Jargon Buster: Financial Services

Annual fee

A charge which is payable once a year for a financial service, such as a credit card or prepaid card.

Asset

Any item of financial value that you own, like property or investments. Money in a bank or building society account is known as a liquid asset.

ATM

Also known as a cashpoint or ‘hole in the wall’, an ATM is a machine that lets you withdraw money and make other transactions. ATM stands for Automated Teller Machine.

BACS

BACS is a type of bank transfer. The payments take three working days to clear, so the money paid into your account on Monday will clear by Wednesday. Despite the fact that BACS payments are not instant (or same-day) payments, it’s still the most popular bank-to-bank transfer method used by UK businesses.

There are two main types of BACS payment:

• Direct Debit: When you have given another person or organisation permission to take money from your bank account, e.g. your monthly council tax payment.
• Direct Credit: When someone else deposits money into your account, e.g. refunds or salary payments.
   

The name itself stands for Bankers Automated Clearing Services.

Balance

This is the amount of money in your bank or savings account, or the amount you still owe a lender to pay off your loan in full.

Bank of England

The UK’s central bank. It produces banknotes (cash) and oversees many of the other payment systems you use (e.g. with a debit or credit card).

It also works to keep the cost of living stable so your money keeps its purchasing power. One way it does this is by changing the main interest rate in the UK.

It also regulates UK banks and other financial firms so you know they are safe.

Bank statement

A record of all transactions from an account, including money in and out and the remaining balance. It’s usually sent to the account holder each month.

Banking app

(See also: mobile banking). This is a mobile app that lets you access the details of your bank account and complete transactions directly from your phone, tablet, or mobile device.

Bankruptcy

Bankruptcy is a court order that you can apply for if you’re unable to repay your debts. Someone you owe money can also apply to make you bankrupt even if you don’t want this.

When you’re made bankrupt, you don’t have to deal with the people you owe money to (known as your creditors). Someone called the Official Receiver takes control of your money and property, and deals with them instead.

When the bankruptcy order is over, the amount you owe is usually written off and creditors have to stop most types of court action to get their money back.

Basic bank account

A basic bank account is designed specifically for people with poor credit. It’s similar to a current account, in that it allows you to receive and pay out money. Most banks will give you a debit card so you can make payments online and in shops and restaurants. However, there are no lending facilities available, so you cannot have an overdraft.

Budget

A budget is an estimate of your costs (e.g. bills and the weekly grocery shop) and income, which are tracked on a regular basis. It lets you see how much money you have left and could highlight areas where savings might be made in future.

Building society

Building societies are similar to banks and offer many of the same services. The difference is that banks are generally listed on the stock market and therefore work in the favour of those who invest in them, specifically their shareholders. Building societies, however, are not commercial businesses but ‘mutual institutions’ – owned by, and working for, their customers.

Business bank account

A business bank account is designed specifically for businesses to use for all incoming and outgoing business transactions. It works in a similar way to a personal current account and can provide debit cards and business credit cards, paying in books and cheque books for daily business banking needs, as well as allow direct debits and standing orders to be set up, and payments of invoices, wages and bills to be made through the bank’s online banking offering.

Cancellation period

The period in which you are entitled to change your mind and cancel a financial commitment.

Cashback

When you buy something, cashback gives a percentage of the amount it cost back to you. It’s basically a way of getting money off things – like a reward or incentive. It’s normally a feature of credit cards as well as prepaid cards, but some current accounts also have cashback.

Often cashback is offered on specific purchases, like fuel or for bills. But many providers now offer cashback on anything that you buy.

Challenger bank

A challenger bank is typically a smaller, recently launched bank that aims to challenge the dominance of the long-established banking giants. They tend to offer better savings rates but they still have to abide by the same rules and regulations as any UK authorised bank. Most challenger banks are now internet or web-based only, primarily using mobile apps (also referred to as mobile-only banks).

Charges

Charges and fees are usually the same thing in finance. They can be issued for services your bank or lender provides (such as an annual card fee for your credit card) but also if the terms of an agreement are broken (late payment charges, for example).

CPA

CPA stands for Continuous Payment Authority. It’s a ‘recurring payment’ and is setup when you give permission to a company to regularly take payments from your debit/credit card, such as for a gym subscription or payday loan.

On a debit card, you can check your bank statements to see if you’re paying CPAs. Put simply, any regular payments coming from your statement that isn’t listed as direct debits (DD) or standing orders (SO) are continuous payment authorities.

You can cancel CPAs by contacting the company or your bank.

Credit

Credit is money borrowed from a bank or credit provider on the condition that it’s paid back in accordance with the agreement you’ve signed, usually with interest added. Types of credit include loans (such as mortgages and personal loans), mobile phone contracts, credit cards and pawnbroking.

