Dictionary of Financial Terms

Accidental death benefit

This is a benefit included on some life insurance policies. A life insurance policy doesn’t come into legal effect until you pay the first premium to your insurance company. Some insurers offer ‘accidental death’ benefit from the date they receive your application form. This means that if you die suddenly before the policy is issued the life company will either pay out the sum assured or a certain percentage of it, up to a specified limit.

Additional voluntary contributions (AVCs)

AVCs are extra contributions you pay in addition to the normal pension contributions you or your employer make (if you are a member of a company pension plan). AVCs help to increase the

value of your pension fund or can be used to contribute to a taxfree lump sum at retirement. If you are earning an income, you can claim tax relief on AVCs up to certain limits.

Annual equivalent rate (AER)

AER shows you what the interest on a savings account wouldbe if the interest was compounded and paid out to you each year (instead of monthly or over any other period). You may earn less than the AER because your money may not be invested for as long as a year. Sometimes firms use Compound Annual Rate (CAR) instead of AER on savings and investment products.

Annual percentage rate (APR)

The APR is the annual rate of interest you will be charged on a loan. It takes account of all the costs involved over the term of the loan, such as any set-up charges and the interest rate. You can use the APR to compare different loans, as long as you compare them over the same term, for example three year loans.

Annual percentage rate of charge (APRC)

The APRC is the annual rate of interest you will be charged on a mortgage. It takes account of all the costs involved over the term of the mortgage, such as any set-up charges and the interest rate. You can use the APRC to compare different mortgages, as long as you compare them over the same term, for example 30- year mortgages.

Annuity

A contract with a life insurance company that will pay you a guaranteed, regular pension income for the rest of your life in return for you paying them a lump sum when you are ready to retire. You can choose a type to suit your needs (for example, one that stops when you die or gives a post-death income to your dependents, etc.). The amount of pension income you get depends on the size of the lump sum, annuity rates at the time, your age, gender and state of health. Charges are lower than with an ARF (see below), but once you take the pension it’s fixed and cannot be changed.

Approved minimum retirement fund (AMRF)

Similar to an ARF but you can only withdraw 4% or your original capital per year in addition to any growth in value the fund may deliver. The remainder of the capital in the fund cannot not be accessed until you reach the age of 75 or you reach a minimum requirement for income.

Approved retirement fund (ARF)

An Approved Retirement Fund (ARF) is a personal retirement fund where you can keep your pension invested as a lump sum after retirement. You can withdraw from it regularly to give yourself an income, on which you pay income tax. While it is designed to grow in value, your original investment is not guaranteed and can run out.

Balloon payment

This is a large final payment due at the end of some hire purchase agreements including car finance deals. It is used to keep monthly repayments lower and must be paid to finish the agreement and allow you to become the owner of the goods. Buy-out bond If you leave or move jobs, you can transfer the value of your employer pension to an individual fund, where your money grows tax free, until you retire. This fund usually invests in a mix of assets including property, stock, cash and bonds. You can also choose to transfer the money to a personal pension plan instead.

Bonds

Some life insurance companies offer guaranteed bonds which provide either a guaranteed return of the investment amount at the end of the term, together with a guaranteed level of the bonus or a guaranteed level of income for the term of the bond, usually five years, together with a guaranteed return of the investment amount at the end of the term.

Capital risk

A risk to the initial sum saved or invested, if you invest in the stock market you have a 100% capital risk as there is a possibility you could lose all of your initial investment. Most savings and deposit accounts have very little or no capital risk.

Chargebacks

A chargeback is a reversal of a disputed sales transaction on a credit or debit card. For example, you can contact your card provider to ask them to refund the cost of a purchase if you paid for goods you did not receive or never ordered, or if a business fails to cancel recurring payments. The card provider will decide if you are entitled to a refund based on the circumstances. Different providers have specific timeframes and conditions attached to their chargeback facility.

Children’s protection benefit

This is a benefit included on some life insurance policies. In this case, when you take out life cover for yourself, your children are also covered up to a smaller specified amount.

Commission

This is a payment that a financial services company gives to a financial intermediary, such as broker or financial advisor for selling their financial product.

Compound annual rate (CAR)

CAR is a measure of the rate of return on a deposit or investment. You can use it to compare different accounts.

Contents insurance

This insurance covers the loss or damage of property within your home. For example, furniture, clothing, personal possessions, etc. Contents cover is a separate type of insurance to buildings insurance, which covers the structure of your property.

Credit history

This tracks your record in repaying loans. Most lenders use the Irish Credit Bureau and Central Credit Register to check your credit history. It keeps files on individual borrowers, and uses the information it gets from lenders to build up each borrower’s credit history.

