Savings & ISA Glossary
Clear, plain-English definitions for terms related to savings accounts and interest.
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Annual Equivalent Rate (AER)
A standard interest rate that shows what you would earn over a year if interest was paid and compounded. It allows you to accurately compare savings accounts that pay interest at different frequencies (e.g., monthly vs annually).
Base Rate
The interest rate set by the Bank of England. When the Base Rate rises, savings rates generally go up. When it falls, savings rates usually drop.
Cash ISA
An Individual Savings Account where all the interest you earn is completely tax-free. Every UK adult has an annual ISA allowance (currently £20,000) that can be deposited across different ISA types.
Compound Interest
Earning interest on your initial savings, plus earning interest on the interest that has already been added to your account. Over time, compounding makes your savings grow significantly faster.
Easy Access Account
A savings account that allows you to withdraw your money at any time without paying a penalty or losing interest. Because of this flexibility, they usually offer lower interest rates than fixed-term accounts.
Financial Services Compensation Scheme (FSCS)
A UK government-backed scheme that protects your money if your bank or building society goes bust. It currently protects up to £85,000 per person, per banking institution.
Fixed-Rate Bond
A savings account where you lock your money away for a set period (e.g., 1, 2, or 5 years) in exchange for a guaranteed interest rate. You cannot usually withdraw the money before the term ends without severe penalties.
Help to Buy ISA / Lifetime ISA (LISA)
Government-backed savings accounts designed to help people save for their first home or retirement. The government adds a 25% bonus to your savings, subject to annual limits and specific conditions.
Notice Account
A savings account where you must tell the bank in advance before you withdraw money (e.g., 30, 60, or 90 days' notice). They typically offer higher interest rates than easy access accounts but lower rates than fixed bonds.
Personal Savings Allowance (PSA)
A tax rule that allows basic rate taxpayers to earn up to £1,000 in savings interest per year tax-free (outside of an ISA). Higher rate taxpayers can earn up to £500 tax-free.
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