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Financial Jargon Buster

Use this list of definitions to help you navigate the financial jargon you see everywhere from the news to letters from your bank. Words in bold in the Definitions column also have their own definitions, so check these out too if you are unsure what they mean. Feel free to add your own comments or pictures if it helps you understand something better and use the extra spaces at the bottom to define new words that you hear and want to remember what they mean. Keep it handy until you get the hang of it!

Phrase / Jargon Definition Your Notes

Annual Equivalent Rate (AER)

This is a type of interest rate that is used to advertise savings accounts and savings products. It averages out how much you should earn on your savings per year, for the term or time period you are saving for. This is helpful to compare accounts that pay interest more regularly than others and if there are bonuses or different rates paid in different years.

Annual Percentage Rate of Charge (APR or APRC)

This is a type of interest rate that is used to advertise loans or products where you are borrowing money, like mortgages. Like AER it averages out the interest rate over the term or time period you are borrowing for. This helps you understand how much you will really have to pay, because some products like mortgages change the interest rate after the first couple of years.

Also banks may charge you a fee to get a particular mortgage that you want. These fees and other compulsory costs are included in the APRC so it gives you an idea of the total amount of interest and charges you will have to pay on average, each year. It helps you compare different loans so you can pick the best and most affordable one for you.

Assets Things that you own that have a value which you can either use to pay for stuff or sell for cash, which you can then use. They can be physical (tangible) or not (intangible) and include cash, investments, property, jewellery, personal possessions etc.


Auto Enrollment Nowadays if you are aged between 22 and 65 and earn at least £10,000/year your employer has to automatically set a pension up for you. Between both you and your employer, you need to pay in at least 8% of your salary. Your employer has to pay at least 3% and you may have to pay in 5%. However a lot of employers pay more than 3%, meaning you can pay in less if you want to. But it is a good idea to pay in as much as you can afford, to make sure you have enough money when you retire.

Bank of England The Central Bank for the UK. They are responsible for controlling interest rates and the amount of money in circulation (the amount of £s when you add up all the money in the UK) to achieve economic targets that the government sets them.

For example they have to try and keep inflation at 2% to help the UK have a growing but stable economy. The Bank of England are also responsible for the stability of the financial system in the UK, which it tries to do by regulating the financial companies like banks and insurance companies. You can find out more about what the Bank of England does here.

Bankruptcy When a person (not a company) cannot repay some or all of their debt they or their creditors (their lenders) can apply for a court order that declares the person bankrupt. An official is appointed (called a Trustee in Bankruptcy). This person is responsible for getting all the assets of the bankrupt person and selling them to give the cash to the lenders. The bankrupt person also has to pay their salary after essential living costs (like food) to the lenders.

Bankruptcy usually lasts for a year. After this time the person can own assets again and keep their salary. Any leftover debt is written off or cancelled, with a few exceptions (like student loans). The bankrupt person will face a lot of restrictions during the bankruptcy and this will be reflected in their credit score and history for a number of years, so alternative solutions should be explored first and you should seek specialist advice.

Base Rate This is the interest rate that the Central Bank (Bank of England in the UK) charges banks to borrow from it, or pays banks that save money with it. Whatever this rate is will help banks work out what interest rate they will give to their customers who open savings accounts or charge customers who borrow from them.


For example if a bank pays 1% interest to borrow from the Central Bank then it will charge its customers more than this. The Central Bank sets the Base Rate to try and achieve economic aims like getting inflation below a certain target by encouraging people to save or to borrow money and spend more.

Bears People who believe the stock market or the price of an asset, like the share price of a company is going to fall in the near future and continue to do so for a while.

Blockchain This is a decentralised network used to record transactions and exchanges of a particular cryptocurrency. The easiest way to think about it is when a transaction is made every computer on the network records that transaction. The computers are owned by different people and can be spread around the world. This makes changing the records either accidentally or on purpose much harder, meaning you can have more confidence that the record is accurate and has not been tampered with.

This is different to when you make a transaction in fiat currency. Normally only your bank, the vendor and the payment system provider will have a record, making it easier to change that record.

Bonds A type of investment in companies and countries. When a country or company needs money they can "issue a bond", which means they ask investors to lend them a certain amount of money for a certain term or period of time and they promise to pay you back the full amount by the end of the term and to pay you a certain interest rate each year. The interest is simple interest.

There are really high minimum amounts you have to invest to get access to these bonds - usually £100ks or even £millions. But you can access them through funds, which pool together lots of small investors' money to get access to bonds. You will probably have bond funds in your pension if you have one, without even realising it. So this means you are lending money to big companies and probably governments like the UK and US as well.

Shorter term bonds (ones that are paid back sooner) are usually seen as less risky because investors are more likely to get their money back. So the government can get away with paying less interest - the more risky a bond, the more interest or money an investor will want for lending the money out.


Budget This is a way to add up all the money you receive in a given period of time (usually a month or a year) and then take away all the money you spend in that period on things like food, bills, rent, going out etc. This can help you see whether you are spending more than you can afford and then help you plan how to make changes going forwards so that you can afford to get by and even have enough money left over to save and invest. It is a really important tool that we should all use to help us become financially healthy.

Governments and companies also budget to make sure they have enough money to carry out the things they need to. If you think it is hard to budget for yourself, imagine trying to do it for a whole country!

Bulls People who hold the opposite view to bears - they believe the stock market or price of an asset will rise in the near future and will continue to rise for a period of time.

Capital This is another way of saying a chunk of money that you have. It is usually money that you have already invested or are about to. Another situation you may see this word used in, is when you have to repay debt. Money you repay can be categorised as either paying off the interest you owe or paying off part of the capital, or amount you borrowed.

So if you owe £10,000 and have to repay £100 a month, £5 may be interest and the other £95 is a capital repayment so it goes towards paying off the £10,000.

Capital Growth This is growing your money by investing it and the value of your investments going up.

Central Bank This is a financial institution that is responsible for managing the value of the currency or money of a country. They do this by controlling the supply of money in circulation (how many pounds there are in a country if you add them all up) and by setting the base rate. They often are responsible for meeting targets to support the country's economy, like inflation targets. Central banks in developed countries are usually independent of the government but may have to meet government economic targets, like in the UK. They are often also responsible for making sure the financial system in a country keeps working. The UK's central bank is the Bank of England.


Commodities This is a type of investment - commodities usually include things that are dug out of the ground like gold, silver and oil, or are grown like wheat, coffee and cocoa, although there are new commodities like energy from renewable sources (solar and wind) and even cloud storage space! You invest in the price of commodities hoping they increase in price.

