Some key words and phrases explained.

AER

‘AER’ stands for annual equivalent rate. It lets you compare interest rates across accounts and reflects not just the amount of interest but also how often it is paid.

The higher the AER, the greater the return. For example, two accounts advertise they pay 5% a year, but one credits all the interest at the end of the year and the other pays you 2.5% every six months. If you invest £5,000, by the end of the year the first account has grown to £5,250 and the second to £5,253. The inter-est credited after six months in the first account has itself earned interest during the second six months, increasing the return.

APR

Annual Percentage Rate of charge. This is the overall cost of your borrowing if you owe money on a credit card, loan or overdraft.

Credit check

A search of your borrowing record, also known as your credit history. A bank or our organisation carries out a credit check on you when deciding whether to lend you money.

Creditors

People you owe money to.

Direct Debit

An instruction you give your bank or building society to make regular payments to someone from your account. Unlike a stand-ing order, you can agree that the creditor can vary this amount each month.

 

Fixed rate

An interest rate on your mortgage or savings account that is fixed 9ie it doesn’t move up or down) for a set period of time.

Interest rate

The figure that sets how much interest you pay on a loan, or how much you receive if you put your money into a savings account. The rate is usually linked to the Bank of England rate and can move up or down.

Secured Loan

When a home is secured on your home, it means the lender can repossess/take back your home and sell it to get their money back if you do not keep up the payments.

Standing order

An instruction you give your bank or building society to make regular payments to somebody from your account, for example to pay bills. Unlike a Direct Debit, the creditor cannot vary this amount – only YOU can.

Unsecured loan

The loan is not linked to your home or any of your belongings, but you are still responsible for repaying it.

Variable interest rate

An interest rate on a loan or savings account that can change according to circumstances. Foe example, if the Bank of England bank rate changes, the loan interest with probably change.