How can I understand banking jargon?

APR (Annual Percentage Rate) – APR represents the total cost of borrowing over a year, including interest and fees, expressed as a percentage.

APY (Annual Percentage Yield) – APY represents the effective annual rate of return on an investment, taking into account compound interest, and reflects the actual earnings on savings or investments over a year.

BACS (Bankers’ Automated Clearing Services) – BACS is a system used for electronic funds transfers between bank accounts in the UK. A BACS payment may either be a direct debit or a direct credit (see below for definitions).

Direct credit– More commonly called a “bank transfer”, this allows a third party to place money into your account, such as for salary payments or refunds.

Standing order – A standing order is an instruction given by an account holder to their bank to make regular payments of a fixed amount to a specified recipient. If you support a charity regularly, you might set up a standing order.

Direct debit – an instruction to the bank allowing a third party to collect payments directly from your bank account whenever a payment is due. This is similar to a standing order, except a standing order will be the same amount each payment and is set up by you. While a direct debit can vary each payment and is set up by the company you’re paying. Utility bills are commonly paid through direct debit.

CPA (Continuous Payment Authority) – A CPA lets a company take a series of payments from your debit or credit card without seeking separate permission for each one. Unlike direct debits or standing orders, which are set up through your bank, CPAs are agreements made directly with the company. This payment method is commonly used for gym memberships or subscription services.

Debit card – A debit card is a payment card issued by a bank that allows the cardholder to make purchases or withdraw cash directly from their bank account, with the transaction amount deducted immediately from the available balance.

Credit card – A credit card is a payment card issued by a bank or financial institution that allows the cardholder to borrow funds up to a certain limit to make purchases, with the option to repay the borrowed amount over time, often with interest.

Credit score – A credit score is a numerical representation of an individual’s creditworthiness, based on their credit history and financial behaviour, used by lenders to assess the risk of lending to them.

Overdraft – An overdraft occurs when a bank account balance goes below zero, allowing the account holder to continue making transactions, up to a predetermined limit, usually with associated fees or interest.

Overdraft protection – Overdraft protection is a service offered by banks to cover transactions that exceed the available balance in a checking account, usually by transferring funds from a linked savings account or line of credit, potentially avoiding overdraft fees.

Sort code – A sort code is a six-digit number used to identify the specific bank and branch associated with a particular account in the UK.

SWIFT code – A SWIFT code, also known as a Bank Identifier Code (BIC), is a unique identification code used to facilitate international money transfers between banks, ensuring the funds are routed to the correct recipient’s account.

IBAN (International Bank Account Number) – IBAN is an internationally recognized system used to identify bank accounts for international transactions, ensuring accuracy and facilitating the smooth transfer of funds between countries.

FSCS (Financial Services Compensation Scheme) – FSCS is a UK government-backed scheme that protects customers’ money held in banks, building societies, and credit unions in the event of their insolvency, up to a certain limit.