Glossary of Banking Terms


Annual earnings rate on an investment.


A life insurance product which pays income over the course of a set period. Deferred annuities allow assets to grow before the income is received and immediate annuities (usually taken from a year after purchase) allow payments to start from about a year after purchase.


The annual percentage rate of interest, usually on a loan or mortgage, usually displayed in brackets and representing the true cost of the loan or mortgage as it shows any additional payments beyond the interest rate.

Bank Statements

This is a statement from the bank giving details of transactions in the relevant account. It can be requested at any intervals required, usually monthly.

Bounced Cheque

When the bank has not enough funds in the relevant account or the account holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return the cheque to the account holder. The beneficiary of the cheque will have not been paid. This normally incurs a fee from the bank.


These are securities which pay interest at specified intervals and the principle amount of the loan is paid at maturity.

Cashback Mortgages

This is when the mortgage provider lends the money for the mortgage and, in addition, a lump sum to pay for, for example, building work to be carried out.

Central Clearing Time

This is the time that it takes for the monies from a cheque to be taken out of the payee’s account and put into the payer’s account.

Certified Documents

These are photocopies of original documents that have been signed by a professional i.e. a solicitor, accountant, teacher, doctor or bank official. The professional also states, on the document, “original seen” since they must be able to verify that these are genuine copies and therefore have to have seen the original, they also date the document and put their full name, profession and their address.


This is the money paid to the bank for services rendered. Charges include overdraft fees, charges for bouncing cheques, interest on overdraft and any charges that a business account might normally incur.
Charge Cards – Cards which can be used like a credit card but the charge has to be paid off on the due date. They usually have a high limit or no limit.

Cheque Book

A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank with your account number, sort-code and cheque number printed on it. The account number distinguishes your account from anyone else’s, the sort-code is your bank’s special code which distinguishes it from any other bank. In times gone by, anything with the correct details and a verifiable signature could act as a cheque. Even an elephant was once used!

Cheque Clearing

This is the process of getting the money from the cheque-writer’s account into the cheque receiver’s account.


A Chip is a small electronic insert placed into a cheque or credit card. The PIN is a four digit personal identification number which is used with the card by the card-holder.

Clearing Bank

This is a bank that can clear funds between banks. For general purposes, this is any institution which we know of as a bank or as a provider of banking services.

Credit Rating

This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual’s credit history, the details of which are available from specialist organisations.

Credit Scoring

This is the process of assessing an individual’s credit-worthiness. The process involves taking information from an individual on an application form (for example when applying for a store card) and weighting the answers given. Certain responses will attract higher scores than others and the total score will determine whether or nor the organization wants to do business with the individual, or if they represent too high a credit risk.

Credit-Worthiness/Debt Service Ratio

This is the judgement of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organisation but not by another. Much depends on whether an organization is involved with high risk customers or not.

Direct Debit

An amount of money taken from a bank account, set up by the recipient and can vary in amount and exact time that it is taken from an account. Mortgages are usually direct debits.

Endowment Mortgage

Interest only is paid over the term of this sort of mortgage and the capital is repaid at the end of the term by using the monies from an endowment policy.

Identity Theft

This is when criminals use an innocent person’s details to open or use an account to carry out financial transactions. It is very easy to do with an individual’s personal details, which is why shredding confidential information is so important.

Identity Verification

This is often used by financial institutions to verify the customer and usually takes the form of a pass-word and the answer to an obscure personal question such as the customers’ mothers’ maiden-name.


The amount paid or charged on money over time. If you borrow money interest will be charged on the loan. It you invest money, interest will be paid (where appropriate to the investment). Interest rates usually bear a close relationship to the Bank of England’s base rate. It is expressed in percent.

Lease Purchase

This is an agreement made on an item of high capital outlay (for example, a car) where the ownership is transferred to the person who is leasing the item at the end of the contract, providing all the terms and conditions of the purchase have been fulfilled.

Money Laundering

This is when money gained from crime is put into a bank so that it can be accessed safely by the criminals and terrorists. It makes the proceeds of illegal activities easier to get to.

Money Transfer

This is the movement of money from one account to another.

Money Transfer Abroad

This is the movement of money from one account to another, the second being in a different country from the first.


This is when the credit balances in a current and savings account are netted off against the account holders’ borrowings (typically a mortgage) so that the rate paid on the borrowing is reduced as a result of the credit held in other accounts, which reduces the amount that is being borrowed.


This is when a person has a minus figure in their account. It can be authorized (agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the account holder represents too great a risk to lend to in this way or because the account holder has not asked for an overdraft facility).


The person who receives a payment. This often applies to cheques. If you receive a cheque you are the payee and the person or company who wrote the cheque is the payer.


The person who makes a payment. This often applies to cheques. If you write a cheque you are the payer and the recipient of the cheque is the payee.


This is when a criminal uses the internet to try to fraudulently obtain details of people’s accounts so that they can use these accounts themselves, usually to take money out of.

Repayment Mortgage

This is a mortgage where the sum borrowed is paid off by the end of the mortgage term. It involves monthly repayments which consist of the interest on the loan plus some of the capital borrowed.

Security for Loans

Where large loans are required the lending institution often needs to have a guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.

Standing Order

A regular payment made out of a current account which is of a set amount and is originated by the account holder.