Usually you can't invest in the actual commodities themselves as individuals because you've got nowhere to store a load of oil or coffee, but you can invest in funds that track indices (or an imaginary basket) of different commodities (or even just one). So if the price of all of the commodities in the index or basket goes up, then your investment increases in value too. Also you can indirectly invest in commodities by investing in companies that are involved with commodities - for example investing in gold mining companies or companies that sell diamonds will mean your investment could increase in value when the value of those commodities increases too.

Commodities are a risky type of investment because the prices of them are very volatile (they can go up and down very quickly and by a lot). But investing a little bit of your money in them can help with diversification, or spreading the risk between different investment types so you don't put all your eggs in one basket.

Compound Interest This is where you earn interest on your interest, which can help you grow your money much faster than you can with simple interest. If you reinvest the interest that you earn, it will also earn interest.

So if you have £100 in your savings account that earns 10% interest a year, after one year you will receive £10. If you leave this in your account instead of taking it out and spending it (this is technically reinvesting it) then the next year you will earn 10% on the £100 (another £10) and 10% on the £10 interest you earned in the first year (which is £1). So in the second year you will earn £11 instead of £10.

The more years you do this for, the quicker your wealth will grow. No wonder Einstein called compound interest the 8th Wonder of the World! Be warned though - if you have debt then compound interest works against you and you will owe more than you originally borrowed.

Consumer Price A way to measure inflation. It is an imaginary basket of goods like bread,


Index (CPI) milk, some electronic items, rent and even some fuel. It represents what the average household in the UK spends their money on. All the prices of the goods in the basket are added up to see how much the total basket costs and then this is compared to how much it cost in the past. If things cost more now than in the past then there has been inflation. This means that your money is not worth as much as it was before. You can't buy as much now.

The CPI is the official measure of inflation in the UK and a lot of things are linked to it, like changes in social welfare and benefits. Also a lot of workplaces often increase salaries in line with CPI. However it is only an average and a lot of people do not buy the goods in the basket or as much as the basket suggests, or they have other costs that are not included, so you may face a different personal level of inflation.

Correlation If 2 companies are both impacted by the same things (like 2 supermarkets next to each other) and their values go up and down together then they are said to be correlated. Correlation is a way of measuring just how closely they are related. If they are not related at all then they are uncorrelated.

For example an umbrella seller will do well when it is raining and an ice cream seller will do well when it is sunny. They are uncorrelated. When you invest, spreading your risk or diversifying is a good way to protect yourself from losing all your money if one company goes bust. It also helps your investments increase in value overall even if some are not doing so well.

A way to diversify is picking uncorrelated investments. This is why having a mix of investment types is also a good idea as shares, bonds, commodities and property don't all go up and down in value together. In fact, when the stock market goes down, the value of gold often goes up.

Credit Credit can mean 2 quite different things and you've probably seen both used, so we should know what both are!

In Credit is where you have a positive balance in your account. In other words you have more than £0 in your bank account and you are not in your overdraft.

On Credit is where you have bought something when you don't have the money, but a company has lent you the money upfront to buy it. The money is


for that specific thing you are buying, unlike when you take out a loan, which you can really use for anything. The most likely times you will come across this is when you use a credit card or a store card to buy something.

Credit Rating / Score

Whenever you apply for or take out a loan, make or miss repayments, buy stuff on credit and even when you get multiple types of loans, a record is made and a judgement is made about whether you are a good borrower or not. You get a rating or a score that says how good a borrower you are. This rating is used by companies that you want to borrow money from in the future, to work out if they should lend to you, how much you can borrow and how much interest you will have to pay.

There are 3 credit rating companies in the UK, where you can find out your credit rating (and for free) - Experian, Equifax and TransUnion. You should check this score regularly and look at ways of improving it if you need to. This will help you to pay lower interest rates and give you more of a chance of borrowing what you need. You'll also be able to spot and correct any mistakes.

Creditor A person or company to whom money is owed, by a debtor, which is just the name of the person or company who owes the money. The creditor might have lent the debtor money or they may have provided goods and services, which the debtor hasn't paid for yet.

If you have bought a car on finance, or a student loan or even a phone bill that you haven't paid yet, then the car finance company, the Student Loans Company and your phone provider are all creditors and you are the debtor.

Cryptocurrency I'm sure you've heard of Bitcoin. Well this is the most famous of all the cryptocurrencies out there (and there are now 1,000s). But what actually is it? That is a good question because cryptocurrencies can be a store of value (kind of like an investment), a form of money to exchange for other currencies or goods and services, and even a token to use for a specific purpose, usually related to a technology project.

What they all have in common is that they are digital assets that are issued (produced) and distributed by companies or networks. They are made secure using cryptography. And all transactions and exchanges involving a cryptocurrency are recorded on decentralised networks known as


blockchain. This adds a layer of protection from fraud and mistakes as they aren't just recorded at one point like on the books of a bank. Someone would have to change the transaction on every single computer on global networks to commit fraud.

They differ from normal money (called fiat currency), which is money issued by governments and their central banks (like pounds, euros and dollars).

Current Account A type of bank account that you use to receive payments like wages and to make payments for everyday spending like food and bills. You normally get a debit card with the account that lets you withdraw cash and make card payments for things you need to buy. You can access money from this type of account very quickly and you may also be able to get an overdraft as well. You will normally earn no or very low interest on money you keep in this account. This type of account differs from a savings account.

Debit When you buy or pay for something using your current account, the money is debited, or taken off the total amount that you have in your account. So it is taken out of money you already have. This is different to buying something on credit, where a company lends you the money to buy it and you repay it later.

Debt When you owe money to someone or a company. There are lots of reasons you may owe money, e.g. student loans, credit cards, mortgages, car loans and even if you owe one of your friends or family money.

Debtor A person or company that owes money to a creditor, which is just another person or company. The word sounds bad but almost every single company is a debtor, because suppliers usually give 1 to 3 months for companies to pay invoices, they are giving them goods and services on credit, so it is like a loan. And anyone who has a loan or uses credit cards is a debtor. It doesn't mean the loan is overdue, just that you owe money.

Defaulting If you don't pay the interest you owe on a loan or don't pay back the capital (or the amount you borrow) on time, then you default on the loan. This is usually when you can't afford to repay a loan, in which case the company may try and get a court order to make you bankrupt to try and recover their money from you that way.

