Financial Terms Explained (Glossary)

 

A

Administration order

This refers to a legal procedure which is designed to rescue insolvent companies, allowing them to continue running their business while being operated by an administrator.

Annuity

This is a fixed amount of money paid to an individual each year. An example of this would be a contract sold by an insurance company, which provided payments to the holder at specified intervals, usually as a way of ensuring a steady cash flow during retirement.

AER

This stands for 'Annual Equivalent Rate', and refers to the official interest rate for savings accounts, and allows you to compare products easily. It shows what you would get over a year if you put money into your account and left it there. The 'gross rate' is the interest actually paid.

AIR

This stands for 'Authorised Insurance Representative' and means an individual authorised in accordance with the Insurance Managers and Insurance Intermediaries (Bailiwick of Guernsey) Law, 2002.

AML/CFT

Anti-Money Laundering and Countering the Financing of Terrorism.

APR

This stands for 'Annual Percentage Rate' and refers to the overall cost of a debt, i.e. the cost of the borrowing together with any associated fees, such as an arrangement fee. This varies between lenders.

Arrears

This is when money is not paid by its due date, and is therefore owed.

ATM

This stands for 'Automated Teller Machine', and is another name for a cash machine.


B

BACS

(Formerly Bankers' Automated Clearing Services) This is the system allowing you to pay your bills and transfer money electronically, for example, direct debits.

Balance

This is the amount of money you have in your bank account at a given time, or alternatively, the amount you owe on your credit card. The bank or card provider will send you statements at regular intervals showing your current balance, or you can access this information if you have an online banking facility.

Bank

A financial establishment that provides a range of services and where you can, for example, deposit money and withdraw it when required, obtain loans and exchange currency.

In the UK, this is a way of dealing with debts that you cannot pay. While declared bankrupt any assets that you have may be used to pay off your debts. After a period of time most of your outstanding debts are written off, although there are long-term effects of bankruptcy such as certain employment restrictions.

Bankruptcy is often applied for by the borrower themselves (voluntary), or a creditor can apply to make you bankrupt (involuntary). In the UK when a company or organisation cannot repay its debts, it can either enter into administration, which works like a rescue function allowing the firm to carry on running their business, or liquidation, where a company is brought to an end.

This does not apply in the Bailiwick. For information relating to the Bailiwick personal insolvency regime, please refer to Renunciation, Saisie and Désastre.

Basic bank account

These are straightforward bank accounts, which are designed for people who may have difficulty opening other types of bank accounts. More information can be found here.

Beneficiary

A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, or other contract.

Binary Options

These are a form of betting where stakes are placed on an event either happening or not. They are banned in the UK so any offer involving them should be addressed cautiously.

Boiler room fraud

This is the illegal practice of cold calling individuals and attempting to pressure them into buying the shares in companies that either do not exist or are virtually worthless.

Bounced cheque

This happens when someone writes a cheque but does not have enough money in their account to pay it. The bank will not cash the cheque and will return it to the person it was made out to. The bank may then charge a fee.

Building Society

A financial institution owned entirely by its members as a mutual organisation, that provides banking and other financial services to its members.


C

Customer Due Diligence (CDD)

This refers to the steps a financial services business is required to carry out, in order to identify and verify the identity of the parties to a relationship, and to obtain information on the purpose and intended nature of each business relationship.

Certified documents

These are photocopies of original documents that have been signed by a professional, for example, an advocate, accountant, teacher or doctor, and which banks request in order to verify your identity. The certifier must state on the document that they have seen the original document, then as well as signing and dating it, they will need to give their full name, profession and address.

CHAPS

This stands for Clearing House Automated Payment System, and is the automated system which you can use to make a same-day payment within the UK. There is normally a charge for using this service, so it is primarily used for high value payments.

Cheque

This is a written order instructing the bank to pay out money from your account.

Clearing

This is the time it takes for your bank to credit money into your account.

Collective investment scheme

This is a fund which allows a number of investors to 'pool' their assets and have these managed professionally.

Commission

This can refer to a fee paid to a broker or agent for negotiating a sale, with the fee usually calculated as a percentage of the policy premium. Alternatively, it can mean that the amount earned by an employee is calculated as a percentage of any sales made.

Compound interest

This is when you earn additional interest on interest. I referring to savings, this means that any interest you earn is added to your original deposit, and then this larger amount continues to earn you even more interest. If referring to a loan, it means you will be charged interest, not only on the amount borrowed, but also on any interest outstanding at that point in time.

Cooling off period

This refers to the period of time after a contract has been signed, that you have to change your mind and cancel that contract, without loss or penalty. This is not always offered when purchasing financial products, and how long a cooling off period lasts depend on how and what you have bought. This should always be made clear to you at the time of purchase.

