Money Jargonbuster

VAT, tax, credit – what does it all mean when it comes to talking about money? Check out our some popular money terms below and what they mean.


Appreciation and depreciation determines the value of something.

If something such as a property appreciates it gains value, for example. This often happens if someone makes renovations to their home to make it worth more when they sell it. If something depreciates, it loses value or it’s worth.


When you hear the word austerity in the context of politics or the economy, it is referring to policies that are made by governments that include stricter budgeting measures. They are often used in periods of economic difficulty, such as during or following a recession.

There are different ways through which governments might implement austerity-based policies, however it is often associated with reduced government spending and increasing taxes.


When your money runs out and any outstanding loans you have cannot be repaid you can be declared bankrupt.


Benefits are payments made by the government to people to support them to be financially secure.

Benefits help support people in our communities who are unemployed, disabled, elderly, have caring responsibilities and more.

Find out more about all of the benefits in Scotland.


A bursary is a loan which does not have to be repaid. This often takes the form of an educational bursary to pay for higher education fees.

Compound Interest

The total amount of money which is accumulated by just interest over an amount time.


If you are ‘in credit’ then you have money in an account.

‘Having credit’ means money has been borrowed.

Read more about credit and borrowing money.

Credit Rating

A credit rating is all about how trustworthy you are for banks when it comes to loaning you money or ‘credit’.

This is determined by your previous experience paying things back.

There are various calculations which go into determining credit score. The higher the score the better loans you will have access to. Your phone bill or credit card are examples of the types of things the bank may look at.

Current Account

An account where money can flow in and out easily. This is where most people put money that they earn and intend to spend. It’s likely you’d have a debit card linked to this account which enables you to purchase things online or in stores.


Much like debt, debit means that money is owed.

Debit & Credit Cards

Debit Cards take money out of your bank account instantly.

Credit Cards add up all the money you spend and you pay at a certain recurring time such as once a month. Credit Cards charge interest on top of the money spent.

Mastercard is a large provider of debit and credit cards.

Visa Cards are debit, credit or prepaid cards which are issued by many banks.


Being in debt means that you owe money. This is often in the form of loan repayments.

Direct Debit

A direct debit is a recurring payment often made to pay money to a company such as a phone bill.

The company being paid determines the size of the payment so it’s important to check that you haven’t been overcharged. This can be cancelled at any time through your bank.


The Education Maintenance Allowance is for young people in Scotland between the ages of 16 and 19 that are still in full-time education.

Financial Capability

Financial capability or ‘FinCap’ is all about improving peoples use of money. Various organisations are teaching individuals to better handle their financial situation.

Fixed & Variable Interest

Fixed interest is a rate of interest which it is agreed upon and will not change.

Variable interest rates can increase or decrease at any time.

There are benefits and disadvantages of both. If you have a high rate of interest on your bank account it is beneficial to have this at a fixed rate. If you have variable interest the rate could fluctuate up and down. For paying back loans a low interest rate is ideal.

Gross Domestic Product (GDP)

GDP is a measure of economic activity.

It is the sum of all goods and services produced by a country over a given time period, usually a year or a ‘quarter’ which is a period of three months. A rise in GDP shows the economy is growing, whilst falling GDP means the economy is contracting.


A guarantor is a person who can be asked to make payments on your behalf if you can’t make them, for example a parent or close relative.

Normally you’d have a guarantor if you were renting a place, and if you don’t pay your landlord what you owe them, they can ask your guarantor to pay instead. If your guarantor doesn’t pay either, your landlord can take them to court.


Inflation is the increase in the price of items or services across an economy. You will likely have seen inflation such as the price of buses increasing as you have grown up or your phone bill.


Insurance is protection against damage or losses.

You can insure travel plans, your home, your car, and even your pet – and with insurance, you can cover the cost of something breaking or something happening to your plans. Regular insurance payments must be made to the insurance company.

Find out more about insurance.


This is normally a cost based on a percentage of money.

If you leave money in a bank account that allows you to gain interest on it – like an ISA or savings account – you will generate more money over time. For example if you have an interest rate of 1% and have £100 in a bank account – when your interest is due (usually at the beginning of April which is the beginning of a new tax year in finance) you will earn 1% of £100 – £1 – which would be added to the funds in your account.

