A Guide To Finance Terms

Investing shouldn’t be bamboozling

We believe that our clients should be empowered with the knowledge to ask questions, get inquisitive and feel in the know. And yet, our industry has made a habit of coming up with terms, acronyms and phrases to confuse rather than clarify.

So, we thought we’d create this helpful glossary of terms to give you the chance to get in the know so that the next time you’re in front of your IFA, you’ve got the knowledge you need. 

The terms:


If you hear your IFA talk about the incredible algorithms they use to invest your money, our advice is to walk out of the room. They shouldn’t be hiding behind tech to give you clear advice.


That thing you see on credit-card adverts. It stands for ‘annual percentage rate’ and is the cost of borrowing the money and is expressed as a percentage of the amount you’re borrowing. Fun (but not really) fact: did you know that credit card providers only actually have to give their advertised APR to 51% of customers that apply?

Accrual rate

If you have a final salary pension, this refers to the rate at which pension benefits build up in it each year. It’s usually expressed as (unhelpful) fractions of your salary, but as a guide, you’re looking for a bigger fraction – 1/65th is better than 1/80th

Age allowance

Good news for those over 65, you get an additional allowance to your personal tax allowance. Over 75? You get a bit more.


An annuity is an insurance product that allows you to swap your pension savings for a guaranteed regular income that will last for the rest of your life. There is a whole sub glossary of terms you need to know in order to navigate the world of annuities. Give us a buzz and totally free of charge we will walk you through them.


The AER (Annual Equivalent Rate) shows the rate of interest earned in a year on savings or investments. The higher the AER, the better the return. All adverts for interest-bearing savings accounts quote the AER, so you can compare returns.


An AVC (Additional Voluntary Contribution) is an extra contribution you can pay into an occupational pension. You decide what that is.

Capital Gains Tax

We love to see our clients’ investments earn money, but, you need to know that if you earn a profit on an asset, you may have to pay Capital Gains Tax. Check with your IFA as to how much you’ll need to pay.

Compound Interest

Compound interest is when you earn interest on both the money you’ve saved and the interest you earn. Simple.


The opposite to inflation, deflation is a decrease in the price of goods and services, and the value of wages. It usually happens during a recession.


Don’t put all your eggs in one basket! Diversifying your portfolio is finance speak for investing in different areas to reduce your risk.


These will be payments made periodically (but more often than not, yearly) to a company’s shareholders.

Final salary scheme

A type of occupational pension scheme. The amount of pension you get is worked out on your salary at retirement or when you left the job, and how long you were a member of the scheme.


The FCA (Financial Conduct Authority) is the financial services regulator in the UK and by which an IFA is regulated.

Fund manager

These people run the show on an investment scheme such as a trust or pension. They are the ones who implement the investment strategy, do the research and make investment decisions.

Income drawdown

A type of pension where you withdraw money directly from the fund while the pension fund remains invested. Also known as income withdrawal.


That’s us. Good IFAs should be spending time to get to know you as a person as much as your financial position. They should be researching the market, giving you options and being clear about how much commission they’ll earn from your business. In all honesty, proper IFAs should be in contact with you regularly.

Impact Investment

What we do. An impact investment fund is one that specifically seeks to support beneficial social or environmental outcomes as well as generate a return.


An investment can be linked to an inflation index (CPI – Consumer Price Index, or RPI – Retail Price Index). If it is, it ensures that your return will stay in line with increases and decreases in that index.


An Individual Savings Account. They are tax-free savings (so you won’t be paying capital gains tax on what they earn, but there is a limit to how much you can invest each year.

Initial charge

These should be transparent and a good IFA will let you know about them right from the start. They are a charge made on an investment or insurance product.


Something that happens all too often. If someone has missold you a product you need to contact the Financial Ombudsman Service

Net asset value

The value of the underlying assets in an investment trust.

Personal pension

Something we’ll see more, a personal pension is one you take out yourself and invest in personally.

Premium bonds

A lottery bond issued by the Government’s National Savings and Investments Scheme. There is a monthly draw with prizes ranging from £25 to £1,000,000. You don’t risk the money you put in as you can sell them back to the Government at any time, but they can have low rates of interest.


As investments grow or shrink in a portfolio, the allocations change. At the end of a good year in stocks, for example, you may have more stocks and fewer bonds than your asset allocation plan intends. Rebalancing brings things back in line with your overarching plan.

Transfer value

The figure you get if you transfer your pension from one company scheme to another, or to a personal pension. By law, this must be fair to you.


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