Topic 6

Question 1

ATM

Answer 1

Automated Teller machine, also known as a cash machine

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 setting their own interest rates.

Question 3

Basic bank account

Answer 3

A current account that allows people to store and make payments from an electronic balance but it does not include a debit card, chequebook or overdraft.

Question 4

Balance transfer

Answer 4

Moving the balance on a card from one card provider to another

Question 5

Card Verification Value CVV

Answer 5

Three numbers on the back of a credit or debit card, a security measure designed to prevent fraudulent use of the card by someone other than a cardholder

Question 6

Cash back card

Answer 6

A type of card that gives back a percentage of the value of transactions made in cash back to the cardholder

Question 7

Charge card

Answer 7

A credit card that must be repaid in full every month

Question 8

Cheque

Answer 8

A written instruction to the provider to pay a specified amount to a specified person or organisation.

Question 9

Consumer credit

Answer 9

Another term used for borrowing. It is important to understand that taking credit and buying on credit refers to borrowing. However credit to a bank account refers to paying money in.

Question 10

Cost of borrowing

Answer 10

Also known as cost of credit. This is the real amount that the borrower will be charged including interest and any fees. For personal loans and credit card borrowing, the cost over a 12 month period must be quoted, the APR.

Question 11

Credit agreement

Answer 11

The formal agreement between a provider and a borrower setting out the amount borrowed, interest charged, and arrangements for repayment and other terms and conditions.

Question 12

Credit card

Answer 12

A card that allows face to face, online or phone purchases. Transactions are paid for by the card provider rather than taken out of the holder’s own account. The card holder repays the provider in one sum or instalments. The provider also may charge interest

Question 13

Credit history

Answer 13

The record of money borrowed and repaid for by an individual. These records are held by credit reference agencies and providers will check the individual’s credit history when a prospective customer applies for a borrowing product.

Question 14

Credit union

Answer 14

A mutual organisation that is owned by its members and provides a range of financial products to members, e.g. Savings accounts and personal loans. Members must share a common bond, like working for an employer or working in the same area.

Question 15

Current account

Answer 15

Bank or building society account where people can store their money in the form of electronic balances and withdraw it to make payments

Question 16

Debit card

Answer 16

A card that can be used to withdraw cash, make face to face transactions and pay online or over the phone.

Question 17

Store card

Answer 17

A card issued by a retailer that the holder can use to make purchases within that store or group of stores. As with a credit card, the amount owing is paid off at a later date, either in one payment or instalments, with interest.

Question 18

APR

Answer 18

Annual percentage rate - the total cost of borrowing over one year, including interest rate and fees

Question 19

Direct credit

Answer 19

Electronic payment into an account such as a salary or benefit

Question 20

Direct debit

Answer 20

Electronic payment out of an account. The amount and frequency can vary.

Question 21

EAR

Answer 21

Equivilant Annual Rate - the cost of borrowing using an overdraft. The EAR includes only the interest rate. Other fees are listed separately.

Question 22

Interest

Answer 22

Money either paid to an account holder by the provider or charged to the account holder by a provider. Paid on savings accounts and some current accounts and charged on borrowing. Interest rate depends on provider, account type and the credit history of the individual account holder.

Question 23

Mortgage

Answer 23

A long term loan to pay for a property, usually over a long time e.g. 25 years

Question 24

Interest rate

Answer 24

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

Question 25

Overdraft

Answer 25

A facility that allows an account holder to withdraw more money than they actually have in their account.

Question 26

Payday loan

Answer 26

A loan designed to be taken out for a very short period usually with
A high APR

Question 27

Payment allocation

Answer 27

The order in which a card provider uses money paid into an account to pay off the amount outstanding

Question 28

Personal loan

Answer 28

A product that allows someone to borrow a fixed amount over a fixed period with a fixed interest rate

Question 29

Standing order

Answer 29

An electronic payment out of an account, used for regular payments out of the same account