Savings terms explained

A

Access Account – An account that lets you take as much out of your savings account as you want, as often as you want. Accounts with "limited access" have restrictions on how often you can withdraw money. Bear in mind that some accounts have a minimum balance. If you withdraw too much money, and your balance goes below the minimum, you'll usually be penalised with a lower interest rate. Check the terms and conditions of the account to see if there's a minimum balance.

Account Balance – The amount of money in a bank account.

AER (Annual Equivalent Rate) – The AER on a savings account tells you what the interest rate would be if interest was paid each year. Unlike the standard interest rate on your account, the AER takes into account things like compound interest.

Annual Interest – Interest paid on a yearly basis.

Back to the top

B

BACS – Stands for Banker's Automated Clearing Services. BACS is a method of processing financial transactions electronically.

Bank of England Base Rate (BBR) – The interest rate set by the Bank of England.

Bond – A type of savings account that tends to come with a higher fixed rate of interest than an access account. To open a bond, you usually have to deposit a sum, and you normally won't have unrestricted access to your money.

Bonus Rate – Special interest rates offered by banks and building societies. Sometimes bonus rates are promotional, to encourage people to open an account. Sometimes they're conditional, which means you get a bonus interest rate if you meet certain conditions, such as saving a certain amount of money every month for a year.

Back to the top

C

Capital Gains Tax – This is paid on money you earn when you transfer assets, such as property, shares, or business assets. When you pay Capital Gains Tax, you're taxed on the profit you've made, not the total amount of money you receive.

Cash ISA – A type of tax-free savings account where you don't pay income tax on the interest you earn.

CHAPS – Stands for Clearing House Automated Payment System. CHAPS is an electronic payment system for making same-day transfers of money from one account to another.

Compound Interest – Interest credited on interest already earned. The first time interest is calculated on your savings, it's only earned on your original savings. But if you leave that interest in the account, the second time interest is calculated, it's earned on your original savings and the first lot of interest. The longer you leave your interest in the savings account, the greater the effect becomes.

Not all accounts allow interest to be credited to the account, so compound interest won't apply.

Cooling-Off Period – When you open a savings account, you may have a certain amount of time to change your mind. This time is called the cooling-off period.

Customer Identification – Proof of identity documents required when you open a savings account.

Back to the top

D

Deflation – When the general level of prices in the economy goes down. It's the opposite of inflation.

Deposit – When you pay a sum of money into your account.

Direct Debit – An arrangement with your bank that lets a third party take money out of your account on an agreed date.

Dormant Accounts – An account that has been left untouched for a long time, with no withdrawals or deposits. If you think you have a dormant account with Leeds Building Society, we can help you trace it.

Back to the top

E

Endowment – A savings product that you buy from a life insurance company. You pay into the endowment policy every month, and then you get a lump sum at the end of the endowment policy. The length of the policy can vary, but it's usually at least 10 years.

Back to the top

F

Financial Conduct Authority (FCA) – A regulator for the UK financial services industry. Another regulator is the Prudential Regulation Authority (PRA).

Financial Services Compensation Scheme (FSCS) – The UK's statutory compensation scheme for customers of authorised financial services firms. This means that FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it. The current compensation limit is £85,000.*

Fixed Rate Account – If an account has a "fixed rate period", it means your bank or building society can't change the interest rate for that amount of time. The length of the fixed rate period varies between accounts; 2 years and 5 years are the most common.

Back to the top

G

Gross Rate – The rate of interest before income tax is deducted.

Back to the top

H

Help to Buy ISA – A savings account designed to help first time buyers save a deposit to help them get on the property ladder.

Back to the top

I

Individual Savings Account (ISA) – A tax-free savings account. That means you're not charged income tax on the interest your savings earn. There are different kinds of ISA, including Cash ISAs, Innovative Finance ISAs and Stocks and Shares ISAs.

Inheritance Tax – If the value of your estate is over a certain threshold, it is taxed when the estate is passed on through inheritance.

Inflation – A general increase in prices and a general fall in the value of currency. Inflation is the opposite of deflation.

Interest Rate – The amount of interest that your provider will add to your savings. Interest rates are measured as percentages. Interest can be calculated daily, monthly or annually.

ISA Allowance – The amount of money you can put in an ISA in a single tax year. For the 2017/18 tax year, the ISA allowance is £20,000.

