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Banking Jargon - What does it all mean?

Some of the words used in these pages may not be that familiar to you if you’ve never banked before. So here is a rundown of some of the words you may not have heard before:

Debt – a debt is the money you owe 

Debtor – if you owe money, you’re a debtor

Creditor – the people or businesses you owe money to are your creditors

Arrears – if you owe money, you’re in arrears

Overdraft – if you spend more money from your bank account than was in it you have an overdraft. Sometimes you can arrange with your bank to have a temporary overdraft 

Loan – if someone – either your bank or a private lender – lends you money it’s a loan

Interest – this is the money that is added to your loan that you’ll have to pay off on top of the money you borrowed  

Bank charges – this is money your bank will charge you if you go overdrawn without your bank’s authorisation

Court costs – if you are taken to court for non-payment of debts you might have to pay court costs which will be added to your debt

Bailiff – if someone you owe money to takes you to court, the court might order someone to come to your house and take away possessions which match the value of your debt. That person is a bailiff. Remember, the items they take away won’t be sold for the price you bought them for…it will be much less.

Income tax – when you earn money you pay tax on itYour employer will normally pay the tax and take it out of your wages, but if you’re self-employed you’ll have to sort out paying it yourself.

Debit cardMost current accounts come with a debit card. This is a plastic card which you can use in shops or online to pay for things. It will take the money straight out of your bank account, so if there’s no money there the card won't work!

You will be sent a Personal Identification Number (PIN) which you'll need if you use the card in a shop or at a cash machine. If you are using the card to pay for things online or over the phone, they will want the long number on the front of your card. Never give out the PIN. 

Credit cardThis is a plastic card that your bank might offer you. It gives you money on credit to spend in shops and online. There will be a limit on how much you can spend. You will be given a 
Personal Identification Number (PIN) which you will need if you use the card in a shop. If you are using the card to pay for things online or over the phone, they will want the long number on the front of your card. Never give out your PIN.

At the end of the month you will get a bill, showing how much you have spent, and you can pay it all off or just make a minimum payment. But watch out – if you don’t pay off the full amount each month you will be charged interest, which means you end up owing more.

Different credit cards have different interest rates, so if you do feel you need one make sure you shop around to find the lowest interest rate, or an ‘interest free’ period, which is a period of time they offer you in which no interest will be added to your bill, so you have longer to repay without paying interest. You don’t have to get your own bank’s credit card. 

PIN This is your Personal Identification Number to use with your credit and debit cards, and you must keep it secret. 

It is a four-digit number that you need to remember in order to take money out of a cash machine or pay for things in shops. Every card you have will have a different PIN. If you tell anyone your PIN and they get hold of your card, they could steal your money. Never give your PIN out, even to someone you trust.  

Contactless – This is a way for paying for things without using your PIN.

You can pay for things in most shops up to the cost of £30 without entering your PIN. You just hold your card on the machine and it takes the money. Be extra careful with your contactless card though because sometimes it can be too easy to lose track of how much money you’ve spent.

Standing orders and direct debits – These are arrangements you can make with your bank to pay regular bills directly out of your account.

Standing orders are set up by the account holder to pay a set amount to another account on a regular basis.

Direct debits can be set up for bills that go out every month. The amount can vary if the bill varies, like a mobile phone bill for example, and the payment is set up by the person or company receiving the money with your permission. 

Interest – Interest is a rate which is paid or charged for the use of money. If you borrow money – from the bank or through a credit card or other loan – you will pay interest on that money. The interest rate is the amount you will be charged for borrowing the money and it will vary depending on how and who you are borrowing the money from. So if the interest rate on a credit card is 22%, and you borrow £100 on it for a year, you will pay back an extra £22.

On the other hand, if you save money the bank will pay interest to you. The amount depends on the type of account you have and how much money you have in it and for how long. 

Account number – Every bank account has a unique number to identify it. It will be printed on the front of your debit card and on your cheques, and you may be asked it if you are dealing with your bank on the phone or online, or using your card to pay someone.

Sort code – This is the unique code of the branch of the bank where you opened your account. 

It is a six-digit number separated with hyphens into three pairs, for example 10-01-01. It will be printed on the front of your debit card and on your cheques, and you may be asked it if you are dealing with your bank on the phone or online, or using your card to pay someone.