Topic 5: Savings Products Flashcards
AER
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 (for example, monthly or annually),
the effect of compounding the interest and any fees and charges.
Bank rate
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.
Child Trust Fund (CTF)
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 They have been replaced by junior ISAs
Consumer Prices Index (CPI)
One of the means the government uses to measure inflation. It is calculated by checking the price of a representative sample of
goods on a monthly basis – this enables statisticians to measure how much prices are rising or falling.
Coronavirus
Coronavirus disease, known as Covid-19, is 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
Financial Conduct Authority (FCA)
One of the two main regulators of financial services in the UK (the other is the Prudential Regulation Authority)
Financial Services Compensation Scheme (FSCS)
A compensation scheme that pays compensation to account holders of up to a certain amount per provider if the provider
goes into default (in other words cannot pay account holders the money they have in their accounts)
HMRC
Her Majesty’s Revenue and Customs – the organisation that collects taxes on behalf of the government.
Income Tax
Tax paid on earnings from employment, self-employment and interest on savings
Individual savings account (ISA)
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
Inflation
A rise in prices, which means that the purchasing power of money falls.
Instant access account
An account from which the holder can withdraw their money at any time without losing any interest.
Interest
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, eg an overdraft. 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.
Interest rate
The amount, expressed as percentage, that a financial services provider charges a borrower when it lends money, or pays to a
saver.
Junior ISA
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.
National Savings and Investment (NS&I)
A provider that is backed by the Treasury (the government department that manages the UK’s finances).
Notice account
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.
Personal allowance
The amount that an individual can earn before they have to pay income tax
Personal savings allowance
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.
Rate of return
The amount a saver gains in interest on their savings. For instance an account paying 0.2% AER offers a lower rate of return than one paying 0.4% AER.
Retail Prices Index (RPI)
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 unlike CPI, it also takes into account mortgage interest payments and other costs
associated with home ownership.
Savings bonds
A savings product held for a fixed period, eg two years. The holder can only make a limited number of withdrawals, or none
at all, during that period without incurring a penalty.
Starting-rate bond
An amount of savings that an individual can earn tax-free if their total income is less than the personal allowance.
Stocks and shares
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 value of your share; if its value falls, so does the value of your investment. Shares are bought and sold on stock exchanges.
Tax year
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.