Credit reference agency

A credit reference agency maintains information about individual borrowers’ credit histories.

Credit scoring

When you apply for a credit card, current account, personal loan, hire purchase agreement or mortgage, the lender will award you points or marks based on your credit history and on your answers to questions on the loan application form. The total score you get helps the lender predict how big a risk they are taking by giving you a loan and what size loan to give you.

Death-in-service benefits

If your employer pension plan has death-in-service benefit, the benefit is the amount paid out to your dependants if you die while you are still employed.

Debt consolidation

This means taking out a single loan to pay off a number of other loans. Also called ‘wrapping up your debt’, sometimes into a mortgage, to pay off individual smaller loans.

Deposit interest retention tax (DIRT)

This is a tax you pay on any interest you earn on money deposited in a financial institution. Most financial institutions automatically take it from the interest it pays to your account and pass it over to the Revenue Commissioners

Digital/crypto-currency

A digital or crypto-currency is a currency that is held and traded online and is not a physical currency. There are no notes or coins. It exist only in electronic form on computers. Bitcoin is one of the most widely-known and used crypto-currencies. Cryptocurrencies are not regulated and don’t have any of the protections that regulated currencies and investments have.

Direct debit

This is a payment taken from your account by a third party to whom you have given written permission to do so. You may, for instance, give the ESB permission to withdraw variable amounts

of money to pay your electricity bill. To stop a direct debit contact the third-party supplier in writing, in this case the ESB, and your bank to let them know you want to cancel the payment.

Disposable income

Amount of money you have left after tax and other expenses.

Driver personal accident cover

This provides limited cover for death or loss of sight or limbs as a result of a car accident.

Dual life policy

This is a life insurance policy that provides cover for two people and continues after the first person dies. It pays out benefit on each death.

Equity release

These are schemes that allow you to release some of the equity, or the value you have built up in your home, without having to move out or sell it. Certain schemes are available to older homeowners in the form of ‘life-time loans’ or ‘home reversions’.

Excess

This is the first part of any insurance claim that you have to pay yourself. It is usually a fixed sum. Remember for home insurance a subsidence excess will be a much higher amount (typically €1,000). For motor insurance you may not have to pay any excess on certain types of claim such as windscreen replacement on a motor policy. Excess is often called standard excess on many insurance policy documents.

Financial advisor

A regulated financial advisor is someone who is authorised by the Central Bank of Ireland to give advice to individual members of the public. Advisors can either be ‘tied’ and only able to advise on products of their employer or they can advise on several products. Some advisors can offer wider services than others so be sure to check. It is important when selecting an advisor that you understand how they are being paid for the advice that is being given to you and what impact any commission being paid will have on your pension or investment.

Guarantor

This is a person who agrees to pay off a loan if the borrower fails to pay. If the person who takes out the loan stops repaying, the guarantor is liable to repay the loan and this may have an effect on the guarantor’s credit rating.

Hire purchase

Hire purchase means that you pay for the hire of goods over a set period of time, with a view to owning them eventually. You pay back a set amount of money at a fixed rate of interest. You pay this by instalments of a set amount each month.

Income protection (or permanent health insurance)

Insurance that pays you a monthly income if you’re unable to work due to illness or injury. It can pay you up until you are able to return to work, or retirement, whichever is sooner.

Indemnity bond

An indemnity bond is a type of insurance policy that can be taken out by a lender when they give you a mortgage. The policy insures the lender against making a loss if they repossess your property and the house is worth less than the outstanding amount of the mortgage. When you take out a mortgage some lenders may charge you for indemnity bond costs.

Inflation risk

The risk that your money will lose value over time. Your buying power goes down as prices increase. You need to earn more than the inflation rate to get a real return on your money. See www.cso.ie for current rates of inflation.

Investor Compensation Scheme

The investor compensation scheme pays compensation, subject to certain limits, to eligible consumers if an authorised investment firm fails. You can get more information about the scheme from the Investor Compensation Company at www.investorcompensation.ie.

ISEQ

An index of the leading shares quoted on the Irish Stock Exchange.

Joint life policy

This is a type of life insurance policy that covers two lives, such as you and your spouse, child or business partner. It pays out the benefit only once, if either you or your partner dies while the policy is in force.

Letter of closure

If you are closing your credit card you should ask your credit card provider to send you a ‘letter of closure’, which confirms that you have paid the stamp duty on the account. Once you receive this letter you should send it to your new bank to avoid getting charged for stamp duty twice. Your letter of closure is an important document so keep it somewhere safe and before you send it to your new bank, make a copy of it.

