Whether you’re looking for your first bank account, or applying for a loan or credit card we know you can come across a lot of bank “jargon” in the process, so we’ve put together a short guide for all the words and phrases you may hear.
Interest rates explained
Whether you’re looking for a savings account, overdraft, loan or a credit card, the interest rate determines how quickly you can reach a savings goal or how much a loan will cost. It’s important to remember there is more than one kind of interest rate;
Annual Equivalent Rate (AER) is the total interest you’ll get on your savings in one year. Shown as a percentage, the higher the AER, the more interest you’ll get. When comparing savings accounts always look for the AER.
Annual Percentage Rate (APR) is the total amount of interest you’ll pay on your borrowing in one year. Shown as a percentage, the higher the APR, the more you’ll pay for your borrowing. When comparing borrowing products always look for the APR.
Savings jargon explained
‘Opening balance’ is the amount of money you need to open an account.
‘Regular savings amount’ is the amount of money you will be required to save into an account on a regular basis. Some savings accounts may require a minimum monthly savings amount be transferred via standing order or direct debit (these are automated payment from a current account). Most regular savings amounts are monthly requirements, but be sure to check the account terms and conditions to be sure.
‘Notice period’ is the amount of time you may have to give to the financial institution in advance to withdraw your money. Some accounts that pay a higher rate of interest may require a longer notice period.
‘Easy access’ is whether you can access your money (by withdrawing or transferring it) on-demand, through online banking, mobile app access or at a branch. Easy or instant access accounts often have a variable rate of interest, meaning the interest rate can go up or down with limited notice.
‘Fixed term’ accounts are savings accounts where your money is locked away for a period of time which means you can’t access your money until the time period is up. They usually offer a slightly higher rate of interest which won’t change during the term of your account.
Borrowing jargon explained
‘Term’ is the period of time the loan is for. Typically, a loan will be a fixed interest rate with the same monthly payment for the duration of the loan.
‘Secured or unsecured loans’ A secured loan is money you borrow that is secured against an asset you own such as a car or house. Interest rates for secured loans tend to be cheaper than unsecured loans as they are less risky for lenders. However, they may be more risky for you as a borrower because your ‘security’ can be repossessed if you do not keep up repayments.
‘An Overdraft’ is an amount of money you can borrow through your bank account when you have no money left in the account. An arranged overdraft is an agreement with your bank that states the amount you can borrow and whether fees and interest will be charged. If you borrow money on your account and it does not have an arranged overdraft (or go above it), this will create an unarranged overdraft and you might pay higher charges.
‘Early repayment fees’ are fees that some lenders charge if you repay a loan early. For a mortgage these may also be called ‘early redemption fees’. Check the terms and conditions of your loan to see if this is applicable for you.
‘Guarantor’ A guarantor is someone who agrees to pay for your debts if you are unable to. They will typically have their own agreement with the lender and are obligated to cover the cost of your loan if you are unable to or won’t pay. Those with poor or no credit history may require a guarantor for borrowing as it is seen as less risky for the lender.
Remember, if you are looking to save or borrow there are many product choices out there, so make sure to shop around for the best deal and ensure that the product you choose is the right one for you.
Banking jargon explained
A ‘Current account’ is another term for a bank account; an account to keep your money secure and allow you to receive money (such as wages, cash transfers or cheques) and spend money through standing orders, direct debits, bank transfers and card payments, as well as withdraw cash.
A ‘Standing order’ is an automated, regular payment set up by the current account holder. The account holder sets it up and only they can change it, for example by changing the amount of money or the payment date.
A ‘Direct debit’ is an authorised payment taken directly from a current account. When a direct debit mandate is set up, an account holder authorises someone else to collect the money from their account. The amount of money can vary, and while account holders can cancel a direct debit this may result in penalties or charges from the company. Be sure to check terms and conditions when setting up a direct debit to know what you’re signing up for.