Money glossary

The terms our calculators and guides rely on, each defined in a few paragraphs with the rule behind it and a source. Guides link a term where it first appears, so you can look one up without losing your place.

A

Advance Personal Income Tax: APIT: Sri Lanka's income tax on employment, deducted by your employer from each month's pay using the Inland Revenue Department's tables.
Amortisation: Paying off a loan in regular instalments that each cover the interest due and part of the amount borrowed, so the balance reaches zero by the end.
Amortisation schedule: A table of every payment on a loan, splitting each into interest and principal and showing the balance left after it, down to zero.
Annual equivalent rate: What a savings account pays over a full year once interest earns interest: the AER in the UK, the annual percentage yield (APY) in the US.
Annual percentage rate: The yearly cost of borrowing as one percentage that counts fees as well as interest, so that loans with different charges can be compared.

C

Canada Pension Plan: Canada's earnings-related public pension, paid by employees and employers alike from each paycheque; Quebec runs its own version, the QPP.
Closing costs: Everything you pay to buy a home apart from the deposit: transfer tax, legal or notary fees, lender charges, title, survey and prepaid items.
Compound interest: Interest earned on earlier interest as well as on the original sum, so that a balance grows by a larger amount each period it is left alone.

D

Debt-to-income ratio: Your monthly debt repayments as a percentage of your monthly income, the test lenders use to judge whether you can afford another loan.

E

Early repayment charge: A fee a lender charges when you repay all or part of a loan before an agreed date, most often during a fixed-rate mortgage deal.
Effective annual rate: The interest a quoted rate really produces over one year once compounding is counted, which is higher than the quoted rate when interest is added more often.
Effective tax rate: Total tax divided by total income: the average share of your pay that goes in tax, usually well below the rate on your top band.
Employees' Provident Fund: The compulsory retirement savings fund for private sector employees in India and Sri Lanka, paid into by both the employee and the employer.
Employment Insurance: Canada's federal insurance against lost earnings, funded by premiums on each paycheque; employers pay 1.4 times what the employee pays.
Escrow: An account your American mortgage servicer runs to collect property tax and home insurance with each payment and pay those bills for you.

F

FICA: The US payroll tax under the Federal Insurance Contributions Act: 6.2% for Social Security and 1.45% for Medicare, matched by the employer.
Filing status: The category a US tax return is filed under, such as single or married filing jointly, which sets the standard deduction and bracket thresholds.
Fulfilment fee: The flat amount Amazon charges per unit to pick, pack and ship an order under Fulfilment by Amazon, set by product type, size and weight.

G

Goods and services tax: The name Canada, Australia, New Zealand and India give their value added tax: 5% in Canada, 10% in Australia, 15% in New Zealand.
Gross margin: Gross profit as a share of revenue: what is left of each sale after the direct cost of the goods, before rent, wages and other overheads.
Gross pay: What you earn before income tax, social contributions, pension and any other deduction comes off: the salary figure written in a job offer.

H

Home equity: The part of your home you own outright: its current value minus everything still owed on loans secured against it.

I

Inflation: The rate at which prices in general rise, measured by a consumer price index (CPI), and so the rate at which a fixed sum of money buys less.

K

KiwiSaver: New Zealand's work-based retirement savings scheme: 3.5% of gross pay by default from April 2026, matched by your employer.

L

Land and Buildings Transaction Tax: Scotland's tax on buying property, collected by Revenue Scotland in place of Stamp Duty Land Tax, with its own bands and first-time buyer relief.
Land Transaction Tax: The Welsh tax on buying property or land, collected by the Welsh Revenue Authority in place of Stamp Duty Land Tax, with its own bands.
Land transfer tax: A one-off tax on buying property, charged on the price: Ontario's land transfer tax, Toronto's municipal version and their equivalents abroad.
Lenders mortgage insurance: An Australian one-off premium that protects the lender on a home loan above 80% of the property's value, paid at settlement or added to the loan.
Loan-to-income ratio: How many times your gross annual income a mortgage is: the multiple Irish and British rules cap, rather than the share of pay spent on repayments.
Loan-to-value ratio: The size of a mortgage as a percentage of the property's value: the figure lenders use to price the loan and decide whether insurance is needed.

