Topic 5

Question 1

Bank rate

Answer 1

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

Question 2

Child Trust Fund CTF

Answer 2

A long term savings account only available to children born between 01 September 2002 and 02 January 2011. Set up by the government to encourage people to build up savings for their children.

Question 3

Consumer prices index

Answer 3

A way of the government checking inflation. It is calculated by checking the price of a representative sample of goods on a monthly basis - enabling statisticians to measure how prices are rising or falling.

Question 4

Financial conduct authority

Answer 4

One of the two main regulators of financial services in the U.K.

Question 5

Financial services compensation scheme FSCS

Answer 5

A compensation scheme that pays compensation to account holders of up to £75000 per provider if the provider goes into default and can’t pay the account holders the money they have in their accounts.

Question 6

HMRC

Answer 6

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

Question 7

Income tax

Answer 7

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

Question 8

Individual Savings Account ISA

Answer 8

An account that pays interest tax free on savings up to a certain level. Either cash ISAs or stocks and shares ISAs. Junior ISAs are available for under 18s. Simplified in 2014.

Question 9

AER

Answer 9

Annual Equivalent Rate - the interest that will be earned on money in one year, taking into account the frequency of interest payments and any fees or charges

Question 10

Instant access account

Answer 10

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

Question 11

Interest rate

Answer 11

The amount expressed as a percentage that a financial services provider charges a borrower or pays to a saver.

Question 12

National savings and investments NS&I

Answer 12

A provider that is backed by the Treasury, the government department that manages the UK’s finances

Question 13

New ISA NISA

Answer 13

See ISA - simplified version introduced in 2014 that changed the rules slightly. Was initially branded as NISA but are called ISA now.

Question 14

Notice account

Answer 14

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

Question 15

Personal allowance

Answer 15

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

Question 16

Rate of return

Answer 16

The amount that a saver gains in interest on their savings. For
Example 0.2%AER offers a lower rate of return than 0.4%AER.

Question 17

Inflation

Answer 17

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

Question 18

Savings Bonds

Answer 18

A savings product held for a fixed period, e.g. Two years. The holder can only make a limited number of withdrawals, if any at all, without incurring a penalty.

Question 19

Stocks and Shares

Answer 19

Stocks, Shares and equities are all words used to describe an investment that gives the holder part ownership of a company. If the company’s value increases, so does the share value. If it falls, so does the investment value. Shares are bought and sold on stock exchanges.

Question 20

Tax Year

Answer 20

Also known as the financial year. It runs from the 6th of April to the 5th of April the next year. The tax people owe is calculated on how much they have earned from APRIL TO APRIL rather than January to December.

Question 21

Retail Prices Index RPI

Answer 21

One of the ways the government measures inflation. It is calculated by checking the price of a representative sample of goods on a monthly basis but it also takes into account mortgage interest payments and other home ownership costs.