ISA Transfer – The process of moving an ISA from one bank or building society to another.

Back to the top

J

Joint Account – A bank account shared by multiple people. Usually, all members of a joint account can make withdrawals and deposits.

Back to the top

L

Limited Access – An account which gives you limited access to your savings and/or limits the number of withdrawals you can make in a year.

Limited Issue – A savings account that's only available for a short period of time.

Back to the top

M

Maturity – A savings account "matures" when it reaches the end of its benefit period. Your bank or building society will usually contact you when your account is about to mature. When your account matures, you can move your savings to a different account. If you don't move your savings, your bank or building society will usually put it in a standard variable account.

Minimum Balance – Some accounts have a minimum amount of money you need to keep in them. If you go below it, the interest rate on the account will usually be reduced, and you may not benefit from any bonus applicable to the account.

Monthly Interest – Interest paid on a monthly basis.

Back to the top

N

Notice Period – With some savings accounts, you need to let your bank or building society know in advance that you want to make a withdrawal over a certain amount. This is called the notice period. Common notice periods are 60, 90, 120, or 180 days.

Back to the top

O

Offset Savings – If you have an offset mortgage, you can use your savings to reduce the amount of interest you pay on your mortgage.

Online Account – An account that can be opened and managed online. Some online accounts can only be opened and managed online.

Operating Balance – The amount of money in your account.

Overdraft – If you withdraw more than you have in your account, the extra money you take out after your bank balance reaches zero is called an overdraft. If you go into your overdraft, you'll usually have to pay interest and other fees.

Back to the top

P

P60 – An annual summary of your tax. You get your P60 from your employer at the end of the tax year, if applicable.

Penalty-Free Access – When you can make withdrawals from your savings account without incurring a fee and/or receiving a reduced interest rate.

Per Annum (p.a.) – Per annum (usually written as "p.a.") means "each year".

Personal Savings Allowance (PSA) – Lets you earn a certain amount of tax-free interest on your savings, with any savings account. How much depends on your tax rate.

Power of Attorney – The legal authority to make decisions on behalf of another person.

Provider – The bank or building society with which you have your savings account.

Prudential Regulation Authority (PRA) – A regulator for the UK financial services industry. Another regulator is the Financial Conduct Authority (FCA).

Back to the top

R

Rate – Short for Interest Rate.

Regular Savings Account – These accounts require you to save a certain amount of money each month. They tend to have higher interest rates, but are often limited in the number of withdrawals you can make in a year.

Retail Price Index (RPI) – A measure of inflation published every month by the Office for National Statistics.

Back to the top

S

Sole Account – A savings account owned by just one person. As opposed to a joint account.

Standing Order – A regular fixed payment from your bank account. A standing order can be for any amount of money. When you set up a standing order, the payment will automatically leave your bank account.

Stocks and Shares ISA – Like other ISAs, a Stocks and Shares ISA lets you earn tax-free interest on your savings. The difference is that you don't just save your money, you invest it. This means that, unlike other ISA types, the value of your Stocks and Shares ISA can go down as well as up.

Summary Box – A table containing important information about a savings account.

Back to the top

T

Tax-Free – If your savings are tax-free, it means you don't pay any income tax on the interest you earn.

Tax Year – The tax year starts on April 6th, and ends on April 5th the following year.

Tracker Bond – A tracker savings account has a rate of interest that "tracks" another interest rate - usually the Bank of England Base Rate. This doesn't necessarily mean it's exactly the same rate, just that it moves up and down by the same percentage as the rate it tracks.

Back to the top

V

Variable Rate – The opposite of fixed rate. A variable interest rate can be changed by your bank or building society. Or, if the account tracks another interest rate, for example the Bank of England Base Rate, then the interest rate will change by the same percentage as the tracked interest rate.

Back to the top

W

Withdrawal – To take money out of your savings account.

 

This guide is intended as a summary only and does not constitute financial or legal advice given by Leeds Building Society. No reliance should be placed on this guide and you must make your own decisions. We recommend that you seek legal and/or financial advice if you have any questions or queries.

*This limit applies to the total of all deposits held in a Leeds Building Society account in either the UK, Gibraltar and/or Ireland. Any deposits you hold above the limit are unlikely to be covered. Please contact the Society for further information or visit www.fscs.org.uk.

Last updated: 6th April 2017.