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Glossary of financial terms
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EXPLANATION OF FINANCIAL TERMS

Capitation insurance

Insurance taken out through a dentist. The premium depends on the health of your teeth.

Capital Gains Tax

Tax paid on any capital gains realised in a tax year, over and above the capital gains tax exemption limit for that year. It is charged at the taxpayer's marginal or top rate of tax.

Capped-rate loans

The rates on capped loans cannot go up but can go down. However, the variable rate needs to fall below the capped rate before the capped rate is reduced. Some capped mortgages have a collar which sets a minimum for the capped rate loan.

CAR

Compounded annual rate of interest. Used by banks and building societies to give an annual comparison figure for accounts that pay interest monthly or half yearly.

Carpetbagging

The practice of opening a savings account or taking out a mortgage with a building society in the hope that it floats on the stockmarket or is taken over. Members of the society are customarily rewarded with free shares in recognition of their legal ownership of the society. The practice is now spreading to mutually owned insurers.

Chartism

The art of comparing share price graphs. The theory is that you find a discernible trend that predicts future movements. The answer may or may not prove correct.

Commission

A fee paid by a company to a salesman or financial adviser for selling its products. Some companies pay higher rates of commission than others. The commission must now be disclosed to the client and some independent financial advisers will offer to share commission with investors.

Contingent liabilities

A liability in a company's balance sheet that may or may not come home to roost in the future. It is contingent upon future events.

Contract note

Confirmation from a broker of the deal that has just been done.

Convertibles

Corporate bonds or preference shares that can be converted into ordinary shares at a set price on set dates.

Cooling-off period

A number of days, typically 10 or 14, during which you can change your mind about an investment and get your money back without penalty.

Corporate bond

Loan stock or "IOU" issued by companies to raise capital. The company promises to pay a certain amount of interest on a set date every year until the redemption date, when it repays the loan. Investors are paid a fixed rate of interest and so bonds are also referred to as fixed-interest securities. Like shares, bonds are traded on the stock market so their prices are not fixed, although they may have a fixed repayment value at maturity.

Corporate-bond pep

Not all Peps hold shares. Since summer 1995 corporate-bond Peps have been available. They can be used to invest in bonds directly or through unit trusts and are especially useful for investors seeking a high income.

Corporate governance

The running of a company and a big issue for the City. Both Cadbury and Hampel reported on the problem but investors should always look closely at how a company is run.

Crest

The London Stock Exchange's paperless share settlement system.

Critical illness insurance

Cover that pays out a lump sum if you are found to have one of a pre-specified list of life threatening conditions.

 


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