Credit score

A credit score is a number that rates how suitable you are for credit, it is based on your financial history shown on your credit report. A higher number or score means a lender will likely lend to you, and you may be offered better deals on things like credit cards, personal loans and phone contracts.

Credit report

A credit report is a file that holds information about your financial history, this information is used to create a credit score (See also: Credit score). A credit report will hold information such as credit activity, loans, credit cards and other forms of debt that you currently have, as well as your past credit history. It will also show if repayments have not been made on time - for example a late loan repayment.

Credit union

A non-profit organisation run by volunteer members who pool their savings to provide each other with loans at low rates of interest. To be part of a credit union you generally have to share a common bond with other members, such as living in the same area, working for the same employer or belonging to the same church or trade union.

Currency

The banknotes and coins accepted within a country (e.g. sterling in the UK), or an area (e.g. euros in the EU).

Currency card

Also known as a prepaid travel card, this is a card you pre-load with money for holidays and travel abroad. It avoids carrying a lot of cash and you can choose which currency you pre-load your card with depending on where you're going.

It's not the same as a credit card so you don't have to worry about overspending and getting into debt. You can only spend the amount you've loaded it with.

A currency card can be used at cashpoints and in shops and restaurants that accept MasterCard or Visa debit or credit cards.

Current account

A current account is the name usually given to an everyday bank account. These accounts allow you to have your wages and other income paid in and set up direct debits and standing orders to pay bills and beneficiaries. They come with a debit card to withdraw cash and make payments in shops and online, and some also offer an overdraft facility, depending on eligibility.

Current Account Switch Service

The Current Account Switch Service (CASS) is a free-to-use service that makes it easier to move accounts. It guarantees that the swap will be completed within seven working days. It will make sure it transfers every incoming and outgoing payment to your new account – including your wages and direct debits.

Debit

To take money out of an account.

Debit card

A debit card allows you to spend money directly from your current account and withdraw money at cash machines or get cashback in shops that offer that service.

The amount of the purchase is debited from your available balance on the same day, but it can take several days for the funds to be debited from your actual account.

Deductions

Any money that is taken from your gross income before you receive your wages. It will be displayed on your payslip and may include income tax, National Insurance, student loan repayments and pension contributions.

Deposit

To pay money into an account either as cash, cheque or by direct transfer.

Direct debit

A way to make regular payments by giving a company permission to take money from your account. You know in advance the amount you will be debited and the date the payment will happen. For your protection, direct debits are guaranteed by all banks and building societies under the Direct Debit Guarantee scheme.

Direct Debit Guarantee

This guarantee protects customers against incorrectly collected direct debit payments. Under the guarantee, customers must be told in advance before payment is collected. They must also be informed in advance of any changes (such as the amount or date of collection). If a direct debit is collected incorrectly, the customer is entitled to a full immediate refund. Customers are also allowed to cancel a direct debit at any time through their bank account provider.

E-money account

An e-money account is an amount of money stored electronically on a device that can, among other things, make payments. E-money accounts can include: currency apps, current accounts (both personal and business accounts), web-based services, currency cards and prepaid cards. Funds on an e-money account are not covered by the Financial Services Compensation Scheme.

Emergency fund

Money set aside in a dedicated interest account to cover unforeseen financial emergencies such as car or property repairs or vet bills.

Exchange rate

The rate or value at which one national currency will be swapped for another.

FCA

The Financial Conduct Authority (FCA) is an independent body that regulates the financial services industry in the UK. Among the many jobs it performs is to protect consumers and help maintain confidence in our financial system.

Fees

(See: charges).

FSCS

The Financial Services Compensation Scheme (FSCS) protects you when authorised financial firms under the scheme fail. If the financial service company you've used has gone out of business, is under the scheme and can't pay your claim, it steps in to pay compensation. The FSCS is independent and the service is free to use. You’ll keep the compensation you’re owed when you claim directly through it, which is up to £85,000 per eligible person, per bank, building society or credit union.

Income

Money received by an individual, such as a salary, which is usually subject to income tax. Cash deposits will also provide income in the form of interest.

Gross income refers to the total amount you earn before any tax or other deductions are made. Net income (also known as your ‘take-home pay’), meanwhile, is the amount you earn after all deductions like tax, national insurance, pension contributions and student loan repayments.

Identity theft

A crime involving stealing someone else's identity to get money or goods.

Independent Financial Adviser

A professional who offers advice on financial matters to their clients and recommends suitable financial products from the whole of the market. They work independently for their clients rather than representing an insurance company or bank.

Internet banking

Also known as online banking, internet banking allows you to manage financial transactions via the internet. It offers customers almost every service traditionally available through a local branch including deposits, transfers, and online bill payments. Nearly every banking institution has some form of online banking, available both on desktop versions and through mobile apps.

