A Accident insurance Insurance policy which pays the holder a lump sum in the event of their suffering certain specified injuries, such as loss of sight. (On) Account In share dealing, the period of time for which the holder can trade on credit before settlement falls due. Accrual rate The rate of build-up of a pension in a scheme where the calculation is based on salary. The accrual rate is generally expressed as some fraction - for example, sixtieths - of final pay. Accumulation and maintenance trust A tax-efficient trust, used to pass assets to your children while still retaining some control of those assets for you. Accumulation units Holdings in a unit trust which reinvest the income payments as you go along. Acid ratio A test of companies’ solvency. Measures the relationship between a company's current assets (minus stock) and its current liabilities. Active management Running a fund portfolio through the manager's own judgement on which shares to buy and sell. Activities of Daily Living (ADLs) Long-term care insurance policies pay out when the holders are no longer able to carry out a set number of ADLs, such as washing or feeding themselves unaided. Additional Voluntary Contribution (AVC) An extra payment into your employer's company pension scheme, the management cost of which is often subsidised by the company. Administration A company which is in severe trouble, but still with some hope of recovery, may be put into the charge of a court-appointed administrator. Going into administration means the company cannot be wound up without the court's permission. Advance Corporation Tax (ACT) A change to the law in April 1999 means non-taxpayers can no longer reclaim the 20% ACT paid by the companies whose shares they own. Affinity cards Credit cards branded with the name of a charity or trade union. Often give a small donation to the chosen organisation every time they are used. Mortgage agreement in principle An expression of a mortgage lender's willingness to enter into an agreement subject to other conditions being met, such as credit checks and a satisfactory property valuation. All risks insurance Insurance covering a variety of possible perils, rather than just one. Allocation bonus (aka: enhanced allocation) Early investors in a new unit trust are often given a bonus allocation rate of, say, 102%. This means the company pays £102 into the trust for every £100 you invest. But the effect may simply be to reduce the initial charge, which can be up to 6 per cent. Alternative investment Putting your money into items such as antiques or art instead of conventional investments. Alternative Investment Market (AIM) Gives savers the opportunity to invest in potentially lucrative but high-risk companies which lack a full listing. Amortisation The slow accumulation of savings which, with the interest they earn, can be used to clear a debt. Angel Someone who puts money into a theatrical production or helps to fund a small independent film. Annual bonuses (aka: reversionary bonus) The bonus payments made each year by with-profits insurance policies. Annual Equivalent Rate (AER) A figure appearing in many mortgage advertisements designed to allow like-for-like comparison. Shows the rate which would apply if interest was paid just once a year. Annual General Meeting (AGM) A company's main meeting of the year. Business conducted at the AGM includes approving the report and accounts and the final dividend. Annual Percentage Rate (APR) Designed to let consumers compare rival credit cards' or other products' interest rates on a like-for-like basis. Annual report The company's yearly report to its shareholders. Includes the profit and loss account and the balance sheet. Annuity An insurance plan which swaps a lump sum now for a flow of income which lasts until you die. You buy an annuity (annual income) with the proceeds of the capital element from either a personal pension or a money-purchase scheme. Annuity deferral It used to be the case that you could only receive your pension from a personal pension plan by buying an annuity. You can now also choose to defer (up to age 75) the purchase of an annuity with your pension fund and take an income directly from the fund. Arbitrage The process of trading a share listed on two different markets, buying at the lower price and selling again at the higher. Regulatory arbitrage is the practice of a company choosing between two rival regulators, according to which offers the more lenient regime. Asset An investment, personal possession, house, or other item of value which you own. At best An order to your stockbroker that he should buy or sell the shares involved at the best price he or she can get. At the money An option is said to be "at the money" when its exercise price (the moment at which you either buy or sell) is the same as the current price of the underlying shares. Audit Independent confirmation from a qualified accountant that a company's books give a true and fair picture of its finances. Authorised Under the Financial Services Act, all investment businesses operating in the UK are required to be a member of (ie authorised by) one of the regulatory bodies established under the Act. Automatic Teller Machine (ATM) Placed outside banks and at other convenient locations to allow self-service cash withdrawals. B Baby bond Children's bonus bonds, often nicknamed baby bonds, are friendly society policies allowing tax-free saving for the under-18s. Maximum investment is £25 a month. The bond must be held for at least 10 years in order to retain its tax-free status Balance sheet A document setting out the state of the company's assets and liabilities at the end of