Your handy savings jargon buster

At Smart Money People we believe that savings should be made as simple as possible. That’s why we collect reviews to pick out the very best provides for you. But some of the jargon that banks and building societies use can be a little confusing. So we’ve put together this guide to explain what some of it means.

Account balance 

This simply means the amount of money you have at any one time in your savings account.

AER 

AER stands for annual equivalent rate and shows what the interest rate on your savings in a particular account would be if it was paid annually. The higher the AER, the more interest you’ll earn.

Annual interest 

The amount of interest you earn from a particular account in a year.

APY

You won’t see this very often on normal savings accounts in the UK. It stands for annual percentage yield, and it’s basically the same as AER.      

BACs

The bankers’ automated clearing system is the electronic way of transferring money from one bank account to another in the UK.

Balance 

The balance is the amount of money you have in any one account at any particular time.

Bank of England Base Rate 

This is a standard borrowing rate laid down by the Bank of England’s Monetary Policy Committee which most financial institutions use as a basis for setting their own saving and borrowing rates.

Beneficiary 

A beneficiary is anyone who can access and use the money in a savings account.

Bonds

A bond is a savings account that will pay a fixed rate of interest over a set period – usually between one and five years. Once money is put into a bond you can’t take it out until the and of the set period.

Building society 

A financial organisation owned by its members which works like a bank in many ways. You’ll be able to open savings accounts, as well as things like current accounts and mortgages.

Business savings accounts 

A savings account specifically for the use of businesses.

Cash ISA 

An ISA is a savings account on which any interest earned is free from tax. A Cash ISA is one that pays a set rate of interest on any money you place in it.

Cash ISA allowance

Everyone over the age of 18  has an annual allowance of £20,000 that they are allowed to save in a mix of ISAs in a financial year. 

Cash ISA transfer

If you withdraw money from an ISA to then add to another ISA you will lose the tax-free protection. Instead, you should fill in an ISA transfer form.  

CHAPS 

This stands for Clearing House Automated Payment System and is an electronic payment system which transfers money between bank accounts on the same day.

Child trust funds 

These are long-term savings accounts for children born between 2002 and 2011. They have been replaced by Junior ISAs.

Compound interest 

Interest earned on top of money already earned. An example would be a savings account in which you earn 5% interest on a £1,000 balance, or £50, in the first year so you would have £1050 at the end of it. In the second year you would earn 5% on the £1050 making £52,50 in interest.

Cooling-off period 

A period of 14 days after opening a savings account in which you have the right to change your mind and close it.

Deposit 

This means any payment into a savings account. It could be by cheque, cash or bank transfer.

Early withdrawal penalty

Some savings accounts will penalise you if you withdraw money before an agreed date by making a charge for the withdrawal. This effectively cuts the interest that you will earn.

Easy access savings accounts 

An easy-access savings account allows you to withdraw money whenever you want without penalty.

Financial Conduct Authority (FCA) 

Along with the Prudential Regulation Authority, the FCA is in charge of overseeing and regulating financial services in the UK.

Financial Services Compensation Scheme (FSCS) 

Under the FSCS up to £85,000 of your money in any account is protected should the account provider be unable to return it to you. Many people choose to spread their money over a number of accounts to stay within this threshold.

Fixed rate savings accounts 

A savings account whose interest rate is fixed at the same level, whatever is happening to interest rates in the wider economy. The same applies to fixed rate bonds and fixed rate cash ISAs. 

Fixed term

The length of time during which money must stay in a bond. 

Gross interest 

The amount of interest earned from a savings account before any payable tax is subtracted from it.

HM Revenue & Customs

The government authority responsible for collecting taxes.

Interest 

The money that you earn from your savings, represented as a percentage of the amount saved.

Interest certificate

A certificate showing the amount of interest earned by an account in a financial year (April 6 to April 5). It’s essential for tax calculation.

Interest rate 

The percentage increase that your savings will attract when saved in a particular account.

Introductory bonus 

Some savings accounts apply a higher interest rate for the first few months of having them. Later on it returns to the standard rate.

Instant access savings accounts 

Savings accounts that allow you to withdraw money straight away. With some other accounts withdrawals are either not allowed or have a notice period before you can make one.

ISA 

An individual savings account is a type of account on which all the interest earned is tax-free.

ISA allowance 

This is the maximum amount you are allowed to save in an ISA each year. Currently this figure is £20,000.

Lifetime ISA

A savings account for first time homebuyers or your retirement where the government gives you a 25% bonus on new money added. You can open one up before the age of 40, and keep paying into it until you reach 50. There’s a maximum annual deposit of £4,000.

Limited access savings accounts 

Any savings account which includes rules about when you are allowed to withdraw money. Generally these offer a higher rate of interest than easy-access accounts.

Limited issue 

Some savings products, especially bonds, are limited issue. This means they can be withdrawn at any time and will no longer be available.

Maturity

The date a fixed rate account ends, often when all the interest is paid as a lump sum. Some accounts can instead pay out monthly or annually, which might be a benefit for tax payments.

Monthly interest

Advertised interest rates on savings account are annual. Monthly interest is this figure broken down into smaller, monthly amounts. 

Notice Savings Accounts

A savings account that has a set notice period if you want to make a cash withdrawal request.

Premium Bonds

Government-issued bonds that pay no interest but include entry into a monthly prize draw with prizes of between £25 and £1 million. Prizes you win are tax-free. You can also cash them in at any time.

Personal Savings Allowance 

An allowance that lets you earn up to £1,000 interest without the need to pay tax on it. Its level depends on your income. 

Provider 

Any financial institution that provides savings products and services.

Regular savings accounts

Savings accounts into which you make regular monthly deposits, usually between £10 and £500. You may have to make a set number of deposits and there may also be a fixed term.

Savings

Money that you are able to put into a savings account or bond rather than having for everyday spending. 

Savings account 

A bank or building society account that pays you interest on the money that you have saved in it.

Starting rate for savings

The amount low earners can increase their tax-free allowance by if extra income is via savings. It gradually decreases from £5,000 for every pound earned over £12,570.

Tax free 

Interest earned that is free from tax. For example, the interest that you earn from an ISA.

Tiered interest rates 

In some savings accounts, the more that you have deposited, the higher the rate of interest that you will earn.

Variable rate 

An interest rate that can go up or down, usually in line with the Bank of England Base Rate. The opposite to a fixed rate.

Withdrawal 

Quite simply, the act of taking money out from a savings account.

There you have it. A guide to the sorts of words and phrases you find being used about savings. But what it won’t tell you is which kind of account might be right for you. 

So we’ve put together an interactive quiz to come up with some suggested options. Why not take a couple of minutes now to sort out a savings strategy?