Finance Jargon Buster


An expert on assessing the risk and probability of a financial loss. They use complex mathematics to calculate premiums, subscription payments for products such as insurance, pensions, annuities etc

Administration Charge

Whenever you pay into an investment based life insurance policy, a fee (administration charge) may be taken from your deposit and then the rest is added to the investment.

ADV – Additional Voluntary Contributions

These are extra contributions that you make to your company pension scheme to help increase its benefits.

AER – Annual Equivalent Rate

This is a measurement of interest which is paid on any savings you may have.

AIM – Alternative Investment Market

This is still the London Stock Exchange but an international market which lists smaller, growing businesess. They are generally regarded as a higher risk then the businesses quoted on the main stockmarket.

All In One Mortgage

This is where any money you have in a savings account is offset against the balance of your mortgage. For example, say the balance on your mortgage was £200,000 and you had £25,000 in a savings account. You would only pay mortgage interest on £175,000 (the sum of £200,000 minus £25,000). This is also sometimes known as an ‘offset mortgage’.

Annual Management Charge

This is a yearly fee to pay for the management of your investment or funds. It is usually a percentage of the value of your funds.

Annual Percentage Rate

This is a measure of interest which you pay on any borrowing such as a personal loan, car finance etc.


When you retire you can buy an annuity which is a monthly income and can be purchased from an insurance company for a lump sum of money which is generated by a pension scheme such as a SIPP or workplace pension. There are different types of annuities such as temporary, lifetime, enhanced, impaired life. Please note that once you have purchased a pension annuity you cannot change your mind nor can you change the terms of your agreement.

Arbitration Scheme

An independent complaints scheme should you have any disputes with a financial company, product or service.


This is basically anything you own such as your home, savings, car, whole life insurance policy, jewelry, cash etc.

Asset Allocation Model

This is the term given to an investment strategy aimed at balancing the risk vs reward according to the individual’s goals & tolerance to risk. Your portfolio will be apportioned the relevant investments based on your asset allocation model. There are 3 main asset classes – which are fixed income, equity & cash or cash equivalent. Each has a differing level of risk and return and therefore each class should act differently over time.

Asset Classes

A group of investments, funds or savings which generally behave in the same manor and carry a similar level of risk. There are four main types of asset classes which are property, cash, shares and bonds.

ASU Cover

An insurance policy which will pay you a monthly income should you be out of work due to an Accident, Sickness or Unemployment / Redundancy. For further details please visit our ASU Cover page.

Base Rate

Now known as the ‘Bank Rate’ this is the interest rate set by the Bank Of England and is the main interest rate used within our economy here in the UK.

Basic Rate Tax Payer

This is a person who’s top rate of income tax they pay is the basic rate.

Bid Price

The name given to the cost or price of a unit in a unit trust investment.

Capital Gains Tax

This is the tax you pay on any profit generated from the sale of any assets you have such as shares or property.

Capital Units

This refers to units within an investment fund which have higher charges than normal.

Capped Rate Mortgage

This is where you pay your mortgage lenders SVR (standard variable rate) but if this rate rises above an agreed limit then your repayments are capped at an agreed amount. If the SVR drops below the agreed capped amount then so do your repayments.

Cash Equivalent Transfer Value

The amount you are entitled to transfer from one pension scheme to another.

Cash ISA

A tax free savings account offered by banks and building societies. Any interest earned on your savings will not be taxed. For further details please see out ISA guide.

Child trust fund

The CTF was launched by the government to help encourage saving for children. However, new accounts are no longer available as it has now been replaced by the Children’s ISA.

Commercial property

A property which is used for business purposes such as a shop, offices, factory etc. Commercial property can be held within a SIPP (Self Invested Personal Pension).

Dealing Fees / Costs

When buying and selling investments such as shares, there may be a fee to pay for the service.


This is the term given for the process of converting your pension fund into a retirement income.

Deeds Fee

When you have completed paying off your mortgage your lender will hand over your property deeds and usually charge you a fee (Deeds Fee) to cover any legal and administration costs.

Defined Benefit Pension Scheme

An occupational pension scheme which promises an agreed set amount of pension when retiring from work.

Defined Contribution Pension Scheme

A pension scheme which both you and your employer pay into and which gives you an accumulated sum when you retire. This is also known as a ‘Money Purchase Scheme’.

Discounted Rate Mortgage

A mortgage where your interest rate is set below your lenders standard rate for a fixed introductory period. These are usually offer by mortgage lenders to attract new customers.