Defined Benefit A type of pension that pays you an income for life once you retire. It is


Pension Scheme usually set up by your employer and pays an amount each year that is based on how much you earned while you were working. These types of pensions were very common until recently (and are often called final salary pensions), but they cost companies lots of money and so now it is very hard to find a company offering one of these. The public sector still offers defined benefit pensions, so if you worked for the government, the police, the NHS or as a teacher you should get one. For now...

Defined Contribution Pension Scheme

A type of pension where the amount you can take out when you retire is based on how much you and your employer put into it. You only can get out however much has been put in. If the investments in your pension have grown then this will increase the amount you have available. But once you have taken out all the money in your pension, there is none left.

This is different to a defined benefit pension scheme, which will always pay you money every year and can never run out. Most personal pensions these days are defined contribution pensions.

Deflation When prices of goods are less than they used to be. In other words your money is worth more than it was in the past, you can buy more for your money. It is the opposite of inflation. It sounds great! However governments and people who make decisions about the economy don't like deflation because it can be a sign that the economy is not doing well. If people are not buying things then companies may have to lower the prices of the things they sell. This can mean they don't make as much money anymore and may reduce how much stuff they produce. They also won't need as many workers if they are making less, so sack people and then those people have less money and buy even less, making the situation worse.

Also if your money is going to be worth more in the future and you can buy more with it in the future, you will spend less now, save it and buy big ticket items like cars when they are relatively cheaper in the future. This makes people buy even less and makes the situation worse.

Direct Debit This is a way of automating payments from your current account for payments you have to make regularly (monthly or annually usually), like your phone bill or electricity bill. It doesn't matter if the amounts change each month, the company you owe will tell your bank how much you owe and your bank will debit your account and pay the amount to the company. The benefit


of this is that you never have to worry about remembering to pay your bill on time, which can help you to avoid late payment penalties.

The downsides are that you need to make sure you have enough to cover the amount on the day (which can change) the money comes out and if the amount changes monthly you may be caught out. Also mistakes can be made by the bank or company so you need to make sure you keep an eye on how much should be coming out vs how much does come out.

Also make sure to check what direct debits you have set up on your account and cancel any you don't need so you aren't paying for subscriptions you don't use anymore. You'd be amazed at how many people are paying for stuff they don't need to without realising it!

Diversification This is a fancy word for not putting all your eggs in one basket. This saying comes from if you do put all your eggs in one basket and drop it then all your eggs will break and you'll have none! Instead you should spread your eggs around different baskets, so if you drop one then only 1 or 2 eggs will break and you'll still have most of them left.

This is the same with investments. You don't want to invest all your money in one company, in case that company goes bust, then you'll have nothing left. If you spread it across 20 companies and one goes bust then you'll still have 95% of your money left and some of those companies will grow in value making up for the one that went bust. It is a way of spreading the risk. You can diversify by investing in different companies, different industries, different countries and different types of investments.

Dividends If you have invested in the shares of a company, then you are a part owner of that company. You are entitled to a share of any profits the company makes. The company can decide to keep the profits to help grow the business in the future, or it can decide to pay out some of the profits to the owners (shareholders), as a reward for investing in the company. When they pay out these profits it is called a dividend.

They usually pay a certain amount of pennies per share that you own. A company doesn't have to pay a dividend and ones that make no profit will not pay anything out. Also young and growing companies don't tend to pay dividends because they use any profit to grow the business more. Companies


that do pay dividends usually pay a main dividend once a year and may make interim payments in between these times.

Dividends are a good way of making money through investing and you can compound (grow quicker) the amount you make by buying more shares with this money (reinvesting).

Economy The economy of a country is a system where some people and companies make and sell goods and services using resources and other people buy and use those goods and services. Usually the more that is produced and consumed, the healthier the economy is, because wealth has been created and people want to buy more things, so companies produce more and need more workers. This creates jobs and more wealth for the whole system.

The health of the economy is usually measured using the gross domestic product (or GDP), which is the value in £s of all the goods and services produced in a period of time.

Equity Equity when it comes to investments is how much you own of an asset after you’ve taken off the debts you may have taken on for owning that asset. So if you buy a house for £250,000 and use a mortgage of £100,000 then your equity in the house is £150,000.

Shares are also sometimes called equities.

Fees Often when you use a financial product it does not come for free. You have to pay fees to access it. This is the case for funds (you pay a fund manager to manage your investments plus cover all the costs). You pay fees to get some mortgages, bank accounts, wrappers like pensions and ISAs and you pay fees when you use a financial advisor.

You should always know how much these fees are so you can decide if you are getting good value for money and whether it is worth using that financial product. You also need to remember to take fees off any profit you make on your investments so you can make a more informed judgement of how well your investments have performed and whether there are better options out there. Remember the lowest fees doesn't always equal the best. You often get what you pay for!


Fiat Currency Money issued (produced) and distributed by central banks on behalf of a country. This is what you spend every day, so pounds in the UK, euros in some of Europe and dollars in the USA.

Whilst it is very different to cryptocurrency, most fiat currency these days is actually issued digitally, rather than as physical notes and coins. In other words, if everyone in the country tried to take out all their money from their bank accounts at the same time the banks would run out of money as there is not enough available cash in the country.

Financial Advisor A financial advisor is a qualified person who can help you deal with your money. There are lots of different types of advisors - some may specialise in an area like pensions whilst others cover lots of different areas including tax and insurance. Some advisors will only give advice on financial products like mortgages from one or a few companies whilst others are independent so can advise on products from any company.

Financial advisors charge for their services, but sometimes getting financial advice can help you save or make more money than the cost of the advice.

Financial Framework

This is what we will be building together from the foundations up. It will be a system that will help you manage your money and includes a mix of understanding important concepts; having financial goals & aims you want to achieve; and rules, methods and tools to help you plan how to achieve them and to put your plan into action. We are going to make it as flexible as possible so that we can adapt it to whatever situation we face - perfect for our lives which are constantly changing.

Financial Goal Something you want to achieve in life, in the short, medium or long term. You can attach a value in £s to your goal, so you know how much money you need to achieve it. Then you can plan how you will earn, save and invest enough money to achieve it.

Examples can include, I need to save £500 this year to go on holiday with my friends; I want to buy a car that costs £2,000 in 3 years time; or I want to retire at the age of 60 and have £20,000 a year to live on.

Financial Ombudsman

This is an independent organisation that settles arguments between people like you and me (retail clients) and financial companies. If you have a


Service (FOS) complaint and you feel the financial company doesn't deal with it fairly then you can ask the FOS to make a decision on who is right.