its financial year. Bancassurance A combination of banking and insurance business. A high street bank, for example, might sell both mortgages and the life insurance policies that must go with them. Also applies to pension sales by banks. Bankruptcy The state of being judged insolvent by the courts, with your assets managed by a trustee for the benefit of your creditors. Applied to individuals. Bare trust A trust which allows parents to give capital to a child and have the income from that capital treated as the child's rather than their own. This can save tax by using the child's personal income tax allowance. Base rate A central interest rate which determines the price customers must pay for loans or overdrafts from the high street banks. The banks set the rates they charge a few percentage points above base rate. Basic rate The middle rate of income tax paid by UK earners. Set at 23 per cent in 1999/2000. Basis point One one-hundredth of 1 per cent. Used to measure changes in interest rates. A reduction in interest rates from 5.75% to 5.5% would be a drop of 25 basis points. Basket trade A group of shares or currencies, all of which are traded together. Sometimes used to refer to a UK share trade using every share in the FTSE 100. Bear market Bears are those stockmarket investors who believe shares will go down in value, and so want to sell. Hence, a bear market is a falling market. Bed-and-breakfasting A process which allowed shareholders to make full use of their annual capital gains tax exemption by selling shares one night and buying them again the next morning. Outlawed in the 1998 Budget. Beneficiary The person or organisation who will receive the benefits from a trust or a will. Each trust can have more than one beneficiary. Best advice rule Customers must be given best advice by investment advisers and salespeople, according to the Financial Services Act, meaning that they must be directed only towards investments which are suited to their individual circumstances. Bid price The price which you get from the fund manager when you sell units in a collective investment scheme, such as a unit trust. Bid/offer spread The difference between the bid price and the offer price - sometimes known simply as the spread - gives the fund management company or stockbroker its profit margin. Big Bang October 27, 1986: the day drastic modification of the London Stock Exchange rules came into effect. Black Monday October 19, 1987: UK and European stockmarkets collapsed on this date, following a huge fall in American shares the previous Friday. Black Wednesday September 16, 1992: the day the pound was driven out of the Exchange Rate Mechanism. Blue chip A big, well-established company whose shares are considered a reasonably reliable bet. Board of directors The directors are a company's most senior managers and are elected to run the company by shareholders. Bond An investment plan which pays the holder a fixed rate of interest each year, and then repays the capital at a specified date in the future (see investment bond, with-profits bond). Book value The value of a company's assets, as listed in the balance sheet. Bottom fishing The search for and buying of undervalued shares in the hope that a falling market will soon recover. Bridging loan A sum of money lent to tide over someone who buys a new home before selling their old one. More widely used to describe any similar loan. British government stocks (Gilts) A Government-backed (and therefore relatively safe) investment offering holders a fixed income each year. Some gilts link their return to the retail prices index to protect against inflation. Broker An intermediary who sells other people's products (insurance , pensions etc). Also a diminutive for stockbroker.B120 Budget (The Budget) The current government has March Budgets preceded by a pre-Budget announcement each November. The Budget is the annual government announcement of its taxation plans. Building society A financial institution, owned by its customers, which takes money in from savers and lends it out again to homebuyers. Bull market Bulls are those stockmarket investors who believe shares will go up in value, and so want to buy. Hence a bull market is a rising market. Bulldog A domestic UK security, owned by an overseas investor. Bullet A bond with a single maturity date and no opportunities for early redemption. Business Expansion Scheme (BES) A tax-efficient investment vehicle, designed to provide venture capital funds for small businesses. Replaced by the Enterprise Investment Scheme in 1994. Buy-to-let The practice of buying a house for the income its tenants could provide, rather than as a home for yourself. C Call option A contract giving you the right to buy stocks or shares on a future date at a price agreed today. Cancellation period A period of 14 days after signing the contract, during which customers are entitled to cancel their purchase of an investment and get their money back. A cooling-off period of five days applies on hire purchase agreements. There is no cooling-off period for pension transactions. Cap-and-collar rate A mortgage which guarantees the interest rate charged will remain sandwiched between two specified levels. Capital The money you originally commit to an investment, as opposed to the income or growth that money generates. Capital adequacy The legal requirement that financial institutions, such as banks and fund managers, maintain a certain level of available capital to meet their liabilities. Capital gains tax (CGT) Investment profits normally attract capital gains tax, payable at your highest rate of income tax. CGT is payable only on profits over £7,100 a