £325,000.

Insider dealing

This refers to the illegal use of privileged information which, if made public, would significantly affect the share price.


The rate you’ll pay on debts – or the rate you’ll get on savings.

Interest-only mortgage

A mortgage in which you only repay the interest over the term of the loan, and pay the capital when the mortgage finishes. Cheaper than a repayment mortgage, but also riskier, as you need to find the money to repay the original loan at the end of the term.


What can happen if you die without making a will. In this situation, the law states how your assets will be distributed.

Investment club

A group of individual investors who club together to buy shares on a collective basis, then share any profits made.

Investment management firm

A firm which runs open ended investment companies (Oeics), unit or investment trusts. Actively managed funds are overseen by expert investment fund managers.

Investment trust

A fund which invests in a range of companies’ shares, just like unit trusts or open ended investment companies (Oeics). However, the structure is different: Investment trusts are closed ended funds, which means there are a set number of shares. The shares are traded just like ordinary companies on the stock market, and you buy them through a stockbroker or adviser.


Joint life annuity

An annuity that continues after the death of the first partner and ends after the death of the second partner.

Junk bond

Another name for high yield or sub-investment grade corporate or government bonds. So called because they have a higher chance of default than non-junk bonds, and therefore pay a higher return.




A legal agreement which provides for the usage of an asset – usually a property – for a set time period.

Level term insurance

Also called level term assurance. Basic life cover in which the premiums and cover remain the same over the term. Cheap, but pricier than decreasing term cover.

Life insurance

Also known as life assurance, this is insurance paid to named beneficiaries when the insured party dies.


The process of ending the existence of a company: A firm will go into liquidation if it is unable to pay its debts. In this situation, the company’s assets will be sold in order to pay the debts.


Liquidity describes the ease with which an asset can be converted into cash immediately. A liquid market is one where there are many buyers and seller and it is easy to sell your investments. For example, shares on the FTSE 100 index are liquid, while shares on the Alternative Investment Market (AIM) are not.

London Interbank Offer Rate (Libor)

The London Interbank Offer Rate (Libor) is the rate of interest which applies to the wholesale money markets lending between London banks.

Loan to value (LTV)

This is the ratio between the size of the loan you are seeking and the mortgage lender’s valuation of the property.

London Stock Exchange (LSE)

The main UK stock market.


Management fee

The annual charge levied on investment funds.


When an investment or bond finishes, it comes to maturity.

Monetary Policy Committee (MPC)

A committee which is headed by the governor of the Bank of England. It meets once a month to discuss and vote on whether the Bank base rate should change.

Mortgage protection policy

A life insurance policy designed to pay off your mortgage if you were to die during the mortgage term.

Mutual funds

These are pooled funds for investment by a firm in the shares of other companies, in accordance with a stated set of objectives. Unlike investment trusts, mutual funds are open-end funds in which the investor may redeem his or her shares at any time at the prevailing market price.


Term used to describe an organisation owned by its members for their own benefits, such as a building society.


National Savings & Investments (NS&I)

NS&I is an agency of the government which provides savings certificates and bonds, and also runs the Premium Bond draw. Deposits with NS&I are 100% guaranteed by the government.

Negative equity

Negative equity occurs when the value of your property falls below the figure of the mortgage taken out to buy it.

Net yield

The annual return on an investment, after tax.

New issues

These are shares that are offered to the general public on the stock exchange for the first time.

New York Stock Exchange (NYSE)

The largest and oldest stock exchange in the US, located on Wall Street in New York.

Nominee account or name

If you trade shares electronically, your shares will be held by your stockbroker in a nominee name or account.


Occupational pension scheme

A scheme run by your employer to help you build up a retirement pension.

Offer price

The price at which you buy shares or units.

Offset Mortgage

A mortgage linked to a current or savings account. Money in the account is offset against what’s owed on the mortgage, reducing the amount the mortgage interest is calculated on. An offset deal is designed to reduce the time a mortgage lasts, and therefore reduce the total interest paid.

Offshore account

A savings account – usually based in the Channel Islands or Isle of Man – that pays interest free from tax. This sort of account is popular with expatriates.


An investment fund which issues and cancels units or shares depending on demand (as opposed to a closed-ended fund).

Open-ended investment company (Oeic)

A fund run by an investment management company which invests in a portfolio of companies’ shares, like an investment or unit trust. Oeics issue shares (like investment trusts) but are open-ended (like unit trusts).

Orphan assets

These are the surplus assets which a life insurance company has once it has met all its liabilities to policyholders and shareholders.