If the FOS find your complaint has not been dealt with properly then they can make the company put it right, which includes awarding you compensation, any costs you've suffered and make the company pay interest on top. The FOS can make the company pay you up to £350k in compensation (and even recommend they pay you more, although the company doesn't have to pay more).

Financial Services Compensation Scheme (FSCS)

This is an organisation that is there to protect retail clients, like you and me, if a financial company goes bust and you suffer a loss as a result.

If your bank goes bust and you have money in a bank account with them then the FSCS will pay you back that money up to £85,000. They also cover 90% of the amount of any general insurance claims you may have with an insurance company that goes bust and 100% of the amount of long term insurance and compulsory insurance (like car insurance) claims.

Fixed Rate Mortgage

This is a feature you may get on a mortgage. Usually for most of the length (or term) of the mortgage, the interest rate that you have to pay the bank for borrowing the money, goes up and down as the base rate changes. This is because the bank will have to change it as it becomes cheaper or more expensive for it to borrow the money to lend to you. However on some mortgages you can fix the interest rate for the first few years (usually 2-5 years) - the shorter the fixed period, the lower the interest rate.

This means that if interest rates increase during the fixed period, you won’t have to pay any more interest and will be better off. But if interest rates fall, you still have to pay the same amount, which will be more than if you didn’t have a fixed rate mortgage, so you will be worse off. But at least you will have the certainty of knowing how much you are paying each month, so can budget for that. Beware that at the end of the fixed period, the interest rate usually goes up a lot and unless you can move to a better deal, you will have to pay a lot more interest each month.

Forex (FX) Forex or FX stands for foreign exchange (I know, it should really be FE). This is when you exchange, or swap one currency for another. Like when you go on holiday to Spain you exchange your pounds for euros.


As well as your holiday money, FX includes massive global companies who need all different kinds of currencies to operate around the world and investment banks who try and make money by betting on whether the value of a currency will go up or down. Companies that offer to exchange currencies make money by selling a currency for more money than they buy a currency for, just like any other thing you buy.

FTSE100 This stands for the Financial Times Stock Exchange 100 Index. It is the name of an index or basket of companies that includes the 100 biggest companies listed on the London Stock Exchange. These are the 100 biggest companies, whose shares the public can buy and sell that are registered on this stock exchange.

To work out the biggest companies, they take the share price of each company and multiply it by the amount of shares that company has, then they select the 100 companies with the biggest number. The bigger the number, the more the company is worth, or the higher its value. When all the values are added together this gives you the total value of the FTSE100.

You often hear on the news that the FTSE100 has gone up or down. If it has gone up, this is because the total value of all the companies added together has gone up. Some of the individual company values may have dropped, but others have increased their values by more, so overall the FTSE100 has gone up.

Fund A fund is what is called an investment vehicle, although I like to think of it as a variety pack of sweets. A fund invests in lots of different investments like shares of different companies, bonds, property and commodities. Then it let's you buy a unit or part of the fund. Then you own a bit of every investment within the fund.

The fund isn't really the investment, it holds the investments and because there are lots of different ones that's why I like to think of it as a variety pack full of sweets!

The benefits or this are that some investments cost a lot of money, like you need £millions to invest in government bonds for example and some shares cost £1,000s for one share! The fund pools or collects the money of all the


investors together and uses it to get access to these expensive investments. Each individual investor wouldn't have been able to afford to access these investments. Funds are managed by investment experts and so you are getting access to this expertise meaning you don't have to spend years becoming an investment expert to know what to invest in, or spend all day buying and selling shares.

Different funds have different themes. There are thousands of funds out there meaning you can choose from a whole variety of themes to invest in. They can focus on specific countries or regions like Japan or Europe, specific sectors like tech or healthcare and specific investment types, like just shares or just property. Or they can mix and match.

Because they invest in lots of different things, they spread the risk (diversification), so if one company goes bust you haven't lost all your money. You do have to pay fees to access funds though. However they offer a lot of convenience and benefits.

Gilts These are types of government bonds - when the government needs to raise money they can borrow it from investors like big financial companies and even other governments. The investment is called a bond and the government is said to "issue" the bond when they ask investors to lend them money. The government will have to pay investors interest to make it worth their while.

Gilts are the name given to UK government bonds as the original bond certificates actually used to have a gilded edge or border to show investors they are high quality investments and to tell them that the government would pay them back. They are seen as very low risk investments.

Gross When an amount of money (usually money you have made from savings and investments) is said to be gross, it means before tax and / or before fees. So once you’ve paid these taxes and fees, you get whatever is left over, which is called net.

Gross Domestic Product (GDP)

This is often talked about on the news and is a way of measuring the health of a country's economy. It measures the value in £s of all goods and services produced in that country during the time period. The higher the number, the more the economy has grown.


Growth When your investments increase in value so that you could sell them for more than you bought them for, they have grown. This is on a personal level but the same applies at a country level. If the economy of a country is worth more than it was previously then it has grown. The UK government wants the economy to grow every year, but at a stable level.

Her Majesty's Revenue & Customs (HMRC)

This is the government department that is responsible for collecting the tax that you owe and have to pay for lots of different things, like on your wages and your investments. If you have any issues or questions, they are the first people you should contact. Sometimes you may have to do a self-assessment return if you owe tax that is not collected under the PAYE system and you will need to submit it to HMRC.

Index / Indices I like to think of an index as a basket of lots of different things, where you can put a value on each thing, then add up all the values to give you a total value for the whole basket. It can be a basket of literally anything - usually in finance it is the price of different investments.

But in other situations you could measure anything, like a happiness index, where lots of different things that give you happiness are measured. For example when working out the best country to live in you could give a score out of 10 for how much free time you get, what activities are near to you, how easy it is to get to the countryside etc. then add up all the scores for each place (each place would be a separate index) and then work out the best place to live. The winning place or index may contain things that have low scores, but overall it gets the highest score and could be worth living there. In finance we usually use indices (the plural of index) to measure the value of a big group of investments, like the main companies in a stock market, or to measure inflation and see how much our money is currently worth compared to different points in the past.

Individual Savings Accounts (ISAs)

This is a type of wrapper - an account that lets you hold different investments within it. ISAs have special tax rules that make it better to hold investments within them than to hold them outside of an account.

There are 4 different types of ISAs for adults and one for children and they all have slightly different purposes and allow you to invest in slightly different investment types. The main things to note are that:

● You can only invest in one of each type of ISA in a tax year (so 4


different ones per year).● You can invest up to £20k in ISAs a year (this can be all in one or

across a mix of different ISA types).● You do not pay tax on any money you receive or growth of your

investments within the ISA and you don't pay tax when you take it out either.

