A glossary of terms to help you get to grips with personal finance lingo
APR: Annual Percentage of Rate. The yearly cost of carrying a balance on a credit card including all fees & compounded interest.
Budget: a plan of your income and expenditures. It can show you whether you are spending more or less than you earn.
Current account: your main account from which you can set up standing orders (e.g. for rent) and direct debits (e.g. gas bill). Your salary is paid into this account and it can have an overdraft facility. It shouldn’t be used as a place to keep your savings because it often pays a low rate of interest.
Direct Debit: giving your bank permission to pay a variable amount from your account to a company e.g. paying off your credit card via direct debit.
Emergency fund: a savings pot in an instant-access savings account with 3-6 months worth of basic living expenses e.g. mortgage, rent, food, bills. An essential for everyone. How much you save in it is dependent upon your current situation.
Gross: the amount before all costs & taxes are taken into account. E.g. your gross salary is the amount you earn annually before tax.
Inflation: the rise in prices of goods and services in the economy.
ISA: Individual Savings Account. A savings account which earns tax-free (gross) interest. There is a annual limit on how much you can save in this type of account.
Net: the amount after all costs & taxes are taken into account. E.g. your net interest is the amount of interest you earn after tax has been deducted.
Overdraft: an amount in excess of your bank balance. An authorised overdraft is an amount agreed with your bank that you can use in return for daily fees or a rate of interest. An unauthorised overdraft occurs when you withdraw more money than is in your current account (which has not been agreed with your bank in advance). In this situation you will accrue charges on your account in addition to any interest the bank charges for borrowing the money.
Stocks & Shares ISA: Individual Savings Account. A savings account which earns tax-free (gross) interest. There is a annual limit on how much you can save in this type of account. You can save up to £10200 (2011) in stocks and shares in this ISA. Unlike a cash ISA and like all investments your money is not guaranteed to earn a certain rate of return.