year (1999/2000 figure). Inflation is disregarded, and owner-occupied property is exempt. Capital transfer tax (CTT) A Government levy on the value of gifts, whether made duing the donor's life or on death. Replaced by inheritance tax in 1986. Capped rate mortgage A mortgage which guarantees the interest rate charged will not rise above a certain level. But it may fall in line with variable rates. Carpetbagger Someone who buys into a given building society's accounts hoping to benefit from a demutualisation in the future. Cash card A plastic card which allows the holder to withdraw cash from the issuing bank's network of automatic teller machines. Cash fund A collective investment scheme which relies on currency trading for its profits. Cashback A sales incentive, commonly used on mortgages, which gives customers a cash sum as soon as the deal is signed. Typically linked to heavy redemption penalties. CAT standards/CAT-marking A set of Government requirements setting out acceptable Charges, Access and Terms on ISAs and, perhaps, on stakeholder pensions too. Chargeable event Any transaction which gives rise to a liability for tax. Charge card A payment card with no pre-set spending limit which requires that the user clear his balance in full every month. Charges Virtually all financial products levy charges in one form or another. These may come as adviser's commission, a bid/offer spread, interest payments or a percentage fee based on the sum you invest. Charities Aid Foundation A central clearing house for Britain's charities. Allows supporters to make tax-efficient donations to many different charities via a single chequebook or credit card. Children's bonus bond See "Baby Bond". Chinese wall An internal divide between two departments in the same company to guard against insider dealing. Churning Unscrupulous salesmen sometimes encourage their clients to make needless adjustments to their investment portfolio, purely to earn more commission for themselves. For example, this can involve selling/surrendering an endowment policy and taking out another. Clawback (aka: state pension offset) A provision in the small print of final-salary occupational pensions which allows employers to cut your payments on retirement. The amount clawed back can be up to 100 per cent of state pension benefits at your retirement date. Codicil A signed and witnessed addition to an existing will. Collective investment scheme Any investment plan, such as a unit trust, which pools your money together with that of many other savers. Your share of the proceeds depends on how many units in the overall fund you own. Commission The payment for his or her services which an independent financial adviser takes from your investment. Some advisers now charge an hourly fee instead, or a mixture of the two. Commission refund A customer may receive a rebate of all or part of the commission taken by their salesman or adviser in the form of cash, improved benefits or reduced fees. Company pension scheme A pension scheme run by an employer in which part (contributory) or all (non-contributory) of the costs are paid by the employer. Compulsory purchase annuity A lifetime annuity purchased with a personal pension or employer pension scheme fund. The resulting pension income is taxable income. Company representative The advice from a company representative is not independent. They sell and advise on only the products of their employer. Compensation The sum which a fund manager or regulator may provide if investors’ money is lost through dishonesty or negligence. Compound Interest Interest payments which earn the holder further interest as they accumulate. The alternative is simple interest. Contract note A document giving full details of a recent share trade. These include the price at which business was done and a note of the broker's commission charge. Contracting out The term which describes the surrender of part of your State Earnings-Related Pension Scheme rights to get a pension and other benefits from an employer's pension scheme or to take out a personal pension plan. Conversion The process by which a mutual organisation such as a building society changes itself into a company. Mutuals are owned by their customers, while companies are owned by their shareholders. Convertible term A form of term insurance which allows the holder to convert to a whole-of-life policy at some point in the future with no further health questions. Convertibles Securities carrying a fixed interest rate and fixed redemption date, plus the right to convert your holding into a given number of ordinary shares in the same company at a specified future date. Cooling-off period A period of 14 days after signing the contract, during which customers are entitled to cancel their purchase of a life insurance policy. A cooling-off period of five days applies on hire purchase agreements. There is no cooling-off period for pension transactions. Corporate bonds The IOUs issued by big companies as a means of borrowing cash. Offer a less volatile alternative to buying shares, with immediate high income if required. Often wrapped inside a PEP or ISA to save tax. Corporation tax A tax levied on company profits at a 1999/2000 rate of 30 per cent. The rate falls to 20 per cent for companies with profits no bigger than £300,000. Correction A sudden fall in the stockmarket, so named because it corrects the market's earlier level, now deemed to be too optimistic. If a correction is big enough, it becomes a Crash. Coupon The interest payable on a bond is often referred to as the "coupon". Covenants Making regular donations to charity via a covenant allows the charity to claim back the