M

Marginal tax rate: The share of your next pound, euro or dollar of income that goes in tax, as opposed to the average rate across all of your income.
Markup: The profit added to cost to set a price, as a percentage of that cost: a $60 item sold for $100 carries a 66.67% markup but only a 40% margin.
Medicare tax: The US payroll tax of 1.45% on all wages with no cap, plus a 0.9% Additional Medicare Tax that is withheld once wages pass $200,000.
Minimum payment: The smallest amount a card issuer accepts each month to keep the account in good standing, usually a small share of the balance plus interest.
Mortgage default insurance: Canada's compulsory insurance on a mortgage with less than 20% down, often called CMHC insurance, priced as a one-off premium added to the loan.

N

National Insurance: The UK's contribution on earnings that builds entitlement to the State Pension; employees pay 8% between two thresholds and 2% above the upper one.
Net pay: What reaches your bank account after income tax, social contributions, pension and other deductions have been taken from your gross pay.
Nominal interest rate: The interest rate as it is quoted, before any adjustment for how often interest is compounded or for how fast prices are rising.

O

Offset mortgage: A mortgage linked to a savings or transaction account whose balance is subtracted from the loan before interest is charged each day.
Overpayment: Paying more than the contractual instalment on a loan or mortgage, so the extra goes straight to principal and cuts the interest still to come.

P

Pay Related Social Insurance: Ireland's social insurance contribution on pay, PRSI, which builds entitlement to the State Pension and other benefits; employers pay a share too.
PAYE: Pay As You Earn: the system in the UK, Ireland and New Zealand under which your employer deducts income tax from each payday and pays it over.
Personal allowance: The income you can receive in a UK tax year before income tax starts: £12,570 for most people, withdrawn gradually above £100,000.
Policy rate: The interest rate a central bank sets to steer borrowing, saving and inflation, which banks' own mortgage, loan and savings rates tend to follow.
Principal: The amount you borrowed, or the part of it still owed, as distinct from the interest charged on it; for savings, the sum you put in.
Private mortgage insurance: American insurance that protects the lender when you put down less than 20% on a conventional loan, paid by you until the balance falls far enough.
Purchasing power: What a sum of money can actually buy, which falls as prices rise even though the amount written on the note or the statement stays the same.

R

Real return: What an investment or savings account earns once rising prices are taken out: growth in what your money can buy, not in the number on the statement.
Referral fee: Amazon's commission on each item sold: a percentage of the total sale price set by category, usually 8% to 15%, or a per-item minimum.
Remortgage: Replacing your mortgage with a new deal on the same home, with your current lender or a new one, usually when a fixed rate ends.

S

Social Security tax: The 6.2% US payroll tax on wages up to an annual wage base, $184,500 in 2026, which funds retirement, disability and survivor benefits.
Stamp Duty Land Tax: The tax on buying property or land in England and Northern Ireland, charged in marginal bands on the price, with relief for first-time buyers.
Standard deduction: The flat amount US federal tax lets you take off income before the brackets apply: $16,100 for a single filer in 2026, unless you itemise.
Superannuation: Australia's compulsory workplace retirement saving: your employer pays at least 12% of your earnings into a fund on top of your salary.

T

Tax bracket: A slice of taxable income charged at one rate; moving into a higher bracket raises the rate only on the income inside it, never on the rest.
Tax code: The code that tells your employer how much income tax to take from your pay, such as 1257L in the UK or M in New Zealand.
Tax credit: An amount taken straight off the tax you owe rather than off the income it is charged on, so it is worth the same whatever your tax rate.
Tax deduction: An amount subtracted from your income before tax is worked out, so it saves tax at your marginal rate rather than pound for pound.
Transfer duty: The Australian state tax on buying property, still widely called stamp duty, charged on a sliding scale that each state and territory sets.

U

Universal Social Charge: Ireland's banded charge on total income, from 0.5% to 8%, paid alongside income tax and PRSI and charged before any pension relief.

V

Value added tax: A tax on spending collected at each stage of a sale and borne by the final buyer: 20% at the standard rate in the UK, at least 15% across the EU.

W

Withholding: Tax your employer takes from each paycheck and sends to the tax authority for you, then credited against what you owe for the year.