If you withdraw more from your current account than you have available in funds, you have an overdraft. If you have your bank’s permission to do so, you have an authorised overdraft, if not, it is an unauthorised overdraft. You will pay fees and interest on both, and these are likely to be particularly high on unauthorised overdrafts.


Passive fund management

Fund management where the aim is to track an index – such as the FTSE 100. The opposite of active fund management.


A plan to provide a retirement income. It can be a personal pension, or a company pension provided by an employer.

Personal Pension Plan (PPP)

This is a private pension scheme run by an insurance or investment firm, or a bank. It aims to provide you with a pension at retirement, plus other benefits. Unlike an occupational pension scheme, a personal pension plan need not be connected with a specific job. Self-invested personal pensions (Sipps) are self-select personal pensions.

Phishing and Pharming

Terms used to describe the way fraudsters try to get your personal details, so they can steal your money.

Pooled funds

Unit, investment trusts and Oeics are all pooled funds: Investors pool their money together to make investments.


A portfolio is a collection of different investments that make up your total investment holding.

Power of attorney

If you hold power of attorney for someone, you are legally charged with taking care of their finances. Often used by the elderly or infirm, a lasting power of attorney is set up by a solicitor.


The amount you pay for an insurance policy is called a premium. It is also a measure of how far the share price of an investment trust is above its net asset value.

Premium Bonds

A monthly draw run by National Savings & Investments, with a maximum prize of £1 million. Bonds can always be cashed in at the original price, and prizes from the draw can be claimed at any time: Some unclaimed prizes date back many years.

Price-earnings ratio (P/E)

The P/E ratio of a company is calculated by dividing its share price by its earnings per share.


Quoted company

A company which is listed on the stock exchange.



A sudden rise in the value of a share or market performance after a long fall.

Real Estate Investment Trusts (REITs)

Funds which invest in commercial property. Only suitable for those prepared to take risks.


An indicator that a country has entered a period of economic troubles. A recession is typically defined as a decline in Gross Domestic Product (GDP) for two consecutive quarters.


The date a bond or investment becomes repayable. This is also called the maturity date.


A registrar runs a company’s register of shareholders.

Reinvestment of dividends

When someone reinvests dividends to buy more shares.

Repayment mortgage

A mortgage in which you pay off both the capital and the interest each month, until you’ve completely repaid the loan at the end of the pre-agreed term.

Retail Prices Index (RPI)

The widest indicator of inflation, including housing and other costs. The RPI is often used to increase benefits and pensions. A narrower measure is the Consumer Prices Index (CPI).

Reversionary bonus

Another name for the annual bonuses paid on with-profits funds.

Rights issue

An offer by a company to sell a new issue of shares to its existing shareholders. Usually these shares are sold at lower than market price.


Your appetite for risk will determine what sort of investments you are comfortable with. For example, cash is low risk, while single company shares are high risk.


Salary sacrifice

Some employers offer you benefits, such as childcare vouchers, which you ‘sacrifice’ part of your pre-tax salary for. Salary sacrifice means you save the tax you’d otherwise pay on that part of your salary.

Savings account

A deposit account with a bank or building society on which you are paid interest. Savings certificates are issued by the government’s own bank, National Savings & Investments.

Secured loan

A loan which is secured on a tangible asset, like your house or your car. Secured loans are often cheaper than unsecured loans, but you risk losing your home or other assets if you can’t keep up repayments.


This is a deposit or a stake in an asset. For example, the security for a mortgage is the property it is secured on.

Self-Invested Pension Plan (SIPP)

A personal pension in which the person saving for their retirement is given the flexibility to make their own investment decisions.


A share represents a slice in the ownership of a company or a fund.


The owner of shares in a company. Shareholders supply what is known as the risk capital and share in the success of the company. If the company is a success and makes a profit, shareholders receive the rewards of increasing dividend income and capital gains on the price of their shares. If the company is a failure, shareholders stand to lose the whole of their investment.

Share certificate

Proof of ownership of shares in a company. These days, most shareholders do not have paper certificates but instead hold their shares in nominee accounts with stockbrokers. Shares still held on paper certificates can be more difficult and costly to transact.

Stamp duty

Stamp duty is a tax levied on share dealings and house purchases. On properties selling for more than £125,000, the current rates of stamp duty range from 1% to 5% – depending on the cost of the property. Until March 2012, first-time buyers will pay no stamp duty on properties up to £250,000. The current rate levied on share purchases is 0.5%.

Standing order

Authority given by you to a retailer or other service provider to take a sum of money set by you from your bank account at set periods. Similar to a direct debit, but with a standing order, you say exactly how much will be taken and when. This is why standing orders are used to pay for services where the price remains constant.