Loan to value

This is a percentage representing the amount you borrow or owe on a mortgage relative to the market value of the property.

(Loss) adjuster

An adjuster is a person is employed by an Insurance company to decide how much money should be paid to a person making the claim.

(Loss) assessor

An assessor is a person you pay to work on your behalf and to negotiate with your insurance company to settle your claim.

Mortgage repayment protection

Repays your mortgage for a certain time (usually one year) if you’re unable to work due to an accident, sickness, hospitalisation, compulsory redundancy or serious illness covered by the policy.

Negative equity

This term is used to describe a situation where the market value of your house is less than the balance you owe on your mortgage.

Notional Service Purchase (NSP)

If you are a member of the Civil Service or public sector pension schemes and are likely to have less than 40 years service by your minimum retirement age, you can top up your benefits through Notional Service Purchase (NSP). This means buying back missing years of service by lump sum or a regular payment, which could be a percentage of your salary. You should firstly consult your HR department or pension administrator for information, as NSP is arranged between you and your employer.

Open driving

This means that other people driving your car with your permission are covered by your policy (usually only for third party, fire and theft) as long as they hold a valid driving license.

P60

At the end of the year your employer will give you a P60 certificate, which is a statement of your pay and of the tax and PRSI deducted by your employer during the year.

Payment breaks

Some lenders may agree to a payment break or moratorium on your loan repayments when you need extra cash. If you take a payment break, your lender will usually add the total postponed payments onto your mortgage balance. As a result, your repayments will increase afterwards in order to keep the term of your mortgage unchanged.

Pension fund

This is the value of your pension made up of payments into the fund and any growth that it has earned. Any fees and charges you have to pay will reduce the value of your fund.

Personal Contract Plan (PCP)

Similar to hire purchase, a Personal Contract Plan (PCP) is an agreement between you and a finance company/bank that usually lasts between three and five years. You pay a deposit (or use your existing car as a trade-in), make monthly repayments for the agreed period, and then make a final payment at the end of the term called the guaranteed minimum future value (GMFV) or “balloon payment” which must be paid in order for you to own the car. This means that you do not actually own the car during the PCP term, so you cannot sell the car if you run into problems making your repayments. At the end of the agreement you can pay the GMFV and keep the car, hand back the car and make no further payments or trade in the car (the value you get for this trade in is at the discretion of the finance company/bank) and enter into a new PCP agreement.

Pooled investment

A pooled investment (also called a collective investment) is one where many people put in different amounts of money into a fund, which is then invested in one asset or a mix of assets such as shares, property, bonds or cash. A professional fund manager picks the investments and chooses when to buy and sell them. The main benefits of pooled investments are that you can spread your risk, choose from a range of different funds and have lower dealing and administration costs.

Return

The amount of profit (or loss) that you will make from a savings or investment. Not all savings and investments guarantee what return, if any, you will get.

Secured loan

When a loan is secured on an asset, usually your home or car, the lender can repossess this asset and sell it to get their money back if you don’t keep up your repayments.

Stamp duty (cards)

You must pay a yearly stamp duty on ATM, credit and debit cards.

Stamp duty (property)

This is a tax you pay to the Government when you buy a property. A rate applies depending on the size and purchase price of the property and whether you are a first time buyer

Stamp duty (share dealing)

You must pay a once-off tax when you buy shares in Ireland.

Standing order

This is an instruction you give to your bank to make regular payments out of your account to another account. Unlike a direct debit, you instruct your bank directly about how much is to be paid and the amount is fixed and can only be changed by you.

Step back bonus protection

If you have this protection and you claim on your car insurance, you will only lose part of your no-claims discount.

Sum assured

Also known as the policy benefit, this is the amount of money you could receive if you have a successful insurance claim. With a life insurance or serious illness policy, you choose the sum assured.

Surrender value

This is the amount you will get if you cash in or cancel your investment policy early. This value is usually lower than the value of the policy when it matures.

Tax relief

A tax relief reduces the amount of tax that you have to pay.

Term insurance policy

This is an insurance policy that pays out a fixed benefit if you die within a certain number of years (the term of the policy).

Trustee

If you have an occupational pension, in most cases your employer will choose a person or company to act as trustee and manage your pension plan.

Unsecured loan

Unlike a secured loan, the loan is not linked to your home or other assets, but you are still responsible for repaying it.

Voluntary surrender

When you cannot afford your repayments on a hire purchase agreement your only option may be to surrender the car by signing a voluntary surrender form. The finance company will calculate how much you owe, sell the car and you must cover the shortfall.