Money glossary

58 money words you'll meet in the UK, in plain English.

A

AER: Annual equivalent rate: what a savings account really pays in a year, including interest on your interest. Compare savings accounts by AER.; Read: Banking basics in the UK: current accounts, savings and FSCS
Agreement in principle: A lender’s statement of how much it would probably lend you, based on a quick check. It isn’t a mortgage offer, but it shows sellers you can borrow.; Read: First-time buyer guide: deposit, Lifetime ISA and mortgage
Annuity: A product you buy with your savings, usually at retirement, that pays you an income for life or for a set time.
APR: Annual percentage rate: the yearly cost of borrowing, including the interest and, for most loans, the main fees. The fairest way to compare loans and cards.
Auto-enrolment: Being signed up to a workplace pension automatically, with your employer paying in too. You can opt out, but you’d lose their contributions.; Read: Workplace pensions and auto-enrolment explained

B

Bond: A loan you make to a government or company, which pays you interest and gives your money back at the end. Usually steadier than shares, with lower long-run returns.; Read: Investing basics: ISAs, pensions and index funds
Budget: A plan for your money: what comes in, what has to go out, and what’s left to save or spend.; Read: How to make a budget in the UK (the 50/30/20 rule)
Buy now, pay later (BNPL): Splitting a purchase into instalments, often 4 payments over 6 weeks, usually with no interest if you pay on time. Missed payments can bring fees and harm your credit.; Read: Buy now, pay later in the UK: costs, credit and the rules

C

Capital gain: The profit when you sell something, such as shares or a property, for more than you paid. It may be taxed.
Central bank: The Bank of England. It sets Bank Rate, which other UK rates follow, raising it to slow inflation and cutting it to support the economy.; Read: Inflation and interest rates in the UK, explained
Compound interest: Interest on your interest as well as on the money you put in. Over many years it makes savings grow faster, and unpaid debts too.; Read: Inflation and interest rates in the UK, explained
Credit report: The record of your loans, cards and repayments that lenders check before lending. You can see your own report for free.; Read: UK credit scores: what affects yours and how to raise it
Credit score: A number that sums up how reliably you’ve repaid credit. Lenders use it to decide whether to lend to you, and at what rate.; Read: UK credit scores: what affects yours and how to raise it
Credit utilisation: How much of your card limits you’re using. Keeping it low, well under a third, helps your credit score.; Read: UK credit scores: what affects yours and how to raise it

D

Debt avalanche: Paying off debts with the highest interest rate first, while making the minimum payments on the rest. It costs the least in interest.; Read: How to pay off debt in the UK: avalanche or snowball?
Debt snowball: Paying off your smallest debts first, while making the minimum payments on the rest. Quick wins keep you going, though it can cost more in interest.; Read: How to pay off debt in the UK: avalanche or snowball?
Debt-to-income ratio: Your debts, or your monthly debt payments, compared with your income. Lenders use it to judge how much more you can afford to borrow.
Diversification: Spreading your money across many investments, so one doing badly doesn’t sink the lot.; Read: Investing basics: ISAs, pensions and index funds
Dividend: A share of a company’s profit, paid to the people who own its shares.; Read: Investing basics: ISAs, pensions and index funds

E

Effective tax rate: Your total tax as a share of your total income. It’s lower than your top rate, because the lower slices of your income are taxed less.
Emergency fund: Money set aside for surprises, such as losing your job or a big repair, so you don’t have to borrow. A common goal is three to six months of essential spending.; Read: Emergency fund in the UK: how much and where to keep it
Emergency tax: Extra tax taken from your pay when your employer doesn’t have your tax details yet. You get it back once they do.; Read: UK tax codes explained
ETF: Exchange-traded fund: a fund you buy and sell on the stock market like a share. Many ETFs are low-cost index funds.; Read: Investing basics: ISAs, pensions and index funds

F

Fixed rate: An interest rate that stays the same for a set time, so your payments don’t change.
FSCS protection: Protection for money in UK bank and building society accounts: if the firm fails, the Financial Services Compensation Scheme pays back savings up to a limit per person, per banking licence.; Read: Banking basics in the UK: current accounts, savings and FSCS
Fund fees: The yearly charge a fund takes, as a percentage of what you have in it. Small differences add up to a lot over decades.; Read: Investing basics: ISAs, pensions and index funds

G

Gross pay: Your pay before tax and anything else is taken off.

H

Home equity: The part of your home you own outright: its value minus what you still owe on it.
House deposit: The part of a home’s price you pay upfront. The rest is borrowed with a mortgage.