This is the term given to any income you receive from your shares.

Endowment policy

An insurance policy where the majority of your premiums are invested and the remainder providing life insurance should you die during the term of the policy.


The term given for shares in a company which are quoted / listed on the stockmarket.

Equity ISA

An individual savings account that holds investments instead of cash. This is also known as a stocks and shares isa and an investment isa.

Equity Release

This is where you can release some of the value in your home as a cash lump sum and remain living there. For further details please see our equity release guide.


The total value of all your assets / everything you owe minus any debts you have.

Ethical Funds

These funds are in certain companies which perhaps promote the improvement of our environment, good working practices, or green energy solutions. Ethical funds also tend to avoid markets such as alcohol, firearms, pornography and the tobacco industry.


This generally refers to an insurance policy and is something which it does not include. For example, specific types of cancer may not be covered by a critical illness policy.

Exit Fee

The charge for selling an investment or exiting a financial agreement before the agreed date.

Financial Conduct Authority

The FCA are the UKs new financial regulator. This used to be the FSA (see below) but they have now been split into the Financial Conduct Authority and ‘Prudential Regulation Authority’ (Bank of England).

Family Income Benefit

An insurance policy which provides your family / dependents a regular income should you die during the term of the policy.

Final Salary Pension Scheme

A company pension plan where the amount you earn from your pension is determined by how much you have paid into the pension scheme and the salary you are on when you retire.

Financial Adviser

A financial advisor is someone who offers professional advice on many different financial services and products such as investments, mortgages, trusts, insurance etc. There are two different types of financial advisers in the UK.:

Restricted Financial Adviser – They can only advise from a limited range of services or providers.
Independent Financial Advisor – They can advise using the ‘whole of the market’ which means they can compare every single product or service to help find you the most suitable for your requirements. Here at Williams Financial Ltd we are a team of independent financial advisors.

Financial Ombudsman Service

This is an independent service that consumers can use to settle any dispute(s) they may have with a financial services provider / company. To visit the official financial ombudsman website please click here.

Financial Services Authority (FSA)

The FSA used to be the regulator of the financial services industry here in the UK but it has now been split up into the Financial Conduct Authority and the Prudential Regulation Authority.

Financial Services Compensation Scheme (FSCS)

A fund which pays consumers compensation if they have suffered a financial loss due to an FSA authorised firm. These losses could be due to negligence, the company going bust or even fraud.

Friendly Society

Also known as a mutual friendly society, they provide many different financial products to its members such as savings, investments, insurance as well as tax exempt saving schemes. Many friendly societies will invest your funds in their own ‘with profits’ fund.

Front End Charge

This is the term given for a fee payable when first taking out an investment.

Fund Supermarket

Also known as a fund platform. It is usually an online execution only service provided by financial advisors, fund managers and life cover providers where you can buy and sell investments such as bonds, OEICs, unit trusts, ISAs, pensions etc.


Also known as leverage. This is where a company or organisation borrow money and then invest it in the hope it will increase the potential gain.


Also know as ‘gilt edged stock’ it is basically a government issued bond which is used to fund the governments borrowing. When purchasing gilts you are effectively lending the government money. In return you will be paid a fixed income twice a year and once the gilt has matured you will receive the same amount back that you purchased it for.

Green Funds

Another term for Ethical Funds.

Group Personal Pension Scheme

A pension plan offered by employers to their employees but the scheme is run by a provider or insurance company. The employer will contribute towards its employee group pension plan but when an employee leaves the company the employer will stop contributing towards it. However, when the employee leaves, the pension plan will remain with them and they have the option of being able to carry on paying into the scheme.

Guaranteed Equity Bond

An investment where you are usually guaranteed (but not always) to receive your original capital plus a return. Guaranteed equity bonds usually run for a fixed term of 3-5 years.

Guaranteed Income Bond

Similar to a guaranteed equity bond but this pays you an income and when the bond matures you receive your original capital back.

Higher Rate Tax Payer

This is a person who’s top rate of income tax they pay is the higher rate.

Holloway Plan

Income protection plan provided by some mutual friendly societies to it’s members.

Home Reversion Scheme

Similar to equity release where after you sell part or all of your home you can continue to live in it for as long as you like. With a home reversion plan you have the option of taking your money as a regular income instead of a lump sum.