Inflation Inflation is another way of saying your money is worth less now than it was a year ago. Or that things cost more than they used to. Anyone remember when you could get a pint for £1? Well now you have to spend at least a fiver for the same beer, so your money doesn't go as far as it used to. It doesn't have the same "purchasing power" anymore.

Countries actually want some level of stable inflation (the UK government has asked the Bank of England to aim for a 2% rate of inflation, meaning your money is worth 2% less next year). The reason is that it can be a sign of a growing economy. If people have jobs, they have more money and they can buy more things. Companies know they can put the price up because people will still buy them and so your money is worth less as it cannot buy as much anymore. Also it encourages people to buy things now as they know it will be more expensive in the future. This gives more money to companies and helps create more jobs so the companies can meet the higher demand for their products.

Inflation can be bad if it gets out of control like in Venezuela, and your money becomes worthless meaning you cannot afford to buy what you need to survive. Also it means any cash you leave in bank accounts becomes worth less each year as inflation is usually higher than the rates of interest your bank will pay you. Which also encourages people to spend their money rather than save it and can boost the economy.

Insolvency This is the same as bankruptcy but for companies instead of people. If a company hasn't got enough cash to pay its creditors then those creditors can try and recover their money by getting the company shut down and forcing it to sell any assets to repay as much of the debt as possible. If this happens there is usually not enough money to repay all the debts and so the creditors will not get all their money back. Also the owners (called shareholders) will probably not get any of their investment back. Debt is paid off before any remaining money be paid to shareholders.


Insurance This is a type of financial product that you can buy from a company to protect you financially, in case something bad happens. So if the bad thing that you bought insurance for does happen, the company will give you money to make up for it. They usually give you the same amount of money that you are out of pocket for, from the bad thing happening. So if you insured your house (and everything in it) against it burning down and then it did end up getting burnt down, the company would pay you the amount it would cost to rebuild your house and to buy all your possessions again.

When you buy insurance you won't ever make a profit from it, but it is there to help you in case the worst things happen. It is one of those things where you hope you spend more on it than you will ever get back! There are loads of different types of insurance from car to travel, from house to life insurance and plenty of others.

Interest Money that you earn when you put cash into savings or invest in something like a bond. You also will have to pay interest (or money) when you borrow money. You borrow money when you take out a mortgage, go into overdraft and buy stuff using a credit card that you don't pay off straight away.

Interest is the cost of borrowing - the amount you have to pay to access this money that isn't yours. When you receive interest it is because you are actually lending your money to a bank or someone else when you put it in a savings account or invest in a bond. They are paying you to borrow your money.

Interest Only Mortgage

This is a type of mortgage. Almost all mortgages will charge interest, because the banks are taking a risk by lending money to you and so they want to receive a reward. But when you take out a mortgage you can choose to only pay interest each month and not repay any of the actual loan. It means that your monthly payments to the bank are lower than with a repayment mortgage, but you will need to find a way of repaying the whole amount you borrowed when the mortgage ends.

So if your mortgage was £200k and you had 25 years to repay it, in 25 years time you will have to repay the entire £200k by the last day! Also you end up paying more interest in total, because you pay interest on the amount you still owe - in this case £200k. But if you pay back some of the £200k each month, you will only have to pay interest on what you haven’t paid back yet, which will


be less and less each month.

Interest Rate This is how much interest you will receive on an investment or pay on a loan, written as a percentage. The percentage may make it sound confusing but you can use this percentage to work out how much interest you will receive or pay, no matter how much you have invested or borrowed. You multiply the interest rate by the amount you invested or borrowed and it gives you your amount of interest in £pounds.

So if you invest £100 in a bond that pays 5% a year, you multiply 5% (press 5 then the % button on a calculator) by 100 and you'll get the answer (£5). If you had invested £200 you do the same but multiply 5% by 200 and you'll get the answer of £10. So it is an easier way of showing how much the interest is, no matter how much you invest or borrow.

Investment Portfolio

It may sound fancy when someone talks about their investment portfolio, but all a portfolio is, is a list of all the savings and investments that a person has. It includes all different types of investments, so if you have any cash in a bank account or even some loose change in your pocket then you congratulations, you already have an investment portfolio!

It is helpful to look at what is in our portfolio because then we know how much wealth we have and we can also see exactly what we have invested in. This will allow us to make sure our investments are properly diversified, as well as making sure that our investments are suitable for helping us to achieve our financial goals.

Investments When you have leftover money after all your spending for a month, you can put that money towards achieving your financial goals. You can do this by putting it in / or buying financial products that can pay you money for doing so and they can also increase in value, helping you to grow your capital or money. This is called investing.

There are different types of investments, the main ones are shares, bonds, property, cash and commodities. But you can include anything that could increase in value over time, like artwork, jewellery, cryptocurrency and even wine! When your financial goals are long term and you hold the investments for a long time (more than a year or 2), you are said to be investing. If your financial goals are short term and you won't be holding the investments for


very long, this is called saving.

Liabilities The opposite of assets - these are things that you don't own but owe to someone else. This usually includes loans like a mortgage or credit card debt

Liquidity If you can get your money out of an investment quickly and easily, with minimal costs then the investment has high liquidity or is said to be liquid. The most liquid investment type is cash as you can normally get your money out straight away or within a week or so.

If it takes a long time and might cost a lot of money to get your investment out then it is said to be illiquid or have low liquidity. This makes it more risky because by the time you get your money out, the value of the investment could be worth a lot less. Or, like after the last financial crisis, people were not able to get their money out of some investments at all. An example of an illiquid investment is property. It can take months in a good market to get your cash out.

Listed When a company makes its shares available to the public to buy and sell, it is said to be listed. This means almost anyone in the world can buy or sell those shares quite easily these days without knowing who they are buying them from or selling them to.

If a company is not listed, it can be quite hard to buy or sell shares in that company. You would have to approach the company, find out who the shareholders are and ask them to sell you some of their shares and agree a price - or go out and find a buyer for your shares. Private company shares are much less liquid than shares in listed companies.

Listed companies have to follow very strict rules and make the public aware of any major news, whereas private companies do not.

Loan A loan is where you borrow money from someone or a company, usually for something specific, like buying a car, starting a business, renovating your house or to study at university. But it doesn't have to be for a specific thing. Some people take out loans for no real reason (not a sensible move).

