An example of the potential growth you may expect to receive from an investment. The growth rates used are set by the industry regulator, the Financial Conduct Authority (FCA). It is important to remember that actual returns could be higher or lower than that shown on the illustration.

Enables those with a certain type of pension to draw an income and/or cash lump sums from their pension fund. This is an alternative to buying an annuity and takes income direct from their pension funds.

A specific type of Financial Adviser. IFAs must offer their clients the option to pay for advice by fee, rather than commission. See Financial Adviser, above.

An index is a statistical term that shows rate of change in a single figure. Indices may be applied to anything that changes in value, such as currencies, inflation or equity prices.
In the stock market, an index is a device that measures changes in the prices of a fixed basket of shares. The purpose is to give investors an easy way to see the general direction of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.

A fund that is managed to generate the same returns as a specified Index (also known as “Passive” or “Tracker” funds).

The linking of a payment, such as a pension, to an inflation index – for example the Retail Prices Index (RPI) – with the aim of keeping pace with inflation.

A method of classification developed by FTSE. It’s used to segment markets into economic sectors. The ICB uses a system of 10 industries, partitioned into 19 super-sectors, which are further divided into 41 sectors, which then contain 114 subsectors.

A charge made by an investment provider to cover the cost of setting up an investment. The amount invested is the amount contributed less the initial charge.

A mortgage where you only repay the interest each month. This means you are not reducing the loan itself and must find a way to repay it at the end of the mortgage term. These are common among buy-to-let mortgages, where the investor relies upon rising property values to repay the original loan.

The amount of money a customer can earn on an investment or is charged for borrowing money. It is usually expressed as a percentage of the total amount invested or borrowed.

Intestate or intestacy refers to a person dying without a valid will. Upon death their assets are distributed according to the law, regardless of the person’s intent when they were alive.

A credit rating given to a government or corporate bond that indicates that the agency giving the rating (e.g., Standard & Poor) believes that the issuer has a relatively low risk of default. Bonds with credit ratings of AAA, AA, A or BBB are considered investment grade. Low-rated bonds, with ratings of BB or below, are often called High-Yield or Junk Bonds.

A company that invests in the shares of other companies, or other assets such as property or bonds. When investing in an investment trust, clients own shares in the trust rather than owning the shares it invests in.

When the shares of a company are available to buy on an open market for the first time.

A savings vehicle that allows customers to invest in equities or save cash without having to pay any income or capital gains tax, subject to limits.

Different types of ISA include:

  • Cash ISA – for cash savings. Up to £85,000 is protected by FSCS.
  • Help to Buy ISA (now closed to new applicants).
  • Lifetime ISA – save up to £4,00 p.a. and the Government tops it up by 25%. Accessible only when you buy your first home r reach age 60.
  • Stocks & Shares ISA – hold shares or funds without paying tax on the returns. Usual risks of investing in the stock market.
  • Innovative Finance ISA – allows you tax-free access to Peer-to-Peer (P2P) lending markets. Risky as not protected by FSCS.
  • Junior ISA – anyone can save on behalf of a child, up to £9,000 in 2022/23. Ownership reverts to child at 16, they can withdraw from 18. Good for university fees savings.

Glossary of Personal Financial Terms

AAA Rating

In short, AAA ratings (‘triple-A‘ ratings) are the highest credit rating available for an investment, such as a bond or company.

AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.

Similarly, the AA+ rating is issued by S&P (Standard and Poor) and is similar to the Aa1 rating issued by Moody’s. It comes with very low credit risk and indicates the issuer has a strong capacity to repay.