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Interest rate that London banks charge when lending money to one another over a short period of time, often overnight. LIBOR is often used as a benchmark when setting other short term interest rates.

Other than qualified solicitors, these are the only people allowed to do conveyancing and charge a fee for it.

An assurance policy that pays out a lump sum or instalments on the death of the life assured.

There is no limit on how big your pension fund can grow to. However, you’ll have an allowance of the maximum amount of tax-relief benefits you can build up over your lifetime. If you think you are affected by this limit, visit the HMRC website or get professional advice.

A loan secured against the value of your property that can be converted into a cash lump sum or income, without the need to move. You can also do this using a home reversion scheme. These types of plans are sometimes referred to as equity release.

This is how quickly an asset, such as property, shares or bonds, can be sold and turned into cash. Liquid assets are easier to convert to cash than illiquid ones.

The ratio between the value of an asset (such as property) to the value of the loan that will finance the purchase of that asset. LTV tells the lender if potential losses due to non-payment may be recouped by selling the asset.

An investment vehicle designed to cover the costs of care in old age. May be used to cover residential home costs as well as expenses incurred when care takes place at home.

If you earn less than this, you pay no National Insurance contributions.

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Generally, a fund choice within a unit-linked policy. Managed funds are often made up of units from a wide spread of other specialist funds or investments. This has the effect of spreading the risk of volatility. See also Tracker Funds.

A bank’s customer writes instructions on a mandate for the bank to follow when operating the customer’s account.

This is the amount of tax paid on each additional pound of income.

Multiply the number of ordinary shares a company has issued by their market price, you get the market capitalisation or value of the company. The definition should also include any bonds issued by the company, but is generally related to share issues only.

If you take money out of a with-profits fund, an adjustment may be made to the value of the withdrawal if the value of the underlying assets is less than the value of your plan including bonuses. This adjustment is known as a market value reduction.

Someone who has been admitted to a pension scheme. Also, the shareholders of a company are referred to as its members.

This is a specialist bank which deals in foreign exchange and advises large companies on mergers, takeovers, raising capital, etc.

Contributions payable to an appropriate personal or stakeholder pension by HMRC in respect of a member who has contracted out of SERPS or the State Second Pension. This may also refer to minimum contribution levels that can be paid into a financial product.

The smallest amount an employer is allowed to pay into a contracted-out money purchase pension plan. This amount will give the employee protected rights.

If a bank, company or salesperson misrepresents what a product or service offers, or misleads you about what it can do, they are mis-selling it. Contact the FSA if you think you were mis-sold a financial product or service.

A way of influencing the economy by controlling the availability and cost of money. This is mainly via changing interest rates and Government bond issues.

A committee of the Bank of England that determines interest rate changes. They are a body of external experts that meet monthly.

These include bank deposits, certificates of deposit or fixed interest securities. The return achieved from money market instruments is a combination of interest and any changes in the value of the instruments. Often regarded as relatively low risk, although their value may fall as well as rise.

A type of pension where your money is invested in, for example, the stock market. The size of your retirement fund depends on how much you pay in and how well your investments do. Upon retirement, funds are used to purchase an annuity. Also known as Defined Contribution Schemes.

A loan to buy a house or flat, secured against the value of that property.

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The National Association of Securities Dealers Automated Quotation. A US-based stock exchange, originally only for smaller or new companies, often high¬-tech, but now includes big companies, including Microsoft.

A UK tax paid by most employers and employees. For the employed it is deducted from income by the employer on a scale related to income levels. The self-employed pay contributions based on profit and like the unemployed may pay a flat-rate voluntary contribution to keep their benefit entitlements up to date. Originally set up to fund the NHS and social security benefits, the funds are not ring-fenced. It’s a general tax.

When the current value of your home is less than the amount you owe the mortgage lender.

The sum remaining, when all appropriate deductions have been made.

The value of the underlying assets in an investment trust.

This is what an asset cost, as recorded in the accounts, less any depreciation for age and wear.

Interest received on a savings account after income tax and charges have been deducted.

Pension contributions taken from bank accounts or after-tax salary. Tax relief is claimed back from HMRC by the pension provider.

The face value of something, for example a share issue. In economics, the term nominal refers to money.

A company pension where the employee does not make any type of direct contribution. It is entirely funded by the employer.

Refers to the date at which a member of a pension scheme normally becomes entitled to receive his/her retirement benefits. This does not have to be the same as the State Pension Age

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This is a pension plan organised by an employer to provide pension benefits for its employees. May be defined benefit (final salary) or defined contribution (money purchase) pension schemes.

The price you buy shares or units for in a unit trust. The price you get when you sell shares or units in a unit trust is known as the Bid (Selling) Price. The difference between the two is often referred to as a Bid Offer Spread.

The concept of ‘offshore’ has no strict legal definition. In financial services terms, it refers to jurisdictions that offer concessionary tax regimes compared to major ‘onshore’ centres, such as the UK or US. Additional offshore characteristics may include banking confidentiality and less strict company formation rules.

Under this sort of contract, paying an amount of money gives a right to buy or sell goods at a fixed price by a particular future date. Note they are not an obligation to buy/sell.

Also known as equity shares, these are the most common form of share in the UK. They give the owner a right to share in the profits of a company (dividends) and to vote at general meetings of the company.

Where a defined benefit/final salary pension scheme has assets that exceed those required to meet its liabilities (the benefits allowed).

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.