IFA – Independent Financial Adviser

A financial advisor who can offer completely unbiased advice on financial products, services and financial planning matters. They have access to the whole of the market and are authorised & regulated by the FCA (Financial Conduct Authority)

Income Drawdown

Also known as pension drawdown. This allows you to make regular withdrawls from your pension fund whilst keeping the fund invested. This is an alternative to buying an annuity but is not generally recommended for people with a pension pot of below £100k. For further information please read our pension income drawdown guide.

Income Protection Cover

An insurance policy which pays a tax free income to the policy holder should they suffer and accident, illness or disability which prevents them from continuing with their work. For further details please visit our income protection insurance guide..

Income Shares

An interest or dividend income paid to the holder of any shares in an investment trust or OEIC (Open Ended Investment Company).

Income Tax

The tax payable on your income.

Increasing Term Insurance

A term life insurance policy where you can increase the level over time. This helps to negate the effects of inflation but please note that if the level of cover is increased then the cost of your premiums may also increase.

Index Linked Gilts

A government bond where the return of your capital and interest paid will rise in-line with inflation.

ISA – Individual Savings Account

Tax efficient savings account where any interest or dividends paid do not incur any taxation (provided you do not exceed the annual investment limit). There are two types of ISAs. A ‘Cash ISA’ which you can just hold cash in and then a ‘Stocks and Shares ISA’ where you can hold investments in. For more details please read our guide to ISAs.

IVA – Individual Voluntary Arrangement (IVA)

An arrangement between the person having problems with their debt and their creditors. The IVA is arranged by an authorised specialist and can help prevent people having to go through the bankruptcy process.

IHT – Inheritance Tax

When you die and your estate (all your assets minus any debts) is inherited, should the value of your estate be above the IHT threshold then any amount above is liable for taxation. For further details about IHT please visit our inheritance tax mitigation services page.

Insurance Premium Tax

This is a tax on insurance premiums. This tax (which is 5% or 17.5% depending on the type of insurance) is added to your insurance premiums by your insurer and included in the price you pay.

Interest Only Mortgage / Loan

This is where you only pay the monthly interest charges and do not pay off any of the capital. Once the loan / mortgage has ended you must then pay the capital (the original amount borrowed).


A organisation, company or person who acts as a middle man between the provider and customer such as an independent financial advisor or mortgage broker for example.

Junior ISA – JISA

A junior individual savings account is a tax free savings account just like a regular ISA but for children. Just like a normal ISA there are cash and stocks & shares versions and the account is in the childs name but they cannot access any funds until they are 18. If a child already has a Child Trust Fund then they are not eligible for a Junior ISA. For further details please visit our Child ISA guide.

Keyfacts Documentation

Also known as an illustration, this is a document clearly setting out the terms and conditions of a financial product such as a mortgage, pension, insurance policy, investment etc.

Life Insurance

An insurance policy which pays a lump of money should the policy holder die during the term of the agreement. For further details please see our life insurance guide.

Lifestyle Fund

A type of pension fund where the investment strategy changes form a higher risk to a more medium and lower risk as you approach your retirement.

Lifetime Annuity

A pension annuity which pays you a guaranteed income for the rest of your life. If you are looking to buy an annuity then please visit our pension annuity guide for further details.

Lifetime Mortgage

Similar to equity release where you can take out a mortgage on your home to raise a lump sum of cash or income and do not pay back the loan until the house is sold when you die or are taken into care.

LTV – Loan to Value

This is how much a mortgage lender is prepared to lend you in proportion to the value of the property.

Market Value Adjustment

This mainly concerns a ‘with profits’ policy or investment offer by mutual friendly societies where if you cash in early you will have to pay a penalty fee. This is also know as a MVR – Market Value Reduction.


A loan secured upon a property for the purpose of allowing you to purchase the property. Please visit our mortgage guide for details on many different types of mortgages.

MMR – Mortgage Market Review

A shake up of the whole mortgage market with buyers now facing a stricter borrowing criteria. Read our mortgage market review article here.

MPPI – Mortgage Payment Protection Insurance

Similar to income protection but rather than pay you an income it covers your mortgage repayments should you not be able to work due to an accident, illness or redundancy.

Multi Tied Adviser

A financial advisor who can only offer a limited range of products or services. Also known as a restricted financial adviser.

Mutual Society

See: Friendly Society

Nest -National Employment Savings Trust

A workplace pension scheme available to all employers in the UK when choosing which company pension plan they would like to use.

Negative Equity

This is where the market value of a property is less than the amount owing on its mortgage.

Nominal Value

This usually refers to a corporate bond or gilt and is the price it was first issued at. This is sometimes also known as the ‘face value’.

