AER

This stands for Annual Equivalent Rate. This rate is generally quoted on interest paid on savings and investments. Interest paid monthly, quarterly or half-yearly represents a higher true rate than the same stated interest rate paid annually. Thus, the AER allows you to compare interest rates across accounts and reflects not just the amount of interest but also how often it is paid. It shows what your interest return would be if the interest was compounded and paid annually instead of monthly (or any other period).

Allocation Rate

This is the percentage of a payment that is invested once charges have been deducted.

Annual Management Charge

This charge is deducted from an investment each year and is usually worked as a percentage of your investment.

Annuity

An annuity provides a guaranteed income for life in return for a lump sum invested. There are two types of annuities; Compulsory purchase and Purchased life. Compulsory purchase annuities are bought with a payment from an employer's pension scheme or personal pension fund. Part of the fund may be paid out as tax-free cash, the remainder must be used to buy an annuity.

AVC

This stands for Additional Voluntary Contributions. As a member of an Occupational Pensions Scheme these are payments made above the normal level of contribution to gain additional pension benefits.

Capital

If this refers to borrowing this is the amount owing not taking interest into account. When investing, this is the original investment amount.

Company Pensions

A pension scheme set up by an employer to provide retirement benefits to employees.

Compulsory Purchase Annuity

Compulsory purchase annuities are bought with a payment from an employer's pension scheme or personal pension fund. Part of the fund may be paid out as tax-free cash, the remainder must be used to buy an annuity. The income payments (usually monthly) from this type of annuity are taxed as earned income and are usually paid to the recipient net of basic rate tax. Higher rate taxpayers may be liable for additional tax which at present has to be collected separately.

Equities

Company stocks and shares.

FTSE 100

Shares are traded on the London Stock Exchange in the UK. The 100 companies that have the largest value on the stock market are included in the FTSE 100.

Gilts

Gilts (also known as Government Stocks) are loans made to the Government in order to fund its spending. They pay interest over a set term.

Income Tax

Income tax is payable on any income, whether it comes from working or an investment.

Inflation

Inflation is a general rise in prices across the economy.

Investment Club

Investment Clubs allow people to pool together and invest in the stock market

Investment Trust

An investment trust is a company in which shares can be bought, and which must be quoted on a Stock Exchange, usually the London. It is a 'pooled' investment, with many investors owning shares in the same trust. The investment trust makes its profits by investing in the shares of other companies rather than by manufacturing a product that it then sells.

ISA

This stands for Individual Savings Account. The Individual Savings Account was introduced on 6th April 1999. Individuals who are both resident and ordinarily resident in the UK for tax purposes and are aged 18 and over (16 for mini cash ISAs) are eligible to subscribe to an account. The scheme will run initially for ten years but will be reviewed after seven years to decide on any changes which may be required at the end of the scheme. Returns from ISA savings are free of income tax and capital gains tax.

Maxi ISA

This is a tax-free savings vehicle in which you can invest up to £7,000 each year. You can invest either the full amount in stocks and shares or up to £3,000 in cash savings and up to £1,000 in life insurance investments.

Mini Cash ISA

The Individual Savings Account (ISA) was introduced on 6th April 1999. Individuals who are both resident and ordinarily resident in the UK for tax purposes and aged 16 and over are eligible to open an account. Returns from an ISA are free of income tax and capital gains tax. The maximum investment permitted per tax year is £3,000. ISAs can be instant access accounts (those which do not require any notice to be given to withdraw funds) or notice accounts (those where notice must be given to withdraw funds without penalty).

Mutual

A mutual organisation is owned by its members and not by shareholders.

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OEIC

This stands for Open Ended Investment Company. These are a type of unit trust that have converted into a company.

Pension

Money you get at retirement either from a personal plan or the government.

PEP

This stands for Personal Equity Plan. These are a tax efficient savings plans that invest in unit trusts or investment trusts. ISAs replaced PEPs on 6th April 1999 and new PEPs ceased on that date

Personal Pension

A personal pension is a tax-efficient savings plan that enables you to save for retirement. The contributions attract tax relief and they can be made in various ways, either regularly, by lump sum or by a combination of both. On retirement, up to 25% of the fund value can be taken as a tax-free cash lump sum. The remainder of the fund must be used to buy an annuity. (

Purchased Life Annuity

Purchased life annuities are purchased by private investors and payments comprise part taxed interest and part untaxed return of capital.

Share

This is a legal document that states the holder is part owner of the company in which the share is held.

SIPP

This stands for Self Invested Personal Pension. These are personal pensions plans in which the person whose plan it is makes their own investment decisions

Stakeholder Pension

These are low cost pensions that have to adhere to government rules on charges, access and terms.

Tessa Only ISAs

Tax-Exempt Special Savings Accounts, or TESSAs, were five-year savings accounts which enabled you to receive interest gross - without the deduction of any tax. The TESSA was replaced by the ISA on 6 April 1999. However TESSAs in existence at that date were allowed to continue to run to maturity under normal TESSA rules. The last TESSAs, therefore, matured on 5 April 2004. Maturing TESSA (Tax Exempt Special Savings Account) capital could be deposited into a TESSA Only ISA until 5 October 2004 without affecting the amount that can be invested into the cash component of an ISA. The only opening of these now is by transferring between TESSA only ISAs.

Unit Linked Pension

Such pension contributions are used to buy units in a pooled fund or funds. Unit-linked pensions are invested in a variety of funds. The funds are grouped together in sectors, representing the style, area and risk level in which the relevant pension fund has chosen to invest. As the value of the units may fall and rise during the period of investment, care is taken to 'spread' the investment in a variety of ways to obtain the best return commensurate with prudent investing.

Unit Trusts

A unit trust is a portfolio of investments that spread market risks. It allows an investor to reduce their risk exposure by pooling their investment. When investing in a unit trust, cash buys units. Each unit trust has thousands of people holding units in the fund. A unit trust is an open-ended investment, as the number of units in each trust will vary depending on supply. As more investors join, more units are created. Unit trusts cover a variety of funds.

Unitised with profits pension

With these pension schemes payments are used to buy units in an insurance company's with profits fund. The value of these increases annually depending on the investment performance and profits of the insurance company.

With profits bond

With Profits Bonds are single premium Whole of Life policies offered by many insurance companies and usually require lump sum investments. The amount of life cover is normally only minimal, and most With Profits Bonds are taken for investment growth and not life cover alone. The investment buys units in the insurer's With Profits fund. This fund invests in a wide range of underlying assets such as shares, fixed interest securities and property. Each year bonuses are added to the sum assured either by an increase in the price of units or by allocation of extra units

Yield

This is the annual return you get from holding a stock, share or unit trust. It is expressed as a percentage of its price.

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