Glossary of terms

Feeling bamboozled? Get to grips with the language of ISAs with our glossary. Know the difference between everything from asset-backed to capital gain - you’ll be an expert before you know it!

A

Accrued

To accumulate something.

AER

Annual Equivalent Rate. The rate for savings accounts - an overall rate to make comparisons. Rates based on what the interest would be if the interest was paid and added to each year.

Asset class

A specific type of investment. There’s so many investments on offer that they are grouped together to make searching for them easier. Assets include bonds, equities (shares) etc.

Asset-backed

This is usually something you’d be aware of when considering an Innovative Finance ISA. When you invest in an Innovative Finance ISA, you're essentially lending money to a business as a loan via a bond. When an Innovative Finance ISA is asset-backed, it means their assets are contractually used as collateral to protect the money you give. In short, if something goes wrong and the borrower cannot meet the terms of their loan, their assets are instead used to pay back investors.

Assets

Includes your money, property, and shares.

B

BACS/CHAPS

Electronic payments. BACS: An electronic system that allows you to make payments from one bank account to another. It can take up to 3 days to clear payments. CHAPS: Guaranteed same day payment in line with the terms and conditions of individual banks and building societies.

Bid price

The price you sell shares for.

Bonds (fixed-income)

Bonds are a type of investment. Essentially, a bond is when an investor loans money to a business (or government). The borrower has to pay back the money at a variable or fixed interest rate.

Bonus rate

A rate given at the start of opening a financial product to entice new customers.

Borrower

A person or an organisation borrowing money.

C

Capital

Financial assets.

Capital at risk

Capital that is set aside to cover risks.

Capital gains (gains)

The increase in the value of your capital.

Cash ISA

An individual savings account that pays interest tax-free. Unlike traditional accounts where you pay income tax on the interest you earn.

Compound interest

The concept of earning interest on your interest, rather than on just the money you have invested. E.g., invest £1,000 with an annual interest rate of 5%, and at the end of the year you will have made £50 in interest. The following year you would earn 5% interest on £1,050 not £1,000.

Contributions

How much you are paying into a financial product.

Credit risk

When a borrower defaults on a loan, they are considered a credit risk.

Creditors

Companies/people/organisations that lend money.

Custodian

A custodian is an organisation who can take responsibility for protecting your assets.

D

Diversification

Making investments across a range of asset types.

Dividend

Profits that a company shares with shareholders.

E

Easy access account

An account that you can withdraw funds from without restriction.

Equity

If you have a stake/share in a company listed on a stock exchange, you are entitled to a proportion of any profits made by the company.

F

FCA

Financial Conduct Authority. The FCA is the conduct regulator for financial services in the UK.

Fees

A payment made in exchange for services.

Financial advisor

An individual whose job it is to provide financial advice.

Fixed rate interest

Fixed-rate individual savings accounts (ISAs) pay set amounts of interest. For example 7.5%.

Flexible ISA

Flexible individual savings accounts allow you to withdraw funds without it affecting your remaining funds.

FSCS

Financial Services Compensation Scheme. The FSCS protects consumers when financial services fail.

Funds

Money

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