Occupational Pension Scheme

This is a pension plan run by an employer which can be either a final salary, money purchase or defined contribution scheme. Usually the employer must contribute towards at least part of the cost of the scheme. For further details please visit our occupational pension guide.

OEIC – Open Ended Investment Company

Basically an investment fund which pools together investors money and invests these accumulated funds in other assets and / or a wide range of shares.

Open Market Option

If you have a personal or stakeholder pension fund and are looking to retire you can utilise the open market option to shop around for your pension annuity. This means you can compare annuities from every provider to find the best deals and retirement income for your circumstances. Please visit our open market option guide for further details on how you can compare pension annuities. Please note that the OMO does not apply to company / workplace pension schemes.


This is a form completed by an employer to inform the HMRC of any benefits they have given you over the tax year which has resulted in an increase in your income. Examples of these ‘benefits in kind’ could be a company car, interest free loan or private health insurance. When your employer has posted off your P11D form you should also receive a copy yourself.

PAYE – Pay As You Earn

This applies to the taxation system for employees who have their income tax and national insurance contributions deducted from their earnings before they receive it.

Payment Protection Insurance

Similar to ASU cover, it pays a certain level of monthly tax free income should you be unable to work due to an illness, accident or being made redundant.


The term given to a regular income during your retirement.

Pensions Advisory Service

Also known as TPAS – The pensions advisory service is an independent organisation which provides free guidance, advice and information on UK pension matters and is funded by the DWP (Department for Work and Pensions).

Pension Commencement Lump Sum

A PCLS is the amount of money you take form your pension plan as a tax free lump sum when you retire. Most personal pension plans will allow you to take up to 25% as a tax free lump sum.

Permanent Health Insurance

This is another term for income protection insurance.

PEP – Personal Equity Plan

Now no longer available. They where a tax efficient investment and in 2008 became a stocks and shares isa.

Pooled Investments

Pooled investments can include trusts, OEICs and unit trusts. They are where lots of investors contributions are ‘pooled’ together to create a larger investment.


The collection of your investments, properties etc

Pre-existing Medical Condition

The term given to any health issues you have prior to starting a life insurance policy. The insurance provider will calculate how likely your condition will affect your life expectancy and price your premiums accordingly. If you have any existing medical conditions it is very important that they are disclosed during the application process otherwise it could void any claim.


The regular payment you make for your insurance policy. This is most commonly paid on a monthly basis.

PMI – Private Medical Insurance

An insurance policy which pays for any private medical treatment you may require during the term of the policy.

Proposal Form

This is the application form you fill in for an insurance policy.


A term given which means the same as ‘insurance’.

Public Liability Insurance

An insurance policy which covers you should you injure someone or damage their property.

Quoted company

A company which is listed on the stock exchange.

Redemption Date

This is the date when a loan becomes repayable due to its corporate bond or gilt maturing.

Redemption Value

This is the amount you receive when your corporate bond or gilt matures and the loan is repaid back to you.

Reducing Term Insurance

Also known as decreasing term life insurance. This is a life cover policy where the level of cover decreases / reduces over the term. It is usually linked to a repayment mortgage.

Renewable Term Insurance

A life cover policy where you have the option to renew its terms without having to take a medical as it is renewed based on your health when you first took out the policy.

Rental Income

This is income you earn from any rented property you own. This usually applies to buy-to-let properties.

RDR – Retail Distribution Review

Introduced in January 2013, this changed how financial advisors charge for their services to help make the industry more transparent which resulted in financial advisers being split into two levels of service which are restricted and independent.

RPI – Retail Price Index

A measurement against inflation calculated on the average monthly price of services, consumer goods and house prices.

Reversionary Bonus

This is in reference to a ‘with profit’ fund and is the annual bonus paid on the fund.

Right To Buy Mortgage

A Mortgage specially designed for council tennants who want to buy their property.

Self Certified Mortgage

Also known as a ‘Self Employed Mortgage‘, this is a mortgage where do you not need to prove your income to the mortgage lender.

SIPP – Self Invested Personal Pension

A SIPP is a personal pension plan where you are in control of your investments and can buy and sell whenever you choose. You can also hold commercial property in a SIPP. For further details please see our self invested personal pension guide.

Shared Equity Mortgage

This is where you purchase a percentage of your home and the rest is purchased by a housing authority or landlord. You then pay the landlord or housing authority a subsidised rent.


This is a name for any equities in a company. There are many different types of shares and some have different rights to others.