Loans are normally for a specific amount of time or term and you either have


to pay the whole loan off at the end of that term (also called when the loan matures), or you have to pay back parts on a regular basis and make sure the last bit you owe is paid by the last day. Most loans charge interest too, so you have to pay money to borrow money. This is payment to the lender for taking the risk of lending the money to you and for providing you with a service.

Mortgage A mortgage is a type of loan that you use to buy a house. The mortgage gives rights to the bank or building society that you borrow the money from, to take possession of your house if you do not pay it back on time. This is what is known as a secured debt, because the debt is secured against an asset, which will be taken by the bank and sold to repay the debt if you cannot repay it.

Like with any loan, the bank will charge you interest to borrow the money. There are lots of types of mortgages with different features and literally thousands to choose from. Usually you will have to pay the bank some money each month and mortgages typically last 25 years or more.

Mortgage Broker There are thousands of mortgages to choose from in the UK, with different features and interest rates from different providers like banks and building societies. It can be hard to choose the one that is right for you and to understand what everything means. A mortgage broker is a type of financial advisor that can help you navigate this minefield. Either you or the bank will pay them a fee for this service.

National Insurance Rather than a type of insurance, this is more like a type of tax. Both you and your employer pay it when you earn a certain amount of money from working. Unlike income tax, which is worked out on a yearly basis, national insurance is based on how much you earned in the period you got paid. So if you get paid weekly it will be worked out on a weekly basis, or monthly if you get paid every month.

By paying it you build up credits, that can mean you are entitled to some social welfare and benefits and get paid a state pension when you reach State Pension Age (currently moving to 66 years old, but forever increasing). The money that the government gets from you paying your national insurance is used to pay for the state pension, the NHS and some social welfare and benefits.


National Insurance Number

This is a number that is unique to you. It is sent out to you when you are old enough to work and you will have to tell your employer what it is. It helps HMRC track how much national insurance you have paid and whether you have built up enough credits to claim a state pension or certain social welfare and benefits.

National Living Wage

If you are aged 25 and over and work for a company, this is the minimum they have to pay you per hour. It is basically the National Minimum Wage for 25+ year olds. You can find out more and how much you should be paid on the Money Advice Service (impartial advice service setup by the government) website here.

National Minimum Wage

If you work for a company, this is how much they have to pay you at the very least, per hour of work you do. They can pay you more, but they cannot pay you less. The amount depends on how old you are and whether you are an apprentice or not. If you are aged 25 and over, the minimum wage is called the National Living Wage.

Net This is an amount of money (money you have made from savings and investments) after taking off any tax you owe and any fees you need to pay for someone managing your money. Before you pay these costs the money is gross of tax and fees.

Open Banking This is a new innovation in the world of financial technology (FinTech). Banks have to provide your financial data (like statements) to other companies who are authorised and who you want to see your financial information. I know it sounds scary, but it lets you do things like see all your bank accounts in one place so you know how much money you have and can transfer money from one place to another, even if they are all with different banks. It also lets you share your spending habits with tools like budgeting apps, which will analyse what you spend your money on and help you to budget better or suggest cheaper credit cards or loans than you currently have.

It currently only covers payment accounts (current accounts and credit card accounts etc.), but will probably start to include things like pensions and investment accounts in the future. Open banking has the potential to be a very useful thing to help us manage our money.

Overdraft A short-term flexible loan from your bank attached to your current account.


You usually arrange an overdraft with your bank and agree the maximum amount that you can borrow and it only kicks in if you spend more money than you have in your current account.

Say you have a £200 overdraft and you currently have £50 in your bank account and won’t be getting paid until next week, but suddenly your car breaks down and you need to get it fixed so you can get into work. If the garage says it will cost £150 to get it fixed then the overdraft lets you pay for the repairs. The first £50 will come out of the money you have in your account and the next £100 will come out of your overdraft as you will have used up all your money in your account. So you will owe £100 to the bank, but still have the ability to borrow another £100 (overdraft of £200 - £100 used = £100 remaining), if you need to buy food and stuff before you get paid. Once you get paid, your wages will clear the overdraft first and then the remaining wages will put you in credit.

Overdrafts can be useful if you have a tight budget and need to cover unexpected costs before you get paid again. However they do not come cheap - interest rates are high and in fact HSBC just doubled the interest rate on the overdraft on one of their accounts from around 20% to nearly 40%. If you find you are going into overdraft a lot you should look at re-budgeting or finding a cheaper loan.

Pay As You Earn (PAYE)

You’ve probably noticed this on your payslip and may not have known what it means. PAYE is a system that lets your employer pay to HMRC, the tax and national insurance you owe when you get paid a wage. Your employer will pay this straight out of your wages and give you whatever is left. It is actually really handy because it saves you having to calculate it yourself and sending the money into HMRC in one big lot every year.

When you start a new job it is worth checking your payslip and the amount of tax your employer has paid, in case it is wrong and you need to get some back from HMRC. Then once you know how much you should be paying, check each month that that is what has roughly been taken off your wages as mistakes can be made!

Pension A pension is a way of saving money for later life, when you may decide to retire or semi-retire. If you no longer earn the wages to support your lifestyle then a pension will help you buy the things you need. You and/or your


employer can put a bit of money away into the pension on a regular basis. Your own pension is a good addition to the state pension, which is quite small and only gives you just enough to get by on.

Pensions are a type of wrapper - they hold your investments in an account that also gets tax benefits. You don’t pay income tax on the money you earn and put into a pension and the investments in your pension are not taxed either. Then when you want to withdraw your pension, the first 25% is tax free. You have to be at least 55 (increasing to 56) to access your own pension.

You can set up a pension yourself, but most people usually set one up through their employer. And nowadays if you meet certain criteria your employer has to automatically set a pension up for you (called auto enrollment). There are different types of pensions with lots of different rules and we will look at these in more detail in future series.

Personal Tax Allowances

We are allowed to earn a certain amount of money from working and investing, every tax year, without having to pay tax on it. These allowances are reset at the start of every tax year and sometimes the government changes what the amounts are.

The main annual allowances we receive are:● A personal allowance on our wages and other income (£12,500)● A dividend allowance (£2,000)● A personal savings allowance for receiving interest on our investments

(£1,000 if you pay basic rate tax at 20% or £500 if you pay higher rate tax at 40%)

● A capital gains allowance for where you sell your investments for more than you bought them for (£12,000). These figures are for the 2019/2020 tax year and may change next year.