Credit

This term can be used in different ways. It can refer to money being paid into your account, or if your account is 'in credit', that the balance in your account is positive rather than negative. It can also refer to a contractual agreement in which you as the borrower receive money to pay for goods or a service now and agree to repay the lender at a later date.

Credit card

This is a plastic card issued by a financial company, which allows you to purchase goods or services on credit. The credit card issuer then sends a monthly bill to the holder of the credit card showing the minimum amount that needs to be paid back, and charges interest for the amount of time that the money remains outstanding. You have to be 18 years old or over to apply for a credit card.

Credit limit

This is the maximum amount of credit you have available, for example, on your credit card.

CRM

Client Relationship Manager.


D

Day Trading

Day traders rapidly buy, sell and short-sell stocks throughout the day in the hope that the stocks continue climbing or falling in value for the seconds or minutes they hold the shares, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time.

Debit

This refers to money being paid out of your account.

Debit card

This is a plastic card that can be used instead of cash, and can be used to withdraw money from a cash point. When you use your debit card the amount is taken automatically from your account.

Deposit Compensation Scheme (DCS)

Or giving it its full title; 'the Guernsey Banking Deposit Compensation Scheme', which came into effect on 26 November 2008. It is a scheme designed to compensate depositors if a bank fails, subject to certain limits. More information can be found here.

Désastre

This is a Guernsey and Alderney court process for enforcing judgements of the Royal Court against property other than real estate of a person or arresting the such property prior to obtaining a monetary judgement. Please note that this process can be undertaken in relation to either an individual or non-individual debtor. Désastre does not extinguish creditors claims against the debtor to the extent that those claims remain unpaid.

Direct debit

This is when you give permission for money to be debited (taken out of) from your account automatically, for example, to pay your mortgage, household bills or a monthly gym membership. A direct debit can only be set up by the organisation to which you are paying.


E

Endowment policy

This is a life insurance product, designed to pay out a lump sum on its maturity date, or on death.

Exit penalty

This is a fee or charge you may be required to pay if you withdraw your money early from a fixed term financial product, or even for the early repayment of a loan.


F

FCA

Financial Conduct Authority (formerly FSA - Financial Services Authority).

Fixed rate

This is where the interest rate and payment remain the same for the length of time you have a financial product, for example, a mortgage or loan. This will be agreed prior to signing up to the product.

Fixed term account

This is a deposit which is held at a financial institution for an agreed fixed term, ranging anywhere from say a month to several years. By virtue of its term being fixed, you will only be able to withdraw your money after the term has ended, or by giving an agreed period of notice. Your bank may allow you to withdraw your money early, but each bank's requirements will be different in this regard, and you are likely to incur a fee or penalty for doing so.

Forex / FX

Foreign Exchange.

Financial Services Compensation Scheme (FSCS)

This is UK's deposit compensation scheme, which can pay compensation to consumers if a financial services firm is unable, or is likely to be unable, to pay claims against it. This scheme does not cover deposits held with banks licensed in Guernsey. More information about the FSCS can be found here. If you would like more information about Guernsey's own deposit compensation scheme, please visit the scheme's website, a link to which is here.


G

GFSC

Guernsey Financial Services Commission.

Guarantor

This is a person who guarantees to pay off another individual's debt, should the borrower find that they cannot pay it.


H

HMRC

HM Revenue and Customs – the UK's tax authority.


I

IBAN

International Bank Account Number.

IFA

This stands for 'Independent Financial Adviser'.

Initial Coin Offering (ICO)

The term ICO refers to a digital way of raising funds from the public using a virtual currency, also known as cryptocurrency. An ICO can also be known as ‘token sale’ or ‘coin sale’. ICOs are very high-risk speculative investments. Please refer to the FAQ - Should I invest in an Initial Coin Offering (ICO)? 

Insurance excess

This is the level of contribution you are required to pay if you make a claim on your insurance policy. This information should be made clear to you when taking out your policy, and the excess amount should be stated clearly in your policy documents.

Interest

If you are saving money, this refers to the amount earned from the bank on your deposit. If you are borrowing money, this refers to the fee charged by the lender for the use of the money.

Interest only mortgage

This is a mortgage where you only pay the interest on the sum borrowed, and the size of the loan remains the same.

Interest rate

This is the percentage that is paid to you by the bank in interest on savings, or the percentage you pay if you have taken out a loan.

International Money Order (IMO)

This is a written order for the payment of a sum of money to a named individual, which is usually issued and payable at a bank or post office.

Interest Rate Hedging Product (IRHP)

These are financial products which are designed to enable customers to manage fluctuations in interest rates, for example, swaps, caps, collars and structured collars. More information on this subject can be found here.