ISA

An ISA (Individual Savings Account) is type of savings account which offers tax-free interest. Limits usually apply.

Joint account

A joint account is a bank account shared between two or more people. They are most likely to be used by couples, relatives, or business partners. A joint account typically allows anyone named on the account to access funds within it. The account holders share equal responsibility for any fees or charges incurred.

Mobile banking

(See also: banking app). Mobile banking is a service provided by a bank or other financial institution that lets customers access their account and complete transactions remotely using a mobile device such as a smartphone or tablet. Unlike internet banking it uses software, usually called an app, provided for the purpose.

Some banks have restrictions on which accounts may be accessed through mobile banking, as well as a limit on the amount that can be moved.

Mobile-only bank account

A mobile-only bank account is where all transactions take place online, through an app. Mobile only bank account providers do not have high street branches, but most other features are similar to a standard high street bank account – you can use your debit card to withdraw money from ATMs, and pay for goods in shops and restaurants, as well as set up direct debits, savings accounts and overdraft facilities (subject to eligibility).

Online banking

(See: internet banking)

Online-only bank account

(See: mobile-only bank account)

Open Banking

Open Banking gives third-party financial service providers open access to customer banking information - for example transactions and financial data. Usually an API (Application Programming Interface) is used - put simply, an API joins two applications, it’s where two bits of software meet.

Open Banking is also the name for a series of reforms to how banks deal with your financial information. It means all UK-regulated banks have to let you share your financial data (basically your bank, credit card or savings statements) with authorised providers offering budgeting apps, or other banks – as long as you give your permission. Open Banking aims to bring more competition and innovation to financial services which, in turn, should lead to more and better products to help manage your money.

You don't have to share your data if you don't want to. Each provider will ask for your consent to access your info when you sign up to it. It will then send a request to your bank, which will process it and share your details. You can withdraw your permission at any time.

PIN

Your Personal Identification Number (PIN) is usually a four-digit code used as security to access bank accounts.

Prepaid card

Although prepaid cards look like debit or credit cards, they work differently in that they must be topped up with funds before you can spend in shops or online. There is usually no overdraft facility (although there are now some providers that offer this as an extra feature), so you can only spend the money you’ve loaded on your card.

As with debit cards, you can also withdraw money from cash machines (but most prepaid cards charge you an extra fee to do this).  

The FSCS does not cover e-money products such as prepaid cards. (See: E-money account).

Prudential Regulation Authority

The Prudential Regulation Authority (PRA) supervises around 1,500 financial institutions including banks and insurance companies to ensure that the services and products they offer are provided in a safe and sound way. It’s part of the Bank of England and was established in a new wave of regulation in financial services after the financial crisis of 2007.

Savings account

A savings account is designed for you to store money that you don’t intend to use every day, and you earn interest on credit balances. Different to a bank account, you can’t set up standing orders or direct debits from a savings account. However, many savings accounts offer a debit card facility.

Section 75

Section 75 is an important UK consumer protection law made in the 1970s that means your credit provider must take the same responsibility as the retailer if things go wrong with a purchase.

If you pay for something costing more than £100 and up to £30,000 on your credit card, your provider must protect your purchases, meaning you could get your money back if there's a problem (for example, if you buy flights using your credit card from a company that goes bust following the purchase).

Credit cards are the main area covered, but the law also applies to store cards, store instalment credit and some car finance agreements (but not hire purchase).

Sort code

A six-digit number which identifies the branch of your bank. It appears on cheques and bank debit cards.

Telephone banking

Telephone banking allows you to access your account information and perform routine transactions (that don’t involve cash or cheques) from a telephone, without the need to visit a bank branch or ATM. It’s a service provided by a bank or other financial institution.

Transaction

Any occasion where money is exchanged, whether it is being given to you, or taken away. This can include making purchases on a credit card, for example, or making payments towards money you’ve borrowed.

Utilities

A catch-all term for gas, electricity, water, or a telephone service to homes and businesses.

VAT

Value Added Tax (VAT) is the tax you have to pay when you buy goods or services.

The standard VAT rate in the UK is 20% but there is a reduced rate of 5% which applies to some things like children's car seats and home energy. And there are some items for which you do not have to pay any VAT at all, such as most supermarket food, children's clothing, newspapers and magazines, postage stamps, and financial and property transactions.

Withdrawal

Taking money out of a bank account.

Zero balance transfer credit card

As the name implies, you can transfer the balance on your current credit cards to a new card, effectively the new card takes on the debt but at 0% interest. The interest rate of 0% on a Zero balance transfer credit card will be limited to a certain period, for example, 18 months. There may be a transfer fee to pay.

Zero purchase credit card

A zero purchase credit card allows for an interest free period when using your card to make purchases. However, the period is limited and when that period has elapsed you will be charged interest.