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Savings jargon buster

Savings and banking jargon buster

APR: This oft-used acronym stands for annual percentage rate. This is the true percentage of interest you will pay on your mortgage over a year. It takes into account the timings of your payments - which can affect the real amount you pay.

Cash Isa: The Government will allow you to save up to £3,000 a year without paying tax on the interest as a way of encouraging people to save money. The money must be saved in an account set up as an Isa - Individual Savings Account. They are offered by most banks and building societies. To find out more take a look at our Isa section.

Commission: The payment which a financial salesperson or adviser receives from a company whose investments or insurance they have sold to you. Usually, the amount of commission is based on the value of the sale. Since the beginning of 1995, you must be told how much the salesperson or adviser will receive and you may be able to negotiate a rebate, so that you get part of the commission, or the product you're buying is enhanced. Alternatively, commissions received may be used to reduce the fees, if your adviser charges direct for their advice.

Credit cards: Credit cards allow you to spend - even if you don't have sufficient money in your bank account to cover the purchase. You are sent a bill each month. Usually you have a grace period up to 56 days - after which you pay the bank interest on any outstanding balances. Some company charge an annual fee for the priviledge of having their card. The most common credit cards are Visa or Mastercard. (American Express cards must be cleared at the end of each month and are not in the strictest sense, credit cards.)

Delta: The Delta card is a brand of debit card. These cards often look like credit cards. But as soon as you make a purchase the funds are deducted from your bank account. They can be used to withdraw money from cash machines or to pay for small purchases instead of cash or cheques

Debt: Debt is simply money you owe to others - be they financial institutions, other companies, friends or family.

Deposit accounts: Deposit accounts, also called savings accounts, allow you to deposit your money with a bank or building society. Your deposit attracts interest - but can be withdrawn over the counter or by mail. Some accounts require notice before you can make a withdrawal.

Hire purchase: Hire purchase allows you to "buy" a car or other large item with a deposit - and pay off the balance over a period of time. The item does not technically become yours until you have paid off the debt. Hence the word "hire"

Internet banking: Internet banking allows you to check your balance, transfer money between accounts and pay bills from your home or work PC - providing it is attached to the Internet. Some banks also allow you to download your statements into a personal finance package such as Microsoft Money or a spreadsheet such as Microsoft Excel.

Mortgage: A loan secured against the value of your home. Secured means that if you fail to pay off the mortgage as agreed, the home can be seized by the lender and sold to repay the debt.

There are two broad types of mortgage. With a repayment mortgage, your monthly payments cover both the interest and capital repayments, so that by the end of the term the loan is completely repaid.

With an interest-only mortgage, your monthly payments cover only the interest. At the end of the term, the capital is still outstanding and you need some other arrangement for repaying it, for example, from the proceeds of an endowment policy, a personal equity plan, a pension or even sale of the property. There are many different mortgage variations, for example, variable rate where the interest charged moves in line with interest rates generally in the economy, fixed rate whereby the interest is set at one level for a specified period, and so on.

National Savings: A range of deposit-based investments - for example, investment account, income bonds, National Savings Certificates - issued by the government. Some offer tax-free returns. With many others, although the return is taxable as income, it is paid without any tax having been deducted, which makes them particularly suitable for non-taxpayers.

Overdrafts: An overdraft enables you to withdraw more money than there is in your bank account. It is commonly called: "going into the red". You will usually have to pay interest on the overdraft - and some banks charge very high rates of interest, particularly if you go overdrawn without agreeing it with the bank. But some banks allow you to arrange an interest-free overdraft. This is probably the simplist form of borrowing

Personal loans: This is money you borrow from a lender such as a bank or building society to pay for purchases - or to pay off debt. Usually it is paid to you as one lump sum and you make regular repayments.

Best buy loans

Student loans:

A low-interest loan from The Student Loan Company to pay for your time at University. You will need to pay this back once you are working.

Switch: The Switch card is a brand of debit card. These cards often look like credit cards. But as soon as you make a purchase the funds are deducted from your bank account. They can be used to withdraw money from cash machines or to pay for small purchases instead of cash or cheques.

Telephone banking:

Telephone banking allows customers to check their balances, transfer money and make other transactions over the telephone.

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