Platforms No - I’m not talking the shoes! These are like an online one-stop-shop for different investment accounts (or wrappers). It lets you see all your accounts in one place, like your ISAs, your pensions and even your bank account. Then when you want to make an investment, the platform usually lets you do it there and pick which account you want to hold the investment in. This is much easier than having to call up a stockbroker and ask them to make an investment for you, like you had to in the old days. It is also much much


cheaper too. It allows you to keep track of everything in one place and make sure your investments are properly diversified. It also means you only have to remember one password, rather than 57 different ones, what your hamster’s name was when you were 6 and what your favourite 90s film was.

Usually the platform provider only allows you to hold their accounts on the platform, but with open banking, in the future it is likely that some will allow you to have accounts from different banks and financial institutions on the same platform.

Property A type of investment that can include:● Your own home if you own it● Residential or commercial property you own and rent out to people● Shares you own in property development and housebuilding

companies; or● Funds you invest in, which own property

Investing in property is a good way to diversify (spread the risk of) your portfolio (investments). However if you own your own home you need to be aware that this is probably your biggest single investment and so investing in more property is risky, because you won’t be well-diversified. Also it can be hard to get your money out of property investments quickly (they have low liquidity), because it can take months to sell a property.

Recession If the economy of a country declines for 2 quarters in a row (a quarter is 3 months) then the economy is technically in recession. Although when we talk about a recession and hear it on the news, we think of much bigger recessions that have wide ranging impacts, like the global financial crisis of 2008/09. For recessions, the economy is measured by Gross Domestic Product, which is the value in £s of all goods and services produced in that time period

Repayment Mortgage

This is a type of mortgage, where you pay interest and some of the original loan back to the bank each month. Part of your monthly payment will go to reducing the amount you owe and part of it goes towards paying the interest. If you have this type of mortgage your monthly payments will be higher than an interest only mortgage as you are paying interest and part of the loan.

But if your mortgage is £200k and you have 25 years to repay it, you won’t


have to pay back the full £200k on the last day in 25 years time. Also the total interest that you will pay over the 25 years is less than with an interest only mortgage, because you only pay interest on the amount of the original loan that you haven’t already paid back.

Because you are paying some back each month, the amount of interest you owe each month will be less, meaning your monthly repayments are paying more of the original loan back reducing the interest even more!

Retail Price Index (RPI)

This is another way of measuring inflation. It used to be the official way to measure it in the UK, but now it has been replaced by CPI. The basket of goods is slightly different and it usually suggests inflation is higher than CPI does. In other words that our money is worth even less.

Confusingly the government still uses this measure of inflation for some things and it is used to calculate how much interest you have to pay on any student loans you might have.

Risk Whenever we make a decision or do anything really, we deal with risk. We take a risk when we cross the road, choose where to live and even when we choose what to eat! The risk being that it may not taste as nice as something else and we end up with food envy! So from an early age we have learnt how to mitigate (or manage) risk, without even realising it. We try and reduce the chance that something bad happens, like looking both ways before we cross the road. Or we try and reduce the impact if something bad does happen, like by wearing a seatbelt in case you are in a car accident.

Risk is when we do something even though the outcome is uncertain. So this can include something good happening as well as bad. It plays an important part in our financial lives as well - we should always be aware of risk so that we can manage it, to reduce the chance or impact of something bad happening, but also so that we can make the most of opportunities that come our way. Risk can be scary at first, but the more tools we have to manage it and the more we face it, the more natural it becomes. You probably don’t think twice about having to look both ways when you cross the road now, but the first few times you did it by yourself were probably a bit scary!

An example of risk in the financial world is that the more risky an investment is, the more money or reward you should look to get, to make up for the fact


that you have a higher chance of losing some or more of your money than with a lower risk investment.

Savings Savings are basically the same as investments, but you hold these investments to try and meet short term goals, or in case you need money in an emergency in the near future. Savings are really only held in cash so you can access it when you need it. Also you don't have to worry about the stock market crashing and getting only half your money back just when you need it.

Savings Account A type of bank account that you use to save money for financial goals. Payments-in will be when you transfer money from your current account when you have spare cash after your monthly spending and payments-out will be transfers back to your current account to use for your financial goals or if you need the money in an emergency.

So you will use this account a lot less than your current account and you probably would not be able to use it for everyday spending. This type of account will pay you compound interest and it may take longer to access your cash. It may take weeks or months and sometimes it can even be tied up for a year or more. The less access you have to it, the higher the interest rate should be because it i=has less liquidity.

Self-Assessment Tax Return

Among other things, if you earn money outside of the PAYE system or from other things like investing, or you pay money into your own pension that is separate from the one provided by your employer, then you will need to tell HMRC all your financial details for the tax year. This is done by self-assessment, which you can do online. HMRC will then calculate how much tax you owe, how much you have paid and whether you owe any more or they need to give you a refund. The deadline is the 31st January after the end of the tax year. So the deadline for the 2019/2020 tax year would be 31st January 2021.

It can get very complicated depending on your personal situation so keeping good records is very helpful and getting specialist tax advice if you need it, is also a good idea.

Simple Interest This is where you only earn interest on the original amount of money you invested, instead of like compound interest where you earn interest on your interest. So if an investment paid 10% a year and you invested £100, you


would earn £10 each year. An example of an investment like this is a bond.

Social Welfare and Benefits

This can be the whole welfare system that the government provides to people who live in the UK, but usually just focuses on the financial support. If you fall on hard times or need a bit of extra support, this system acts like a safety net and provides you with some money to help you get by.

There are lots and lots of different types of benefits that come from old rules and which some people still get, which makes it hard to know what you are entitled to and to apply for everything. But over the last few years the government has been trying to simplify the system and put the main key benefits under one system called Universal Credit. The main types of benefits are illness and disability, unemployment, help with housing and help with caring for children and others.

It is important to understand that the amount you receive for benefits is very low and people struggle to get by on it. The government has cut benefits a lot since the last recession and will probably continue to do so. So it is there to support you in your time of need but it won't let you live a comfortable lifestyle.

Standing Order This is like a direct debit, but you set up a regular payment to be made to someone for the same amount each time - it can’t change each month without you saying so. This is usually used to pay rent to a landlord or if you want to automatically put money into savings each month.

State Pension This is money you will receive from the government once you reach your state pension age, the age that people traditionally retire at. This is on top of any personal pensions you may have. You only get a state pension if you have built up at least 10 state pension qualifying years - you earn these credits when you pay national insurance. If you don’t work, you can also earn them by being a parent or carer, if you receive unemployment or sickness social welfare and benefits, or if you buy them from.

To get the full state pension of £8,767.20 a year you will need to build up 35 qualifying years or credits. Each qualifying year gives you about £250/year, so if you build up the minimum credits to get any state pension (10) then you will get about £2,500 a year once you reach state pension age.


