Have you ever found yourself wishing that school had taught you a little more about real life stuff? Sure, lessons covered maths and English, and taught you how to communicate with people in the real world, but there are some areas that are seriously under explored – yes, we’re talking about banking.
Because the fact is, once you head off to university and start looking for jobs, you suddenly find yourself in this very harsh reality where money talk and banking is central to everyday life – and yet so many of the words and phrases out there mean nothing to you.
This blog post is designed to provide you with a go-to dictionary for all of the most important student banking terms you need to know, saving you from asking awkward questions or sitting there with a confused look on your face for hours on end.
What is a current account?
A current account is basically your daily bank account, where income is paid into and where your bills and other expenses come out of. There are different current accounts available to you at different stages of your life – for example, as a student you will likely be best off with a student account.
What is interest?
When you borrow money, you pay it back with interest – that is, a percentage of the total sum that must be paid back over time. This is, in essence, a way of thanking the lender for giving you the money and letting you pay it back over a period of time, with each repayment sum adding a little extra on top in interest.
Whenever you save money in a savings account, this also accrues interest which boosts your savings.
What is an overdraft?
An overdraft is a little extra that sits on top of your bank account and acts as a buffer, should your expenses outweigh what you have available to spend on the odd occasion. While many accounts will allow you a planned overdraft which has been agreed by the bank and must be repaid when you can, it is important not to enter an unplanned overdraft too frequently – and when you do to pay it back as soon as you can, as it will likely again be subject to additional interest.
What is credit?
There are two ways of using the term ‘credit’.
The first is in relation to a credit card, which means you have borrowed from a lender.
The second is when you have more than £0 on an account with a provider or in the bank, which means you have paid more than you owe and are as such “in credit”.
What is debit?
Being “in debit” is like saying “in debt” and means that you owe money. When you buy something, the bill will say your card has been debited – that it, it has repaid what you owe.
Difference between credit and debit cards
Credit cards hold stored money that has been lent to you and must be agreed by a lender. Whatever you spend must be paid back. Debit cards are where all your money is stored in your current account, giving you access to money you actually have.
What is a standing order?
A standing order is controlled by you and allows you to control how much and how often money is paid to another person or another account. For example, you might pay rent by standing order, or transfer money to a savings account with a standing order.
A standing order will always transfer the same amount of money with each payment.
What is a credit score?
Your credit score is what will allow you to get loans and mortgages in the future – looking at how trustworthy you are as a borrower.
What is an ISA?
An ISA is an Individual Savings Account which allows you to hold money in an account without paying tax on any interest gained. There are different ISAs out there with different benefits, such as the Lifetime ISA which adds a government top up to any savings made.
Fixed and variable interest rates
Fixed: The interest rate will not change for the duration of the agreement.
Variable: The interest rate can and will change over time according to inflation.
Retail Price Index: this term explores the changes to common expenses that occur due to inflation.
Annual Equivalent Rate: a way of comparing interest across different savings accounts, by representing how much interest would be paid by each over the course of a year.
Annual Percentage Rate: the rate at which you have borrowed money, allowing you to understand how much the debt will cost to repay with interest added. This allows you to compare the price of different lenders.
Effective Annual Rate: the rate of interest that can be earned or paid over the course of a year.