Money 101: Jargon Buster

Interest Rates Explained

Whether you’re looking for a savings account, overdraft, loan or credit card, the interest rate can affect how quickly your savings grow or how much borrowing could cost.

It’s important to remember that there is more than one type of interest rate.

• Annual Equivalent Rate (AER)

  Annual Equivalent Rate (AER) is the total interest you could earn on your savings over one year.

  It is shown as a percentage. Generally, the higher the AER, the more interest you may earn on your savings.

  Example: If you save £100 in an account paying 5% AER, your savings could grow to approximately £105 after one year.

  Why it matters: AER can be useful when comparing savings accounts as it shows how much interest could be earned over a year.

• Annual Percentage Rate (APR)

  Annual Percentage Rate (APR) is the total cost of borrowing over one year, expressed as a percentage.

  Generally, the higher the APR, the more borrowing may cost.

  Example: If two credit cards offer the same features, comparing the APR can help you understand the potential difference in borrowing costs.

  Why it matters: When comparing borrowing products, APR can help you understand the overall cost of borrowing.

Savings Jargon Explained

• Opening Balance

  The opening balance is the amount of money required to open an account.

  Some savings accounts can be opened with a small amount of money, whilst others may require a larger deposit.

• Regular Savings Amount

  The regular savings amount is the amount of money you agree to save on a regular basis.

  Some savings accounts may require a minimum monthly amount to be deposited using a standing order or direct debit.

  Example: You might choose to save £10 or £20 each month towards a future goal.

  Money Smart Tip: Saving little and often can be an effective way to build positive savings habits.

• Notice Period

  A notice period is the amount of advance notice you may need to give a financial institution before withdrawing money from your account.

  Some accounts offering higher interest rates may have longer notice periods.

  Why it matters: Always check how quickly you can access your money before opening an account.

• Easy Access

  Easy Access refers to whether you can withdraw, transfer or manage your money when you need it.

  This may be through:

  • Online Banking
  • A Mobile Banking App
  • Telephone Banking
  • A Branch

  Easy Access accounts often have variable interest rates, meaning the rate can go up or down over time.

• Fixed-Term Account

  A Fixed-Term Account is a savings account where money is deposited for an agreed period of time.

  During this period, access to the money may be restricted.

  In return, Fixed-Term Accounts often offer a fixed rate of interest that will not change during the agreed term.

  Why it matters: Fixed-Term Accounts generally restrict access to money for an agreed period. It is important to consider whether you may need access to your savings before choosing this type of account.

Borrowing Jargon Explained

• Loan Term

  The term is the length of time you have to repay a loan.

  Many loans include fixed monthly repayments for the duration of the agreement.

  Example: A £1,000 loan may be repaid over two years or five years, depending on the agreement.

• Secured and Unsecured Loans

  Secured Loan

  A secured loan is borrowing that is linked to an asset you own, such as a house or vehicle.

  Because there is security attached to the loan, interest rates may be lower.

  However, the asset could be at risk if repayments are not maintained.

  Unsecured Loan

  An unsecured loan is borrowing that is not linked to an asset.

  Examples may include some personal loans and credit cards.

• Overdraft

  An overdraft is a way of borrowing money through a current account.

  An arranged overdraft is agreed with your bank in advance and outlines:

  • How much can be borrowed
  • Any fees that may apply
  • Any interest that may be charged

  An unarranged overdraft happens when you spend more money than is available in your account without an agreement in place.

  This could result in additional fees or charges.

  Money Smart Tip: Regularly checking your account balance can help you avoid unexpected borrowing costs.

• Early Repayment Fees

  Some lenders may charge a fee if a loan is repaid earlier than originally agreed.

  When applying for a loan or mortgage, it is important to understand any fees that may apply.

  For mortgages, these may sometimes be called Early Redemption Charges.

• Guarantor

  A guarantor is someone who agrees to repay a debt if the borrower cannot.

  The guarantor has their own legal agreement with the lender and may become responsible for repayments if the borrower fails to make them.

  Why it matters: Acting as a guarantor is an important financial commitment and should be carefully considered.

Banking Jargon Explained

• Current Account

  A Current Account is a bank account used for everyday money management.

  It can be used to:

  • Receive wages
  • Receive transfers
  • Pay bills
  • Make purchases
  • Withdraw cash
  • Manage money online

  For many people, a Current Account is their main banking account.

• Standing Order

  A Standing Order is a regular payment set up by the account holder.

  The account holder chooses:

  • The payment amount
  • The payment date
  • How often the payment is made

  Only the account holder can change or cancel the payment.

  Example: Paying £20 into a savings account on the 1st of every month.

• Direct Debit

  A Direct Debit allows a company or organisation to collect payments directly from your account.

  The amount collected may vary.

  Examples include:

  • Mobile phone bills
  • Streaming subscriptions
  • Gym memberships
  • Utility bills

  Why it matters: Direct Debits are commonly used to automate regular payments such as utility bills and subscriptions.

• Bank Transfer

  A Bank Transfer allows money to be moved electronically from one account to another.

  Many people use bank transfers to:

  • Send money to friends
  • Pay bills
  • Transfer money between accounts

Digital Banking & Online Safety

• Mobile Banking

  Mobile Banking allows customers to manage their accounts using a smartphone or tablet.

  Common features include:

  • Checking balances
  • Making payments
  • Viewing transactions
  • Managing cards

• Contactless Payments

  Contactless payments allow purchases to be made by tapping a debit card, smartphone or smartwatch against a payment terminal.

• Digital Wallet

  A Digital Wallet stores payment information securely on a device.

  Examples include:

  • Apple Pay
  • Google Wallet
  • Samsung Wallet

• eStatement

  An eStatement is an electronic version of your bank statement that can be viewed securely through online or mobile banking instead of being sent by post. eStatements are usually available in PDF format and can be downloaded or saved for future reference. They help reduce paper waste and provide quick access to your account history whenever you need it.

• 3D Secure

  3D Secure is an extra security step used when making purchases online with your debit or credit card. You may see terms such as “Verified by Visa” or “Visa Secure”, which are examples of 3D Secure authentication.

  Its purpose is to help verify that it is really you using the card when making an online purchase. After entering your card details, you may be asked to confirm your identity using your banking app, a one-time passcode, or another security method. This extra layer of protection helps reduce the risk of fraud and unauthorised transactions.

• Phishing

  Phishing is when criminals attempt to trick people into sharing personal or financial information through fake emails, texts, websites or phone calls.

  Money Smart Tip: Never share passwords, PINs or security codes with anyone.

• Scams

  A scam is an attempt to persuade someone to send money or share personal information.

  Common scams may involve:

  • Social media competitions
  • Fake investment opportunities
  • Fake parcel delivery requests
  • Online marketplace fraud

• Money Mule

  A Money Mule is someone who allows their account to be used to move money on behalf of another person.

  Young people can sometimes be targeted through social media with offers of “easy money”.

  Being a money mule is illegal and can have serious consequences.