Topic 7: Providers

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 (for example, monthly or annually),
the effect of compounding the interest and any fees and charges.

Question 2

Assets

Answer 2

Things that a person or a business owns. For a person their assets might include property, jewellery or financial products
such as company shares.

Question 3

Cash card

Answer 3

A card used to withdraw cash from ATMs or branch counters

Question 4

Cash ISA (Individual savings account)

Answer 4

An account that pays interest tax-free on cash savings up to a certain level

Question 5

Chancellor of the exchequer

Answer 5

The British Cabinet minister responsible for financial and economic matters and in charge of the Treasury

Question 6

Cheque

Answer 6

A written instruction to the provider (eg the bank or building society) to pay a specified amount to a specified person or organisation.

Question 7

Common bond

Answer 7

An interest or circumstance shared by a group of people, for example working for the same employer or living in a certain area.

Question 8

Communication channel

Answer 8

The medium through which information is transferred to its intended recipient, eg email or telephone. In financial services, it
refers to the way a customer can contact their provider and manage their account. It is also referred to as a distribution channel

Question 9

Credit card

Answer 9

A card that allows the holder to make purchases face to face, online or over the phone, and to withdraw cash from an ATM.
Unlike a debit card, where the money is taken from the holder’s own account, transactions are paid by the card provider. The card holder repays the amount owed to the provider either in one payment or in instalments. The provider charges interest on cash withdrawals from the time the withdrawal is made and on
purchases after a certain period.

Question 10

Credit union

Answer 10

A mutual organisation (that is, owned by its members) that provides a range of financial products to members, eg savings accounts and personal loans. Members of a credit union must share a common bond, eg all work for the same employer or all work in the same district.

Question 11

Current account

Answer 11

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

Question 12

Debit card

Answer 12

A card that can be used to withdraw cash, to make face-to-face transactions in, for example, shops, and to make payments online or over the phone.

Question 13

Demutualisation

Answer 13

The process whereby a mutual organisation (eg building society) legally becomes a shareholder-owned joint stock company (eg a
bank).

Question 14

Direct debit

Answer 14

An electronic payment out of an account. The amount and frequency of a direct debit payment can vary.

Question 15

Dividend

Answer 15

A payment of profits from a company to its shareholders, often at twice-yearly intervals, either as cash or (depending on the
plan) as further shares or reacquisition of shares.

Question 16

Financial Conduct Authority (FCA)

Answer 16

One of the two main regulators of financial services in the UK (the other is the Prudential Regulation Authority).

Question 17

Financial Services Compensation Scheme (FSCS)

Answer 17

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.

Question 18

Insurance

Answer 18

Products that give financial protection against certain events. For example, someone who has travel insurance might be able
to claim back the cost of a holiday if they have to cancel through illness.

Question 19

Interest rate margin

Answer 19

The difference between the interest rate that a bank charges on borrowing products and the interest rate that it pays on savings.

Question 20

Life assurance

Answer 20

A type of insurance policy that pays out a sum of money if the insured person die.

Question 21

Mortgage

Answer 21

A loan taken out to pay for a property, usually over a long term such as 25 years

Question 22

Mutual organisation

Answer 22

An organisation owned by its customers, who are also its members, rather than by shareholders.

Question 23

NS&I

Answer 23

National Savings & Investments, a provider that is backed by the Treasury (the government department that manages the UK’s finances).

Question 24

Overdraft (authorised and unauthorised)

Answer 24

A facility that allows an account holder to withdraw more money than they actually have in their account. An authorised overdraft
is agreed with the bank in advance within certain limits. Exceeding those limits or going overdrawn without permission is
an unauthorised overdraft, and attempted withdrawals may not be honoured

Question 25

Personal loan

Answer 25

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

Question 26

Premium bond

Answer 26

A lottery bond, issued by NS&I, entered into a monthly prize draw with tax-free prizes or ‘premiums’. Bonds must be held for
a full calendar month after the month in which they were purchased, and retain an equal chance of winning until cashed in.

Question 27

Prudential Regulation Authority

Answer 27

One of the two main regulators of financial services in the UK (the other is the Financial Conduct Authority)

Question 28

Public limited company (plc)

Answer 28

A large company whose shares are sold and traded to the general public. The shareholders have limited liability, up to the value of their investment, for the company’s debts.

Question 29

Rate of return

Answer 29

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.

Question 30

Savings bonds

Answer 30

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.

Question 31

Standing order

Answer 31

An electronic payment out of an account. Standing orders are used to make regular payments of the same amount.

Question 32

Stocks and shares

Answer 32

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.

Question 33

Travel insurance

Answer 33

A product providing coverage for unexpected events such as trip cancellation, medical expenses, travel delays and other losses
incurred while travelling

Question 34

Treasury

Answer 34

Her Majesty’s (HM) Treasury, the government department responsible for development and implementation of financial and economic policy.