Quick glossary to banking

Even your day to day banking may involve some unfamiliar words and phrases. Here's a quick guide to some of the most common ones.

AER

Stands for annual equivalent rate. This is the rate that is generally quoted as interest paid on savings and investments so that you can compare accounts. It is used to demonstrate what your interest return would be if the interest was compounded  (adding interest on to the balance then paying interest on the new higher balance) and paid annually instead of monthly (or any other period).

ATM

This is an 'Automated Teller Machine' often referred to as a cash machine or 'hole in the wall'. You can access your money from an ATM at any time of the day. They also provide you with other basic services, such as balance enquiries.

Balance

This relates to the amount of money in your bank account.

Cheque

A cheque instructs your bank to pay a specific amount of money from your account to another person or organisation. You can also deposit cheques from other people into your account.

Credit

A payment into your account.

Debit

A payment taken from your account.

Debt

A specific amount of money that you owe to a person or company.

Deposit

Money you put into your account.

Direct debit

An instruction from you to your bank or building society allowing someone or an organisation to take money from your account. The amount of money taken can fluctuate, but you must be told the amounts and dates beforehand. You can use direct debits to pay bills automatically from your account on a regular basis.

Gross

The way interest is paid before any deductions e.g. tax / fees.

Interest rate

The percentage rate that is paid on every £1 saved or borrowed with the bank.

Net

The amount of interest paid after deduction of income tax (or other fees).

Overdraft

An overdraft occurs when withdrawals from your current account exceed the available balance within that specific account. This leads to the account going into a negative balance. This is when you are said to be "overdrawn".

You can usually arrange a formal overdraft before you go overdrawn, this will mean that interest is normally charged at an agreed rate. If the balance exceeds the agreed terms, then fees may be charged and higher interest rate might apply.

Payee

When a cheque is made out, the person or organisation that it is made out to is the payee.

PIN

PIN stands for Personal Identification Number and it is the four digit security number you will use when you are taking out money at an ATM or making transactions using your debit card.

Sort code

This is a six-digit number that forms part of your account details and identifies a specific branch of the bank.

Standing Order

A standing order can be set up if you want to transfer a specific sum on a regular basis to another account. This can be used to make regular savings from a current account to a savings account.