Currently state pension age is increasing to 66 and for most young people it will be at least 68 by the time you get there. Even if you reach the 35 qualifying years, you have to keep paying national insurance until you reach state pension age. Then you don’t have to pay national insurance anymore even if you carry on working.

When you pay national insurance it is paying for the people who currently receive the state pension, it isn’t kept in a separate pot for you - you will be relying on future generations to pay your state pension.

Stock Exchange This is where investors buy and sell shares in companies who have made their shares available to the public (also known as being listed). Companies are listed on specific stock exchanges, such as the London Stock Exchange in the UK or the New York Stock Exchange in the US. It is like a marketplace for buyers and sellers of shares in the companies that are listed on that stock exchange. Traditionally the buying and selling of shares was done in one building, but now most of it is done online.

Stock Market People use the phrases stock market and stock exchange to talk about the same thing, but actually the stock market is much bigger than just a stock exchange. Normally it includes all the stock exchanges in a country or even the world. But it is still a marketplace where buyers and sellers of shares in listed companies (those who have made their shares publicly available to buy and sell) can go to trade those shares.

Stockbroker An investment professional that will buy and sell shares for you when you tell them to do so. Stockbrokers are much less common these days for people like you and me as they are quite expensive and nowadays you can buy and sell shares yourself online, sometimes for free. Sometimes stockbrokers provide investment advice as well, but this costs extra.

Stocks and Shares Are a type of investment. Stocks and shares are basically the same thing. If you buy a share of a company that is literally what you own - a share, or part of that company. If you buy a share in Facebook you are a co-owner of Facebook. You invest in the future success and profitability of that company. So if Facebook makes a profit, you own a share or part of that profit. Facebook may decide to pay you some of your share of the profit, which is known as a dividend.


If other investors think that the company will become more profitable in the future, they will want to buy shares in it too. But there are only a limited number of shares available, so this means that people who want to sell their shares in the company can charge more. In other words the share price goes up. This is another way that you can make money by investing in shares - if you sell your shares for a higher price than you bought them for. Remember that you only make (or realise) an actual profit when you sell your shares on.

Shares are generally a riskier type of investment than bonds, because if the company goes bust then the bondholders get paid back first and usually the shareholders (owners of shares) lose most or all of their money. However, because it is riskier, you can usually expect a higher reward (return), if the company is successful. Your return on your investment can be unlimited, whereas people who invest in bonds (bondholders) only get a fixed amount of interest per year.

Tax I’m sure you will have heard of and paid tax before but there are so many different types and amounts you have to pay it can get confusing. The main things to know are that:

1. Tax is paid to HMRC so that the government can pay for what it wants to and has to do, like schools, hospitals, national defence, social welfare and benefits and the general running of the country

2. You usually pay tax when you earn money from working or investing and when you buy certain things like property, alcohol, petrol, cigarettes and most non-essential goods and services

We only have to pay taxes on our wages and investment income if we earn over a certain amount of money in the tax year. This is because we have yearly personal allowances for different taxes, which give us certain amounts of money we can earn tax free. We will only pay tax if we earn more than those allowances in the tax year.

Tax Code Our tax code tells us and our employers how much money we are allowed to earn, tax free, from carrying out work. Any money you earn over this amount will be taxed. You will get a letter every year from HMRC telling you what your tax code is and it will also appear on your pay slip if you are employed.

Tax Year The tax year confusingly runs from 6th April one year to 5th April next year. So the current tax year is the 2019/2020 tax year, because it runs from 6th


April 2019 to 5th April 2020. And the next tax year will be the 2020/2021 tax year because it will start on 6th April 2020 and end on 5th April 2021.

In each tax year you will get personal allowances for different types of tax that let you receive a certain amount of money in the tax year before you are charged tax. All the money you receive in a tax year is added up to make sure you are paying the correct amount of tax. If you are not then you may get a refund if you have paid too much, or may have to pay more tax if you have not paid enough.

Term The amount of time that you can have a debt or an investment for. A lot of products like bonds and mortgages have a fixed time period when they end or mature. This means you will either receive your money back from an investment or have to pay the remaining amount you owe for a debt when the term ends. Some have no fixed term though, like shares and overdrafts, so you can have these forever.

Total Return This is the total amount of money you have made from your investments. It includes the cash you receive as interest and dividends (also called yield), plus the amount your investments have increased in value by, from when you bought them (whether you have sold your investments or still own them). It is usually written as a percentage, which you can work out by adding up all the money you have made and dividing it by how much you paid for your investments.

So if you bought a share for £100 and received a £5 dividend and the value of the share had increased to £110, then your total return would have been £15. £15 divided by your initial investment of £100 gives a total return of 15%.

Yield and total return are often used interchangeably, do not worry as they generally mean the amount of money you have made on your investments.

Treasuries & T Bills

These are types of government bonds - when governments need to raise money they can borrow it from investors like big financial companies and even other governments. The investment is called a bond and the government is said to "issue" the bond when they ask investors to lend them money. The government will have to pay investors interest to make it worth their while.


Treasuries and T Bills are usually the name given to bonds issued by the US government. T Bills are short for Treasury Bills and usually have a term of 1 year or less, meaning the US government has to pay back the amount they borrowed in a year or less. They are seen as very low risk investments.

Variable Rate Mortgage

This is a mortgage without any fixed rate interest period. If interest rates go up you will have to pay more money each month. If they go down then you pay less.

Voluntary (or Real) Living Wage

This is the minimum amount per hour that some companies pay their staff who think that the National Minimum and Living Wages are not high enough to survive on. They pay at least what they think somebody needs to realistically get by, which is higher than the National Minimum and Living Wages. This includes a higher level of payment for people who work in London, because living costs are more expensive there.

Unfortunately this wage is not compulsory, so not all companies pay it. If you apply for a new job, it is worth checking out whether that company pays the Real Living Wage or not.

Wrapper This is similar to a fund, in that it is not an investment but holds investments (and can even hold funds, so is like a multi-pack of variety packs of sweets!)

Wrappers are accounts that allow you to hold different investments. You can usually hold lots of different types of investments within a wrapper. They usually have special tax rules that make it worthwhile using them, compared to holding the investments outside the account. The 2 most common examples are ISAs and pensions.

Yield This is the amount of money we have received from our investments, so the interest and dividends. It is often written as a percentage and that is just the amount you have received, divided by the amount you invested.

So if you invest £100 in a company and receive a £5 dividend, your yield will be 5%.

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