Savings glossary
Illustrates what the interest rate would be if interest was paid and compounded once a year.
Achieving your financial aspirations and building a strong foundation can rely heavily on the art of saving. So, whether you're saving for a big purchase, your retirement, or simply an emergency fund, it's important to understand the options available to you.
We break down some common savings terminology to help you make informed decisions for your future.
A
Annual Equivalent Rate (AER)
The total cost of borrowing, including interest and fees, expressed as an annual percentage.
Annual Percentage Rate (APR)
The interest rate set by the Bank of England, influencing borrowing and lending rates across the UK economy. It’s set by the Monetary Policy Committee. Changes to the base rate can mean that savings and mortgage interest rates go up or down.
Bank of England base rate
A type of investment where you lend money to a government or company. In return, they pay interest at regular intervals, and give back the original amount you lent when the bond matures.
Bond
B
An online platform where you can securely deposit cash into multiple banks and building societies, with one application, and one password.
Cash Deposit Platform
A savings account where interest earned isn’t subject to income tax.
Cash ISA
C
When you earn interest on both the money you've saved and the interest you earn.
Compound interest
A sum of cash placed into a bank or financial institution, often used for savings or as a down payment.
Deposit
A payment method where you give a company permission to withdraw funds directly from your bank account to pay bills or make regular payments.
Direct debit
Spreading investments across various assets or bank accounts to reduce risk.
Diversification
D
A monetary policy stance favouring lower interest rates and measures to stimulate economic growth, often associated with a cautious approach towards inflation.
Dovish
Same as ‘instant access’.
Easy access
An investing approach that considers a company's impact on the environment, society, and governance practices alongside financial performance.
Financial institutions that prioritise socially responsible and environmentally sustainable practices in their operations and investments.
Ethical banks
E
A professional who provides guidance on managing money, investments, and financial planning to help people meet their financial goals.
The UK regulator for the financial services industry. Its focus is on ensuring that financial markets operate fairly and transparently, and that consumers are treated fairly by financial firms.
Financial Conduct Authority (FCA)
A scheme that safeguards eligible deposits up to a certain limit in the event that a bank or financial institution were to fail (£85,000 for individuals, £170,000 for joint accounts).
Financial Services Compensation Scheme (FSCS)
F
An interest rate that remains at a set level for a specific period of time, so you know exactly how much you'll earn during that time.
Fixed rate
A savings account that typically offers you a slightly higher interest rate than other accounts – provided you are prepared to invest your money for a set period.
The annual rate of interest to be paid on a savings account before taxes or any other charges.
Gross rate
G
A monetary policy stance characterised by a more aggressive approach to controlling inflation, often involving higher interest rates.
Hawkish
The UK's tax, payments, and customs authority. Responsible for the collection of taxes that pays for the UK's public services.
Her Majesty’s Revenue and Customs (HMRC)
H
The rise in the cost of goods and services over time, which erodes the purchasing power of your money.
Inflation
A savings account where you can add or withdraw funds at any time, without any penalties. Sometimes called an 'easy access' account.
I
The cost of borrowing money or the earnings from an investment, typically expressed as a percentage of the loan amount.
Interest
The percentage at which interest is charged on a loan amount or earned on an investment, influencing the overall cost or return.
A tax-exempt savings or investment account in the UK.
Individual Savings Account (ISA)
The maximum amount an individual can invest in an ISA during a specific tax year.
Individual Savings Account (ISA) allowance
The ease with which an asset can be converted into cash without significant loss in value.
Liquidity
A one-time payment, often used in the context of a single, substantial deposit or investment.
Lump sum
L
The date an account reaches the end of its fixed term. You can then choose whether you want to spend your savings or reinvest them into another account.
Maturity
M
A financial reserve or savings set aside for future needs or emergencies.
Nest egg
The annual rate of interest to be paid on a savings account, after taxes and other charges.
Net rate
A UK government-backed savings and investment institution, offering various financial products to the public.
National Savings & Investments (NS&I)
A bank or building society account where you can send and receive payments.
Nominated account
A savings account where you'll need to give a set period of notice before you can access and withdraw your funds.
The amount of time you must give notice to your bank or building society before withdrawing funds from the account.
Notice period
N
A way to share data about your current account and credit card with third parties (approved Open Banking providers).
Open banking
O
The amount of savings interest an individual can earn tax-free within a tax year, based on their income level.
Personal Savings Allowance (PSA)
P
A collection of assets and investments, such as cash, stocks, bonds, or property, owned by an individual or organisation.
Portfolio
Money saved for unexpected expenses or financial emergencies.
Rainy day fund
The process of adjusting your investment portfolio by buying or selling assets to maintain your desired asset allocation and risk level.
R
A significant decline in economic activity, typically marked by a decrease in GDP, employment, and overall business activity, lasting for an extended period.
Recession
The trade-off between the potential for gain (interest) and the likelihood of loss in investment decisions.
Risk vs. reward
A financial product offered by banks or building societies where you can deposit and store cash while earning interest.
Savings account
A savings account that follows the principles of Sharia law.
Sharia account
S
A tax-efficient investment account that allows individuals to invest in stocks, bonds, and other securities within a specified annual allowance.
Stocks and Shares ISA
The income earned on certain savings or investments that isn’t subject to income tax, providing a favourable financial benefit.
Tax-free interest
T
A savings account with an interest rate that can change over time, often in response to economic conditions.
Variable rate account
V
An unexpected or sudden influx of money, often coming from sources like bonuses, inheritances, or investment gains.
Windfall
W
The act of removing money from a bank account, investment, or other financial assets.
Withdrawal
The income earned from an investment, usually expressed as a percentage.
Yield
Y
Financial Adviser
Fixed-term account
Environmental, Social, and Governance (ESG) investing
Instant access
Interest rate
Notice account
Rebalancing
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