income tax you have paid on the sums involved. To qualify, covenants must be capable of running for at least seven years. Cover note A document confirming that recently-purchased insurance is in force. Used if a claim should be necessary before the full contract arrives. Credit card A payment card, normally with a pre-set spending limit, which allows the user a rolling credit facility from one month to the next. Credit insurance Insurance which covers the monthly payments on an outstanding debt for a fixed period, in the event of illness or unemployment. Credit rating When you apply for a credit card or a loan, the company involved runs your personal details through a points system to determine whether or not they will accept the risk. The credit rating this produces will almost certainly be circulated to other lenders Credit union A non-profit-making organisation which acts as a savings bank for its members. Savings can be deposited with the union when spare cash is available, and loans taken out when larger sums are needed. Creditor Someone to whom you owe money. CREST The system used by the London Stock Exchange for handling the mechanics of each share transaction. Critical illness insurance An insurance policy which pays out if the holder is diagnosed with a particular serious medical condition, such as stroke or heart disease. Also known as "dread disease". Cum-dividend A share with this notation against its price gives buyers the right to a recently declared dividend. Cum-rights A share with this notation against its price gives buyers the right to a recently declared rights issue. Current account A bank account which pays little or no interest, but offers instant access to your cash for day-to-day spending, including via a cash card. Current assets Listed in the balance sheet, a company's current assets include its inventory of stock, cash, investments and money owed by its debtors. Current liabilities Listed in the balance sheet, a company's current liabilities include short-term borrowings and money owed to its suppliers and other creditors. Current ratio Current assets divided by current liabilities. One method of using a company's balance sheet to assess its liquidity. D Day trading Buying and selling shares on the same day or just very frequently, usually on the net.B161 Dead cat bounce A short-lived recovery in a falling market. Dealing costs The price charged by your bank or broker every time you buy or sell shares, calculated as a percentage of the sum involved. Small deals are generally subject to a flat-rate minimum. Death duties Another name for inheritance tax. Debenture A secure form of fixed-interest stock, issued by companies as a means of borrowing money. Debtor Someone who owes you money. Decreasing term A form of term assurance, used as a mortgage repayment vehicle, the sum assured from which gradually declines as more and more of the mortgage debt is paid off. Mortgage protection may decrease disproportionately. Deed of variation A document allowing beneficiaries to vary the gifts specified in someone's will even after the giver's death. Deferred annuity An annuity where the income is not paid until a stated time after your investment. Defined benefits A type of occupational pension scheme where retirement income is based on a person’s final salary, typicaly multiplied by a fraction of the years worked for that firm. For example, 1/60th of final salary per year served. Defined contribution An occupational pension scheme, where benefits are linked to an annuity paid out at retirement. The annuity is bought from a fund built up out of employee contributions and a set payment by the employer (defined contribution). De-materialisation The process by which paper share certificates are transformed into an electronic registration, held on your broker's computer. Demutualisation The process by which a mutual organisation such as a building society changes itself into a company. Mutuals are owned by their customers, while companies are owned by their shareholders. Deposit account A bank account designed not for day-to-day spending, but for longer-term savings. Deposit accounts generally pay interest, while current accounts may not. Deposit-based investment A type of investment where the value of the original sum invested cannot be eroded (except by inflation) and interest is earned and is either accumulated or paid out as income. Deposit protection scheme In the event of a bank failing, the 1987 Banking Act guarantees the return of 90% of the first £20,000 invested by each individual. Depreciation The slow decline in the value of a company's plant and machinery over time. Derivative A catch-all term encompassing futures, options and swaps. Direct debit A regular payment from your bank account, set up to handle monthly bills. Discount An investment trust which is trading at below its true asset value is said to be trading at a discount. Discounted rate mortgage A mortgage which guarantees the interest rate charged will remain a set number of percentage points below the lender’s standard variable rate. The rate changes as base rate moves up and down, but the relationship between base rate and the rate you pay remains constant. Discretionary management An arrangement with your broker or fund manager allowing him to make investment decisions on your behalf. Diversification The investment principle that you should spread your money around among many different companies or world markets to limit risk. Dividend The means by which companies distribute their profits to shareholders. Normally expressed as the amount due for each share owned. Dividends are usually paid twice a year. Back To Top