I

Identity theft: When someone uses your personal details to borrow money, open accounts or claim refunds in your name.; Read: How to spot and report money scams in the UK
Index fund: A fund that buys every company in a market index, such as a country’s biggest companies, instead of picking a few. It spreads your risk and usually has low fees.; Read: Index funds vs picking stocks in the UK: why go passive
Inflation: The rise in prices over time. With inflation at 3%, what cost 100 a year ago costs 103 now, so the same money buys a little less.; Read: Inflation and interest rates in the UK, explained
Interest rate: The price of borrowing money, or the reward for saving it, as a percentage of the amount each year.; Read: Inflation and interest rates in the UK, explained
ISA: Individual Savings Account: cash savings or investments where the interest and growth are tax-free, up to a yearly allowance.; Read: Investing basics: ISAs, pensions and index funds

L

Lifetime ISA: An ISA for people aged 18 to 39 saving for a first home or retirement. The government adds a 25% bonus, but other withdrawals before 60 lose more than the bonus.; Read: First-time buyer guide: deposit, Lifetime ISA and mortgage
Loan-to-value (LTV): Your mortgage as a share of the home’s value. A lower LTV, from a bigger deposit, usually gets a lower interest rate.

M

Marginal tax rate: The tax rate on the next bit of income you earn: your top bracket’s rate. It’s what matters when you get a raise or a bonus.
Minimum payment: The smallest amount you must pay on a credit card each month. Paying only this keeps you in debt for years and costs a lot in interest.

N

National Insurance: A tax on earnings that builds your entitlement to the State Pension and some benefits.; Read: National Insurance explained
Net worth: Everything you own (savings, investments, your home) minus everything you owe (mortgage, loans, cards).

O

Overdraft: Spending more than you have in your bank account. The bank covers the gap, usually for a fee or a high rate of interest.; Read: Banking basics in the UK: current accounts, savings and FSCS

P

PAYE: Pay As You Earn: income tax taken from your pay by your employer before you’re paid.
Pension: Savings for retirement with tax relief on what you pay in. Workplace pensions get money from your employer too.; Read: Workplace pensions and auto-enrolment explained
Personal Allowance: The income you can earn each tax year before you pay any income tax.; Read: UK tax codes explained
Phishing: Emails, texts or calls pretending to be from your bank, the tax office or a delivery firm, trying to get your passwords, codes or card details.; Read: How to spot and report money scams in the UK

Q

Qualifying earnings: The slice of your pay that auto-enrolment minimum contributions are worked out on: earnings between a lower and an upper limit set each year.; Read: Workplace pensions and auto-enrolment explained

R

Real return: What your money earns after inflation. A 5% return when prices rise 3% is a real return of about 2%.; Read: Inflation and interest rates in the UK, explained

S

Salary sacrifice: Giving up some of your pay in return for a benefit, such as extra pension or super contributions, paid before tax.; Read: Workplace pensions and auto-enrolment explained
Self Assessment: The tax return you file with HMRC if you’re self-employed or have income that isn’t taxed through PAYE.; Read: Self Assessment and payments on account explained
Shared Ownership: Buying a share of a home, usually from a housing association, and paying rent on the rest. You can buy more of it later.; Read: First-time buyer guide: deposit, Lifetime ISA and mortgage
Stamp duty: Stamp Duty Land Tax: a tax on buying a home in England or Northern Ireland, based on its price. First-time buyers pay less. Scotland and Wales have their own versions.; Read: Stamp Duty for first-time buyers
State Pension: The weekly pension from the government once you reach State Pension age. How much you get depends on your National Insurance record: 35 qualifying years for the full amount.; Read: The State Pension explained: how much you’ll get and when

T

Take-home pay: What you actually receive after tax and other deductions. Also called net pay.
Tax band: A slice of income taxed at one rate. Only the income inside each slice is taxed at that slice’s rate, so moving into a higher bracket never lowers your take-home pay.
Tax code: A code on your payslip that tells your employer how much income tax to take. A wrong code means paying too much or too little.; Read: UK tax codes explained
Tax credit: An amount taken straight off your tax bill. A credit of 100 cuts your tax by 100, so it’s worth more than a deduction of the same size.
Trading allowance: The first £1,000 a year of income from self-employment or a side hustle, which is tax-free and doesn’t need reporting to HMRC.; Read: Side hustle tax: the £1,000 allowance and Self Assessment

V

Variable rate: An interest rate that can go up or down, usually following the central bank’s rate, so your payments can change.