If you have borrowed money then there will be an interest rate which determines the amount of money you must pay back. For example, if you borrow £1000 with a 2.5% annual interest rate – the total amount of money that you owe after a year is £1000 plus 2.5% of £1000, which would be a total amount of £1025.


ISA Stands for Individual Saving Account.

An ISA is a tax free account with a limit of £20,000. Most banks only allow customers to have one ISA and you can usually open one alongside your regular account with your bank and easily transfer money between them.


An investment is when you pay money towards a company or business venture that is often just starting up with the intention of getting your money back with interest in the future based on the profit your investment makes.


When an investment is costing more money than it is generating it becomes a liability.


A loan is an amount of money that you have borrowed, often from a bank. Loans must be repaid in full and usually come with an interest rate.

Read more about loans and borrowing money.


A mortgage is a large loan usually taken to purchase a property. These are very expensive loans and often take decades to pay off, but most people use them to buy their first house.

The loan is ‘secured’ against the value of your home so instead of paying rent to a landlord, you pay a mortgage fee every month. If you can’t keep up with payments, the lender can repossess and sell your property.

National Insurance

Everyone in the UK, over 16 and earning over £242 a week, or self-employed and earning over £6725 a year, pays National Insurance. The payment automatically comes out of your payslip and goes toward paying for your state pension and things like maternity leave.

Check out our information on National Insurance and how to find your National Insurance number.


An overdraft is the sum of money which can be taken from a bank account when you need cash but you have no money remaining in your account.

There are two types of overdraft – arranged and unarranged.

Arranged overdrafts are agreed with your bank and mean a set amount of money is allowed to be ‘overdrawn’ from your account, which you pay a pre-agreed monthly fee of interest on if you use it. Many student bank account types offer different types of arranged overdrafts with low or non-existent interest rates.

Unarranged overdrafts are when you pay for something and it costs more than the amount left in your account but no overdraft has been agreed with your bank previously. Most banks charge you an initial fee for this and charge a daily interest rate up until you pay back the amount you owe. 


A pension is a type of benefit everyone receives in regular payments after retirement. 

There are three main types of pension – state, workplace and private.

The money that you and an employer is put into your ‘pension pot’ is invested into different things to try to turn a profit. As you get older and closer to your retirement age, the investments a provider makes become less risky.

The amount you are paid from a workplace pension depends on how much you and your employers paid into it during your working life and can normally be released to you in installments or as a lump sum if you choose once you retire.

A private pension is very similar to a workplace pension, however you are able to manage the investments yourself and they’re set up by you rather than by an employer as part of your workplace’s scheme.

A state pension is available to UK residents based on certain criteria, and you can get up to £185.15 per week. You can find out more about the state pension on Gov.UK’s website.

Find out more about different types of pensions.


A refund of money to someone who has overpaid for a service.


In the UK, a recession is defined as two or more consecutive quarters of contraction in national GDP.

That means a recession would start after a six month period of the economy shrinking and continue until there is a period of growth in GDP. However, even when a recession technically ends there are likely to be longer-lasting economic effects that continue as a result of it.

Scotland and the UK are likely in a recession right now due to the economic impacts of the coronavirus pandemic, however would only be technically defined as being if the figures published for the second quarter of 2020, which happens in August, show a continued fall in the growth of national GDP.

Standing Order

A standing order is very similar to a direct debit.

It is a recurring payment but in this case it is the payer who determines the size of the payment. It’s useful for payments such as rent where a price has been agreed, or if you’d like to make a regular donation to a charity.

Stocks, Shares & Bonds

A share is the investment you have made in a business.

You can purchase many shares and hence own part of a company.

The value of the shares will change depending on how well the business is doing. If you buy shares when they are a low price and sell them when they are expensive you can make money. It is dangerous however and shares can plummet or even lose all value if a company goes bust, so there is a risk involved.


VAT or Value Added Tax, is the tax which the government takes on the sale of most items. The VAT in the UK is currently 20%.

Most of the time we don’t see how much of an item is tax, as it’s normally added to the price of things before we buy them online or in shops.

Get more information about money management at Money & Me.

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