Glossary

Plain words for money jargon

Every term you might meet on this site or in a bank's small print. Anywhere a term appears in our pages, the small "?" next to it opens the same explanation in place.

Basis points: Hundredths of a percent, used for small costs and rates. 15 basis points is 0.15 percent, so a 15 basis point cost on 1,000 is 1.50.
Benchmark: The comparison line that tells you whether a result is any good. On this platform every simulation is measured against what a savings account, inflation and a plain index fund would have done.
Bond: A loan you make to a government or company, which pays you interest and returns the money on a set date. Confusingly, UK banks also call fixed-term savings accounts "bonds"; those are deposits, not loans you can trade.
Broker: The firm that holds your account and executes your buying and selling on an exchange. You need one to own shares, funds or bonds; banks are the equivalent for savings products.
Capital gains: The profit from selling something for more than you paid. Many countries tax it, often at a different rate from income, and often only above a yearly allowance.
Compounding: Earning returns on your earlier returns. Interest paid this year sits in the account and earns interest itself next year, so growth speeds up the longer money is left alone.
Currency risk: The chance that an exchange rate moves against you. A 10 percent return abroad becomes a loss if that country's currency falls 15 percent against yours; foreign returns only mean something once converted back into the money you spend.
Deposit guarantee: A government-backed promise to repay your bank deposits, up to a limit, if the bank fails. Every country sets its own limit and rules; the limit applies per person and per banking group, not per account.
Diversification: Spreading money across different things so that no single failure sinks you. Owning many companies, countries and asset types reduces risk without reducing expected return; it is the closest investing gets to a free lunch.
Dividend: A share of profits a company pays out to its owners, usually a few times a year. Not every company pays one, and payments can be cut.
Drawdown: The fall from a high point to the following low point, as a percentage. A 30 percent drawdown means that at the worst moment your money was worth 30 percent less than at its previous peak.
ETF: Exchange traded fund: a fund you buy and sell on a stock exchange like a share. Most ETFs copy an index cheaply, which is why they are the usual tool for owning a whole market at once.
Financing cost: The daily interest a broker charges for the borrowed part of a leveraged position, also called swap or overnight funding. It runs every day you hold, which is what makes long leveraged holds so expensive.
Index: A list of investments tracked together as one number, such as the 500 biggest US companies or the whole world stock market. An index is a measuring stick; you invest in it through a fund that copies it.
Inflation: Prices rising over time, so the same money buys less. If prices rise 3 percent a year, 100 today buys what about 97 bought a year ago; a return below inflation means you are quietly getting poorer.
Interest rate: What a bank pays you per year for keeping money with it, or charges you for borrowing, as a percentage. A 4 percent rate on 1,000 pays 40 a year before tax.
Leverage: Trading with borrowed exposure, so a small deposit controls a much larger position. Gains multiply, but so do losses: with 20 to 1 leverage a 5 percent move against you wipes out the whole deposit.
Liquidity: How quickly and cheaply you can turn something back into cash. A savings account is fully liquid; a five-year deposit or a house is not.
Maturity: The date a fixed-term product ends and pays your money back, whether a savings bond or a government bond.
Ongoing charge: The yearly fee a fund takes out of your money, as a percentage, also called the expense ratio or OCF. 0.2 percent a year is cheap; 1.5 percent quietly removes a large share of a lifetime's returns.
Regular investing (DCA): Putting in the same amount every month regardless of price, sometimes called dollar or pound cost averaging. You buy more units when prices are low and fewer when high, and you never have to guess the right moment.
Spread: The gap between the price you can buy at and the price you can sell at the same instant. It is a cost you pay every time you trade, even when no commission is charged.
Tax wrapper: An account type with special tax rules that shelter what is inside it, such as an ISA in the UK or an IRA in the US. The wrapper is not an investment itself; it is the box you keep investments in.
Volatility: How much and how fast a price swings around. High volatility means big moves in both directions; it is the price you pay for higher expected returns and the reason you need a long horizon.
Withholding tax: Tax taken off dividends or interest at source by the country where the investment lives, before the money reaches you. Cross-border investors often pay it on top of, or instead of, tax at home.
Yield: The income an investment pays per year as a percentage of its price. A bond costing 100 that pays 4 a year yields 4 percent.