ISA

This stands for 'Individual Savings Account'. These are available to UK residents only, and are a form of tax-free savings account.


J

Joint account

This is an account which you can open in the name of more than person; usually a close relative or business partner. You will be asked to agree when opening the account whether each person is to be able to withdraw funds independently, or if they will require the consent of the other before doing so.


K

Know your customer (KYC)

This is the process by which a financial services business will verify the identity of its clients.


L

Licensed banks

This refers to all the banks licensed by the Commission to take deposits, a list of which can be found here.

Liquidation

This is when a company is brought to an end, either on a compulsory or voluntary basis.

Loan

A sum of money which is borrowed for a set period of time, and which is paid back to the lender, together with an agreed amount of interest.

Loan to value (LTV)

This refers to the size of your mortgage in relation to how much your property is worth, and is reflected as a percentage. For example, if you have a mortgage of £200,000 on a house that is worth £400,000, you have an LTV of 50%.


M

Mortgage

This is a loan from the bank to finance the purchase of property.


N

Negative equity

This is when you owe more on your mortgage than your house is worth.


O

Offsetting

This is when you use the balance in your current and/or savings accounts against your mortgage balance, and pay interest on the difference only. Although it is possible to reduce the total amount of interest you will pay on your mortgage, you will not earn interest on your credit balance.

Overdraft

This facility is often offered with bank accounts, allowing you to take out more money than is in your account, up to an agreed limit. Some banks will charge you a fee if you go over your overdraft limit.


P

Payee

This refers to the person receiving a payment, for example, a cheque.

Payer

This refers to the person making a payment, for example, if you write a cheque.

Phishing

This is when scammers fraudulently obtain and use your personal or financial information, such as usernames, passwords and credit card details, by pretending to be someone trustworthy, such as your bank or the police. More information can be found here.

PIN

This stands for 'Personal Identification Number', and refers to the number you are asked to type in when using your debit or credit card, when making a payment or withdrawing cash.

Payment Protection Insurance (PPI)

This is an insurance policy designed to protect you on loan or debt repayments, in the event that you are unable to meet the regular repayments due to illness, accident or unemployment. If you require any more information, please refer to our page on PPI, a link to which can be found here.


Q

QROPS

This stands for 'Qualifying Recognised Overseas Pension Scheme'.


R

RATS

This stands for 'Retirement Annuity Trust Schemes'. More information about RATS can be found here.

Regulated business

These are firms licensed by the Commission to carry out regulated activity. More information can be found here.

Re-mortgage

This is often confused with 'second mortgage'. However, re-mortgaging is when you change your mortgage to another deal, usually when you have reached the end of a fixed term contract, or when a discounted rate is due to come to an end.

Renunciation

This is a process under which an application maybe made to the Royal Court for a declaration of insolvency. The process has the potential for the debtor eventually to be discharged from his liabilities after the realisation and distribution of his assets. This process is the closest equivalent in Guernsey to the English concept of bankruptcy.

Repayment mortgage

This is a mortgage where you repay the sum borrowed from the bank by the end of the mortgage term. Each of your mortgage payments will therefore consist of not only the interest on the loan, but also some of the money borrowed.


S

Saisie

This is a Guernsey court process for realising and distributing a debtor's real estate. Please note that this process can be undertaken in relation to either an individual or a non-individual debtor.

Savings account

These accounts allow you to put money aside, whilst earning a higher level of interest than a current account can offer. However, compared to current accounts, they often do not allow you such easy access to your money. More information can be found here.

Second mortgage

This is when you take out a loan secured on your home, when your original mortgage is still in effect.

Secured loan

If you have taken out a secured loan it means you have promised to forfeit something specific to the lender if you find yourself unable to pay back what you borrowed. Mortgages and car loans are examples of secured loans.

Simple interest

In contrast to compound interest, simple interest is interest is paid on the original deposit only.

Standing order

This is when you instruct your bank to pay a set amount of money from your account at regular intervals. The payments could be to another person, a company, or to another one of your bank accounts, and can be amended as and when you want.

Statement

This is a printed summary of all the financial transactions that have occurred over your bank account during a given period. Statements can be received on a monthly, quarterly or annual basis.

SWIFT

This is a network that allows financial institutions worldwide to send and receive payment orders securely.


T


U

Unsecured loan

If you have an unsecured loan, it means that there is nothing the lender can directly repossess if you find yourself unable to repay what you borrowed. Credit card debt, student loans and utility bills are common examples.

Utility bill

These are the bills you receive for the use of utility services, such as water, gas, electricity and telephone. Banks frequently request to see recent utility bills to verify your address.


V

Variable rate

This is where the interest rates and therefore payments on deposits or loans, such as mortgages, change as a result of external factors, for example, a change in the base rate set by the Bank of England.