SSAS – Small Self Administered Scheme

A company pension plan usually run by small businesses and allows you to have more control over your investments.

Split Capital Investment Trust

This is an investment trust where different members own different classes of shares where some have different rights to others.


A spread is the term given for the difference between the buying and selling price of an investment.

Stakeholder Pension Scheme

A basic personal pension plan which must adhere to certain rules issued by the government. These personal pension schemes usually have low fees and minimum investment requirement.

Stamp Duty

A tax on the purchase of land or a property and is a percentage of the purchase price.

SVR – Standard Variable Rate

A mortgage rate issued by the lender and without any deals or discounts applied. Because the rate is variable, the mortgage lender can increase or decrease the rate whenever it wants.

SERPS – State Earnings Related Pension Scheme

This has now been replaced by the S2P State Second Pension below.

S2P – State Second Pension

This is an extra state pension plan you can pay into which will pay you a second state pension income on top of the basic pension. You pay extra into this scheme by contributing extra National Insurance contributions.


An alternative term for shares.


A professional who purchases and sells investments & shares on the stockmarket on behalf of their clients

Stocks and Shares ISA

A tax efficient savings account which holds investments. They are also sometimes know as an equity isa or investment isa. For further details please read our guide to ISAs.

Structured Products

Structured product investments usually offer some capital protection and your money is tied up for an agreed duration.

Surrender Charge

Should you cash in an insurance policy prior to the agreed date then you will be charged what is known as a ‘surrender charge’.

TESSA – Tax Exempt Special Savings Account

TESSAs where tax free savings accounts and have since been replaced by the ISA.

Tax Free Lump Sum

A term used with pensions. When it comes to retiring, you are allowed to withdraw up to 25% of your pension pot as a ‘Tax Free Lump Sum’.

Tenants in Common

A term given when two or more people own a share in a property. Should one of the party die then their share of the property would be passed down through their will.


The duration of an insurance policy, investment or loan.

Term Life Insurance

Quite a common form of life insurance. This is where you insure your life for a set period of time / ‘term’.

Tied Financial Adviser

Also known as a restricted financial adviser, they can only sell products from a single or limited panel of providers.

TER – Total Expense Ratio

When investing in a fund the TER helps illustrate the total costs involved. As well as taking into account the annual management charge, it also adds any costs which the fund manager pays for such as legal fees, auditors, trustee fees etc.

Tracker Mortgage

A mortgage where the variable interest rate is linked to a certain index such as the Bank Of England Base Rate. If the index which it is linked to changes then so does the interest rate of the mortgage.


This is the process where an insurance company will assess a persons circumstances to help decide how much of a risk they pose to the insurance provider and determine the cost of the policy for the client.

Variable Rate

The interest rate you pay on a mortgage or loan where the lender can raise or lower the rate whenever they want.

Voluntary Excess

When making a claim on an insurance policy, this is the amount you choose to pay before the insurance provider has to pay anything.

Waiver of Premium

This is usually an option offered with a life insurance policy where should you be unable to pay your monthly premiums due to an accident or illness then your insurance provider will pay them for you.


A warrant is an agreement that permits you to purchase a set number of shares in a company at an agreed fixed price and future date. When the date arrives you can then choose whether to invest or not. If the share price of the company is trading above the price on the warrant then this would be interpreted as a good investment as you would effectively be buying the shares for less than what they where currently worth.

Whole of Life Insurance

A form of life cover which pays out on the eventually of your death. These policies are usually investment orientated and when you die the policy ‘matures’ and is normally paid out to your nominated beneficiary.


A ‘Last will & testament’ is legal document which sets out exactly who receives your assets when you die.

Winding Up

This usually describes the process of a company which ceases trading and the assets of that business are then divided up between the companies shareholders.

With Profits Fund

These are funds which are mainly run by insurance companies and mutual friendly societies. The funds usually invest in a wide range of assets and every year it pays an annual bonus calculated on how well the fund has performed. Sometimes, some of this bonus is will be held back to help boost any bonuses in later years where the fund has performed poorly. This is known as ‘Smoothing’ and can help reduce volatility.

Sorry but we have no financial terms for the letter ‘x’.


A yield is a percentage return on an investment, income or interest. For example, say an investment costs £500 and pays an interest of £25 per year then the yield is 5% per annum. Should the price of the investment increase to £600 yet still pay £25 then the yield will drop to approx 4.16%


Zeros are a type of share which do not pay the shareholder an income but when the company or investment trust is ‘wound up’, these shares are the first to be paid.