Annual Equivalent Rate (AER)
All accounts are required to show an AER. This is a way of expressing the accounts interest rate over a one year period and includes the impact of any compound interest and bonus that may be received. The AER is a useful way of comparing the interest rate of two different savings accounts.
Bonds
The word bond is often used to refer to either corporate bonds or government bonds. Both are a type of investment that involves lending money to either a large company or government for a defined period of time at a fixed interest rate. Returns are normally expected to exceed the interest from a savings accounts but this is not guaranteed. There is always the risk of default i.e. companies may not be able to meet their debt obligations.
Bonus account
A type of savings account that offers a bonus payment after a certain period of time. This is often in addition to an interest rate that may be paid. You will normally miss out on the bonus if you withdraw your savings before the end of the specified savings period.
Easy access account
A type of savings account that provides immediate access to your savings without any penalty or loss of interest.
Fixed rate account
A type of savings account that provides a guaranteed rate of interest for a specified term. Penalties often apply for withdrawing funds before the end of the agreed term.
FSCS
Stands for Financial Services Compensation Scheme. This is the scheme that protects your savings up to certain limits, in the event that your bank or building society fails.
Gross interest
The interest that is received on a savings account before deducting any tax that may be due.
Interest rate
The return that will be paid on savings you hold in a bank or building society. Interest rates are always shown as a percentage.
Investment risk
Sometimes referred to as market volatility, this is a term used to describe how much an investment is likely to rise and fall in value. High risk investments are expected to make large rises and falls in value over a short space of time. They represent the greatest potential returns but also the greatest risk of loss.
ISA
ISA stands for Individual Savings Account. This is a type of account that shelters your savings from any tax that may ordinarily be due on your returns. There are a number of different types of ISAs with each having a limit on the amount that can be paid in each tax year.
Lifetime ISA
A specific type of Individual Savings Account (ISA) that benefits from a 25% bonus from the government. This type of ISA is intended for people who wish to save towards their first home or retirement, with penalties applying to those who use the savings for any other purpose. There are strict rules relating to the maximum age to qualify for this account and the amount that can be contributed each tax year.
Personal Savings Allowance
This is a tax-free allowance that can be used against any interest you receive from savings. This means that up to £1,000 of interest from savings will be tax free for basic rate tax payers.
Shares
Also referred to as equities, this is a way of investing into a company by becoming a shareholder (buying a share of the company). The returns are then linked to the future profitability of the company. There is the risk that you could receive back less than you paid in.
Sharebuy
A way of buying M&S shares from gross salary (before tax). As a member of this scheme you can receive the shares you purchase tax-free, provided they have been held in the scheme for at least 5 years. Sharebuy is only available to M&S employees.
Sharesave
A way of buying M&S shares at a discounted price. This scheme is only available to M&S employees with contributions into the scheme taken directly from your regular salary.
Variable rate account
A type of savings account that offers an interest rate that could increase or decrease in the future. These types of accounts do not normally apply penalties for early access to your savings, however you should always check the terms before opening an account (eg 90 day accounts)