State Earnings-Related Pension Scheme (SERPS)

A top-up pension scheme to boost the state basic pension. SERPS was replaced by the State Second Pension (SP2) in April 2002.

Standard & Poor’s Stock Index (S&P500)

A US performance index of 500 widely-held stocks.


A firm or a person who buys and sells shares on your behalf for a fee. An execution-only stockbroker just transacts the deals as instructed by you, and offers no advice. An advisory or discretionary broker offers advice on whether you should buy or sell certain shares. Execution-only brokers are cheaper than those offering advice.

Stock exchange

A main place of trading for stocks, shares and other securities.

Store card

A card issued by a retailer. Interest rates on store cards tend to be higher than those on credit cards, unless you clear your balance every month.

Surrender value

The cash amount received if an insurance policy is cancelled before its maturity date.


If you buy a house you are likely to have a survey conducted – either a valuation survey, a homebuyer’s survey or a full structural survey. A valuation survey is the cheapest and will be demanded by a mortgage lender. A homebuyer’s is the standard survey, and a full structural is the most thorough and expensive.


Tax avoidance

Legal ways to avoid paying too much tax. Illegal ways are tax evasion.

Tax Credits

An amount you can subtract from the tax you’d otherwise have to pay. Current tax credits include those for working families, and those with children.

Tax-efficient investments

Investments that have less of a tax consequence than other investments

Tax exempt

Investments which do not attract tax – such as ISAs.

Tax year

The tax year begins on April 6, and ends on April 5 the following year.

Term insurance

Also known as term assurance. This is life insurance that pays out if you die during the term of the policy. If you survive the term of the policy, you don’t receive anything. This type of policy is often used to cover long term loans or mortgages. It is the simplest and cheapest form of life insurance.

Tied agent

A tied agent is a financial salesman who can only offer to sell the products of one company, rather than an independent financial adviser who can look at the whole market for products that best suit you.

Total return

The total return on an investment is the combination of both the income return and any capital gain or loss.

Tracker fund

These are funds that invest in a share portfolio (for example, the FTSE 100) weighted according to the market capitalisation of the various shares in it. Tracker funds are not managed (unlike actively managed funds) and are therefore usually cheaper to buy.

Transfer value

The value of the pension benefits you are allowed to take if you decide to leave an occupational pension scheme. The precise value of these benefits will be calculated by an actuary who works for the pension scheme administrator.


An individual or organisation that looks after assets for the benefit of another.



An investment that does not grow as fast as other similar investments.

Unit trust

A collective trust that pools members’ cash and invests it on their behalf. It is the role of the unit trust manager to make sure that the money is invested properly and delivers the best possible return. Unlike investment trusts and Oeics (which issue shares), unit trusts issue units. They are open-ended funds, which means units are issued and cancelled depending on demand.

Unlisted investments

These are investments in companies which are not quoted on any stock exchange.

Unsecured loans

Also known as personal loans, these are not secured on assets (like your house or your car). Unsecured loan rates tend to be higher than those on secured loans. Unsecured loan rates are usually fixed at the outset, so they don’t change.



A process to determine the value of an asset, like a property or company. If you are buying a home with a mortgage, your lender will usually require you to have a valuation survey.

Variable rate

Usually applied to mortgages and savings, this is the opposite of fixed rate. The rate can move when the financial company decides to change it, although they are obliged to inform you that it’s changing.

Venture Capital Trusts (VCTs)

Investment funds which put money into high risk, start up businesses. They come with tax advantages, but are only for the brave investor.


This is a measure of how much the price of something – usually for these purposes a share or fund – moves. The more volatile an investment, the more the price moves around.



These are risky investments which give the holder the right to buy a given number of shares in a company at a fixed price at some future date, usually several years ahead.


An insurance policy taken out to pay for repairs or replacements for a consumer item, like a washing machine or a television.

Whole-of-life insurance

An insurance policy that covers you for your entire life. It is not like term insurance, which only lasts for a set period. Whole-of-life insurance is often sold to elderly people to cover the cost of their funerals.


A way of ensuring your assets go to the people you want to benefit when you die. If you die without a will (intestate) the state will control where your money goes. A simple will drawn up by a solicitor should cost less than £100.

With-profits policies

Investment, life or pension policies which invest in huge with-profits funds run by insurance companies. The return paid on with-profits policies is in the form of a bonus. The size of the bonus is determined by the fund’s actuaries and is not simply the return the fund has made on its investments. Good with-profits funds ‘smooth’ returns in an attempt to even out the ups and downs during good and bad years. Many with-profits funds have not done well in recent years and some are now closed to new investors.




The yield on an investment is the annual dividend or income received expressed as a percentage.