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What is interest?

Banking Terminology

Sascha Hutchinson (Banking Expert) gives expert video advice on: What is credit?; What is debt?; What is an overdraft? and more...

What is interest?

Interest is money that you earn on your savings and is generally paid into your savings account every month. Interest is also money that you will pay on any debts you have that might, be they on credit cards, loans or an overdraft.

What is inflation?

Inflation is the amount by which the cost of living increases each year. Generally, inflation is about 2 to 3 percent.

What is a loan?

If you find that you need to borrow some money from the bank, you can apply for a loan over a set period of time. A loan is given on the assumption that you'll pay that money back in regular instalments, plus interest.

What is credit?

Credit is any money that you borrow. You might borrow that money on a credit card, an overdraft, a personal loan or a bigger loan, like a mortgage.

What is debt?

Debt is money that you owe to somebody else. That debt might be to the bank, to another financial institution or even to another person.

What is an overdraft?

An overdraft is a credit facility that's attached to your current account. You'll make an agreement with the bank that you can borrow, for instance, an extra £5 as an overdraft. However, you will be expected to pay that money back with interest. Theoretically, there is no limit to how big your personal overdraft can be as long as you meet that bank's lending criteria.

What is a standing order?

A standing order is a regular payment that comes out of your current account to another bank account. A stranding order might be set up to pay, for instance, your rent or your mortgage. You might have a standing order to put money into your savings account each month.

What is Direct Debit?

Direct debit is an agreement that you have with a utility provider or someone that you pay a bill to each month. The direct debit agreement means that they can take the money for that bill directly out of your bank account when it's due.

What is cashback on a credit card?

Cashback on a credit card is a feature that is sometimes incorporated into a credit card deal where you will earn, for instance, 2% of the money back that you spend. If you spend £50 on your credit card, you'll get 2% of that back in cashback.

What is cashback at a till?

Cashback is when you use your debit card to make a purchase at the till. If you ask for £20 cashback, they will give you £20, and then take that money straight from your current account.