WTH does that mean?

Do you know your AER from your APR? Or the difference between BACS and CHAPS? Maybe you’re OK with a DIP and an EAR. This alphabet soup of acronyms in our personal finances can leave many of us floundering.

TBH, such jargon can be a real barrier to understanding how the world of money works. But knowledge is power. And when you know what all those tricky terms mean, you can feel more confident about managing your cash. So we’ve put together a dozen of the most common financial acronyms, with quick explainers for each one to help you master your Moneyverse. No more IDK or SMH.  

AER stands for Annual Equivalent Rate

What it means: the interest you’ll earn on money squirrelled away in a savings account if you keep it there for a year. Simply use this rate to compare different savings accounts – the higher the number, the more interest. And if the account includes any juicy introductory bonuses, the rate must include this too. 

APR stands for Annual Percentage Rate

What it means: how much you’ll pay in interest and fees for a loan, credit card, arranged overdraft or other credit balances over a year. It’s highlighted everywhere for good reason – the higher the APR, the more you pay to borrow the money. You’ll likely spot ‘Representative APR’ too. This means at least 51% of applicants for a specific card or loan deal will pay the rate on offer – but there’s no guarantee you’ll get it. If you’ve a patchy credit rating, the rate you pay could be a lot higher.

BACS (and CHAPS) stands for Bankers’ Automated Clearing Services (and Clearing House Automated Payment System) 

What they mean: these gloriously catchy acronyms – body parts and old-fashioned fellows, anyone? – describe electronic systems which send payments directly from your bank account to another. Typically, a BACS payment is used where speed is not of the essence – and takes three working days to clear. It is generally used for planned Direct Debits and direct credits such as your monthly salary. Now CHAPS is a whole lot faster. It guarantees same-day payment as long as it’s sent on time (before 5pm online or 3:30pm in-branch) and is often used for large transactions. For example, you might use it to send over your house deposit to a solicitor. 

CCJ stands for County Court Judgment

What it means: a court ruling that you owe a person or business money. Unfortunately, CCJs can creep up on you and you might not even know you’ve got one. They often stem from forgotten parking tickets or old outstanding bills from when you move house. If you discover you’ve got one, sort it swiftly because it could damage your credit rating and make it trickier to get a mortgage or credit card. Reckon you might have missed a fine or bill in the past? You can check the Register of Judgments to be sure, although there’s a fee of £6 to £10 for each search.

DIP stands for Decision in Principle

What it means: an indication of just how much you could borrow from a mortgage provider. If you’re getting ready to buy a house, a DIP is one of the very first things you’ll get – which is pretty exciting. Estate agents may ask to see it before they even show you a property, so you’ll want to get yours ASAP. One sticking point: it’s not binding. So a lender could change how much you can borrow if your financial circumstances change.

EAR stands for Equivalent Annual Rate

What it means: the rate of interest you’d pay if you were overdrawn on your bank account for a year. But it doesn’t include other costs such as account fees, so you’ll probably find APR more useful.

ERC stands for Early Repayment Charge

What it means: a penalty if you’ve got a mortgage and want to switch early to another deal or make large overpayments that breach the rules. It’s usually between 1% and 5% of your outstanding amount. So, if you’ve got a £150,000 mortgage, the ERC could be between £1,500 and £7,500 – a hefty sum. You’ll need to weigh up whether the penalty is worth paying as it’ll depend on your savings made elsewhere.

FCA stands for Financial Conduct Authority

What it means: the UK’s financial services regulator. A key part of its job is to protect you as a customer and help keep you safe from scams. If you come across a financial scheme and want to know whether it’s FCA-authorised (and therefore legit), you can search the Financial Services Register.

IBAN stands for International Bank Account Number

What it means: if you’re sending money to friends or family abroad, this helps overseas banks identify your account. If you need to know yours with Barclays, you can find it here.

ISA stands for Individual Savings Account

What it means: a savings account where there’s no tax to pay on the returns you make. As well as cash, you can open different types including a stocks and shares ISA and Lifetime ISA. The latter could net you an extra £1,000 a year thanks to the Government – yes, really.

LTV stands for Loan-to-Value 

What it means: sounds like yet another new telly streaming channel but it’s actually a ratio – a critical one for buying a home with a mortgage. It shows you, as a percentage, how much you have to borrow in relation to the cost of the home you want to buy. So if you want to buy a £200,000 home with a £20,000 deposit, you’ll need a 90% LTV mortgage. As a rule, the higher your LTV, the higher your mortgage interest rate, so try to save as big a deposit as possible.

SVR stands for Standard Variable Rate

What it means: another mortgage acronym (yes, they’re everywhere in this part of the industry!) it’s the interest rate charged on your home loan after any short-term deal – e.g. a 2-yr fix – ends. It’s usually much higher than your deal rate so plan ahead to switch to another short-term fix.

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