topic 5

Question 1

AER

Answer 1

annual equivalent rate is the interest that will be earned on the money in one year and takes into account how often the provider pays the interest, the effect of compounding the interest and any fees and charges

Question 2

bank rate

Answer 2

The interest rate that the Bank of England uses when it lends money to other banks. Financial services providers take account of the Bank rate when they decide how to set interest rates on their own products.

Question 3

CTF

Answer 3

child trust fund - A long-term savings account only available to children born between 1 September 2002 and 2 January 2011. CTFs were set up by the government to encourage people to build up savings for their children. They have been replaced by junior ISAs.

Question 4

CPI

Answer 4

consumer prices index - used to measure inflation and is calculated by checking the price of a representative sample of goods on a monthly basis which enables statisticians to measure how much prices are rising or falling

Question 5

coronavirus

Answer 5

a respiratory illness that causes mild to moderate symptoms in a majority of cases but proves debilitating or fatal for a significant minority. It caused a global pandemic with wide-ranging economic effects.

Question 6

FCA

Answer 6

financial conduct authority - One of the two main regulators of financial services in the UK

Question 7

FSCS

Answer 7

financial services compensation scheme - a compensation scheme that pays compensation to account holders of up to a certain amount per provider if the provider goes into default

Question 8

HMRC

Answer 8

her majesty’s revenue and customs - the organisation that collects taxes on behalf of the government

Question 9

income tax

Answer 9

Tax paid on earnings from employment, self-employment and interest on savings

Question 10

ISA

Answer 10

individual savings account - An account that pays interest tax-free on savings up to a certain level. There are two types of ISA: cash ISAs and stocks and shares ISAs. Junior ISAs are available for people under 18.

Question 11

inflation

Answer 11

A rise in prices, which means that the purchasing power of money falls.

Question 12

instant access account

Answer 12

An account from which the holder can withdraw their money at any time without losing any interest.

Question 13

interest

Answer 13

money either paid to an account holder by the provider or charged to the account holder by the provider. Interest is paid on savings accounts and some current accounts and charged on borrowing. Each provider decides the rate of interest it will pay or charge, depending on the type of account and, in some cases, the credit history of the individual account holder

Question 14

interest rate

Answer 14

The amount, expressed as percentage, that a financial services provider charges a borrower when it lends money, or pays to a saver.

Question 15

junior ISA

Answer 15

Long-term savings accounts set up by a parent or guardian specifically for the child’s future. The child can only access the money once they turn 18 years old.

Question 16

NS&I

Answer 16

national savings and investment - A provider that is backed by the Treasury

Question 17

notice account

Answer 17

An account for which the holder has to tell the provider in advance if they want to withdraw their money. If they do not give the provider the required amount of notice, they lose interest on their savings.

Question 18

personal allowance

Answer 18

The amount that an individual can earn before they have to pay income tax.

Question 19

personal savings allowance

Answer 19

The amount of savings interest that can be earned before the saver pays tax. The amount of the allowance varies according to how much other income the saver has earned in the tax year.

Question 20

rate of return

Answer 20

The amount a saver gains in interest on their savings.

Question 21

RPI

Answer 21

retail prices index - used to measure inflation and is calculated by checking the price of a representative sample of goods on a monthly basis but unlike CPI, it also takes into account mortgage interest payments and other costs associated with home ownership.

Question 22

savings bonds

Answer 22

A savings product held for a fixed period and the holder can only make a limited number of withdrawals, or none at all, during that period without incurring a penalty.

Question 23

starting-rate band

Answer 23

An amount of savings that an individual can earn tax-free if their total income is less than the personal allowance.

Question 24

stocks and shares

Answer 24

used to describe an investment that gives the holder part ownership of a company. Shares are bought and sold on stock exchanges.

Question 25

tax year

Answer 25

Also known as the financial year, the tax year runs from 6 April to 5 April in the following year. The tax people owe is calculated according to how much they have earned April to April rather than January to December.