UK Finance Glossary

Navigating the world of finance in the UK can feel like learning a new language. This glossary aims to demystify some common financial terms, providing a clearer understanding of key concepts.

Key Terms

• APR (Annual Percentage Rate): The total cost of borrowing money, including interest and fees, expressed as an annual rate. This is crucial for comparing loan offers.
• Base Rate: The interest rate set by the Bank of England, which influences interest rates offered by commercial banks to borrowers and savers. Changes in the base rate impact mortgages, loans, and savings accounts.
• Blue Chip: Refers to large, well-established, and financially sound companies with a history of stable earnings and dividend payments. Investing in blue chip companies is generally considered less risky.
• Bond: A fixed-income instrument representing a loan made by an investor to a borrower (typically a corporation or government). The borrower promises to repay the principal amount at a specified future date, along with periodic interest payments (coupons).
• Capital Gains Tax (CGT): A tax on the profit made when you sell or dispose of an asset that has increased in value. Examples include shares, property, and valuable personal possessions.
• Consumer Price Index (CPI): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services. It’s a key indicator of inflation.
• Diversification: Spreading your investments across different asset classes (e.g., stocks, bonds, property) to reduce risk. This helps to cushion your portfolio against losses in any one particular area.
• Equity: Represents ownership in a company, typically in the form of shares of stock. It also refers to the value of an asset after subtracting any liabilities (e.g., the value of a home minus the outstanding mortgage).
• ISA (Individual Savings Account): A tax-efficient savings account in the UK. There are different types of ISAs, including cash ISAs, stocks and shares ISAs, and lifetime ISAs, each with its own rules and limits.
• LIBOR (London Interbank Offered Rate): A benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans. While being phased out, it is still relevant in some legacy financial products.
• Mortgage: A loan secured against a property, used to finance its purchase. Repayments typically consist of both principal and interest.
• Pension: A retirement savings plan that provides income during retirement. There are different types of pensions, including state pensions, occupational pensions, and personal pensions.
• Quantitative Easing (QE): A monetary policy tool used by central banks to inject liquidity into the economy by purchasing assets, such as government bonds. This aims to lower interest rates and stimulate economic growth.
• Stamp Duty Land Tax (SDLT): A tax paid when purchasing property or land in England and Northern Ireland. The amount of SDLT depends on the purchase price of the property.
• Yield: The income returned on an investment, expressed as a percentage of the price. For bonds, it represents the return an investor receives from the coupon payments. For stocks, it represents the dividend payments as a percentage of the share price.

This glossary provides a starting point for understanding UK finance. It’s always recommended to seek professional financial advice before making any investment decisions.