Glossary

Definitions of terms used in our calculators and guides. For education only; not financial advice.

Financial language can be opaque—APR, amortisation, salary sacrifice, and affordability all mean specific things in UK context. This glossary explains each term in one or two paragraphs so you can read calculator results and guides with more confidence.

Terms are cross-linked from individual tool pages where relevant. If you want longer explanations with worked examples, start with our guides on topics such as loan repayments or compound interest.

AER (Annual Equivalent Rate): The interest rate on a savings account expressed as if interest were compounded once per year. AER lets you compare instant-access, notice, and fixed accounts that pay interest at different intervals. It is the savings equivalent of APR on borrowing.
Affordability: An estimate of what level of borrowing or monthly repayment is realistically manageable based on income, existing commitments, and interest rates. UK mortgage lenders use income multiples (often around 4 to 4.5 times salary, varying by lender) and payment stress tests at higher rates than your initial deal. Affordability on paper does not guarantee an offer — credit history, property type, and monthly outgoings all matter.
Amortisation: The process of paying off a loan over time with regular payments. Each payment covers some interest and some principal; early on, more goes to interest, and over time more goes to reducing the balance. On a typical fixed-rate mortgage, the monthly payment stays the same but the interest portion shrinks each month as the outstanding balance falls. Understanding amortisation helps explain why overpayments early in the term save more interest than the same overpayment later.
APR (Annual Percentage Rate): The annualised rate of interest or cost of borrowing, expressed as a percentage. APR includes the base rate and often fees, so it lets you compare loans and credit on a like-for-like basis. A loan quoted at 6% APR with arrangement fees may cost more than one at 6.5% APR with no fees once everything is included. For savings, the equivalent is usually called AER (Annual Equivalent Rate), which standardises how often interest is compounded.
Avalanche method: A debt payoff strategy where you pay the minimum on all debts and put any extra money toward the debt with the highest interest rate first. Once that is cleared, you move to the next highest rate. This approach usually minimises total interest paid.
BMI (Body Mass Index): A simple ratio of weight to height used as a general health screening measure: weight in kilograms divided by height in metres squared. NHS and WHO bands (underweight, healthy weight, overweight, obese) are based on population data, not individual body composition. BMI does not measure muscle, bone density, or fat distribution directly — athletes and some ethnic groups may be misclassified. Use it as a rough screening tool alongside professional advice when health decisions matter.
BMR (Basal Metabolic Rate): Estimated calories your body uses at rest to maintain basic functions such as breathing and circulation.
Body fat percentage: The percentage of total body mass that is fat tissue. Estimates from circumference formulas are indicative and can vary from scan-based methods.
Compound interest: Interest calculated on the initial principal and on any interest already added. Over time, growth accelerates because you earn interest on prior interest as well as on the principal. Most UK savings accounts and investments compound at set intervals (monthly or yearly). For example, £1,000 at 5% compounded yearly becomes £1,050 after year one, then £1,102.50 after year two because the second year's interest applies to £1,050, not just the original £1,000. See our compound interest guide for how this differs from simple interest.
Emergency fund: Cash savings set aside for unexpected essential costs (such as job loss, urgent repairs, or a gap between contracts). A common target is three to six months of essential spending — housing, utilities, food, transport, insurance, and minimum debt payments — but the right level depends on job security, dependants, and other savings. Emergency funds are usually held in instant-access cash, separate from long-term investments or discretionary goal pots.
Employer pension match: When an employer contributes to your pension based on what you contribute, often up to a limit. For example, an employer may match your contribution up to 5% of salary.
Extra payment / overpayment: Paying more than the required minimum on a loan (e.g. a higher monthly amount or a one-off lump sum). Extra payments reduce the outstanding balance faster, so you pay less interest and can become debt-free sooner, unless your loan has early-repayment restrictions.
Gross salary: Pay before Income Tax, National Insurance, and other payroll deductions. Job offers and contracts usually quote gross figures; your bank account receives net (take-home) pay after deductions.
Income Tax (UK): Tax on earnings above your Personal Allowance, charged at progressive bands. Rates and bands differ in Scotland. PAYE employees usually have tax calculated by their employer each pay period using a tax code.
Loan: Money borrowed that you repay over time, usually in regular instalments. Interest is charged on the outstanding balance. A mortgage is a loan secured against property.
Loan-to-value (LTV): The mortgage loan size divided by the property value, usually expressed as a percentage. A £180,000 loan on a £200,000 home is 90% LTV. Lower LTV often means better interest rates because the lender's security is stronger.
Miles per kWh: A common way to express electric car efficiency: how many miles you can drive per kilowatt-hour of battery energy used. Higher is more efficient. Real-world figures vary with speed, weather, heating and driving style.
Minimum payment: The smallest amount you must pay each month on a debt (e.g. credit card or loan) to stay in good standing. Paying only the minimum usually means more interest and a longer time in debt.
Mortgage: A loan used to buy property, secured against that property. Repayments are typically monthly over many years (e.g. 25). The interest rate can be fixed or variable.
MPG (UK imperial): Miles per gallon using the UK imperial gallon (about 4.55 litres). UK fuel economy figures, MOT records, and many car handbooks use imperial MPG. US MPG uses a smaller US gallon (about 3.79 litres), so the same car shows a higher MPG figure in Britain than in America. When estimating fuel cost, pair MPG with distance and price per litre at the pump you actually use.
National Insurance (NI): Contributions on earnings that fund state benefits including the State Pension. Employees and employers both pay NI above certain thresholds. Rates and thresholds are set by government and change over time.
Net pay (take-home pay): The amount that reaches your bank account after tax, National Insurance, pension contributions, student loan repayments, and any other payroll deductions. Also called take-home pay.
Principal: The original sum of money borrowed (in a loan) or invested (in savings). Interest is calculated on the principal; as you pay down a loan or add to savings, the principal changes.
Rule of 72: A simple way to estimate how long it takes for money to double at a given annual rate of return: divide 72 by the rate (as a percentage). For example, at 6% per year, 72 ÷ 6 = 12 years. It is an approximation and works best for rates roughly between 4% and 15%.
Salary sacrifice: An arrangement where you give up part of your gross salary in exchange for a benefit (such as pension contributions). Because taxable pay is lower, Income Tax and employee National Insurance can also be lower on the sacrificed amount. Employers may pass on their NI savings too, depending on policy. Sacrifice reduces gross pay, which can affect mortgage applications, life cover based on salary, and statutory pay calculations — check with HR before enrolling.
Savings goal: A target amount you want to have saved by a certain date — for example a house deposit, car purchase, or holiday fund. Calculators can show how much you need to save each month (or as a lump sum) to reach that goal, assuming a given rate of return. Real progress may be uneven; revisiting the target and timeline when your balance or income changes is normal. Pair the term with our savings goals guide for UK context on cash vs investments.
Snowball method: A debt payoff strategy where you pay the minimum on all debts and put any extra toward the debt with the smallest balance first. When that is cleared, you move to the next smallest. Some people find it motivating to clear accounts quickly, though it can mean paying more interest overall than the avalanche method.
TDEE (Total Daily Energy Expenditure): Estimated total calories burned in a day after applying activity level to BMR. Often used as a maintenance-calorie estimate.
Term: The length of time over which a loan is repaid or an investment or savings goal runs. For loans, the term is often given in years (e.g. a 25-year mortgage).
Unit conversion: Expressing the same physical quantity in different measurement units (for example miles per hour and kilometres per hour for speed). Conversions use fixed ratios; temperature scales also need an offset between Celsius, Fahrenheit and Kelvin.