Financial terms explained
The following are common financial terms that you may find in banking documents, loans and cardholder agreements.Annual Percentage Rate (APR) - The real annual cost of a loan, such as a credit card bill, which includes fees, charges and interest. This can be higher than the interest-only rate.
ATM - Automated Teller Machine, commonly referred to as a ‘cash machine’.
Authenticate - To confirm security data, such as a password, Personal Identification Number (PIN) or signature. This verifies identity and allows a transaction to take place or give access to an account.
Authorise - To confirm an action, usually a payment from or to an account.
Balance - Two definitions:
- The amount of money in an account after all debits and credits have been deducted or added
- The remaining debt on a loan
Balance transfer fee - A charge for moving a balance or loan to another provider.
Billing statement - A statement showing debits and credits to an account over a fixed period, usually a month.
Cardholder agreement - Terms and conditions agreed between cardholder and card issuer.
Cash advance fee - A charge for withdrawing cash when using a credit card.
Charge card - A payment card where the balance must be paid off at the end of an agreed period, usually one month.
Cheque - A written order directing money to be paid from an account.
Clearing - Two definitions:
- A calculation of who owes what to whom, generally between financial institutions
- Payment of the amount stated on a cheque
Compound interest - Interest earned on interest. For example, if you invest €100 which earns ten percent compound interest each year, you earn ten percent in year one. This gives you a total of €110. In year two, you earn ten percent on €110, which equals €11 giving you a total of €121.
Similarly, compound interest is the interest that is regularly added to a loan. If you borrow €100 at a compound interest of ten percent each year, you will owe an extra €10 in year one. This takes your debt up to €110. In year two, you will own ten percent of €110, which equals €11 – taking your loan total to €121.
Credit bureau - An organisation that holds credit histories and calculates credit scores or ratings on individual consumers and organisations
Credit card - A card account that allows you to borrow money up to a specified limit. The amount loaned is not linked to any specific purchase or purchases.
Credit history - A statement of a person or company’s financial history, including income, outstanding debts or financial commitments and any court debt judgments. See Managing credit for more information.
Credit insurance - Insurance that pays any outstanding credit balance in the event of difficulty such as the loss of a job, illness, disability or death. The amount paid is usually either the minimum repayment plus interest each month or the full amount outstanding.
Credit limit - The total amount a customer can spend on a credit card at any one time.
Credit rating/ credit score - A rating applied to an individual or company, showing how much of a lending risk he, she or it represents.
Currency - The name given to units of monetary value. Most of continental Europe’s currency is the euro.
Current account - The most basic type of bank account. Deposits usually earn no or minimal interest. Funds can be withdrawn by a cheque, debit card or electronic transfer.
Debit - A deduction of money from a sum held in a bank or card account.
Debit card - A card used to withdraw funds directly from a current account, either at retailers and other outlets or from a cash machine.
Default - Purposely miss one or more loan repayments.
Dynamic currency exchange - Real time currency exchange, as rates change throughout the day.
Foreign currency surcharge - A fee charged when buying foreign currency or changing one currency for another.
Grace period - The length of time before any payment of interest or principal on an outstanding loan becomes due.
Interest - A charge for a loan, usually a percentage of the total amount. The rate of interest is the charge made for a stated period. For example, an annual rate of interest of 15 per cent means that for every €100 borrowed for one year, the charge is €15 (excluding any fees). See also Annual Percentage Rate.
Introductory rate - A special rate of interest charged for a specified period at the opening of a savings or loan account. This can be a higher rate to boost a savings account or a lower rate on a loan.
Late payment fee - A charge made for late repayment of any form of loan.
Minimum payment - The smallest proportion of a credit card loan that can be paid in one instalment. Usually expressed as the higher of a fixed amount or a percentage of the outstanding debt.
Overdraft - A facility that can be made available to current account holders that enables them to spend up to a specified amount above their account balance. Interest may be charged if this loan facility is used.
Payee - A recipient of funds.
Payer - A giver or sender of funds.
Personal Identification Number (PIN) - A number used to authenticate a cardholder that helps to prevent card fraud. A PIN is used every time a cardholder withdraws cash from an ATM. PINs are increasingly used to authenticate cardholders buying goods and services.
Point-of-sale (POS) - A place at which a payment card is used to buy goods or services. Can include shops, web sites, mail order and telephone order outlets.
Prepaid card - A card that is loaded in advance with a set amount of currency, which can be used as a gift or travel card.
Previous balance - The balance of your account before your last transaction.
Principal - the original amount of a loan, excluding any interest payable. The amount of principal can be reduced by repaying more than any interest due in any specified period.
Revolving credit - A loan where varying amounts can be repaid and then borrowed again. The maximum amount that can be borrowed is called the credit limit. The loan is usually not linked to any specific purchase. Credit cards give access to revolving credit.
Savings account - An account that earns interest on money deposited in it.
Service charge - A fee for administrative services carried out by an institution such as a bank or credit card issuer.
Settlement - Two definitions:
- Paying the balance of what is owed between financial institutions after clearing;
- Paying the total amount owed, e.g. when a cheque has been cleared.
Transaction date - The date a transaction, such as a credit to or debit from an account, occurs.
Variable rate - A rate of interest that rises or falls in line with the base rate of interest set by a national or central bank.
Wire transfer - Three definitions:
- Transfer of money initiated through electronic terminal, cash dispenser, computer, telephone or the Internet;
- Transfer of money by credit card or automated bill payment;
- Term for sending money abroad.
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