Plain English
UK banking terms, decoded
The jargon that hides on account pages — AER, EAR, FSCS, CASS and the rest — defined in plain English with links to the guides and tools where each term actually matters.
A
- AER (Annual Equivalent Rate)
- The interest rate for savings shown as if interest was paid and compounded once a year. It makes accounts with different payment schedules comparable. AER assumes you leave the interest in the account. Compare savings rates →
- Arranged overdraft
- An overdraft limit agreed with your bank in advance. Interest is usually charged as an EAR on the amount you use. An unarranged overdraft is going overdrawn without agreement — banks must not charge more for this than for arranged borrowing, but payments may be declined. Compare overdrafts →
B
- Bacs (Bankers' Automated Clearing Services)
- The three-working-day payment system used for Direct Debits and many salary and bill payments. Slower than Faster Payments but the backbone of regular UK payments.
- Basic bank account
- A no-frills current account with no overdraft and no monthly fee, available to people who might not pass standard credit checks. Banks don't advertise them heavily, but the largest UK banks are required to offer them.
C
- CASS (Current Account Switch Service)
- The free UK switching service that moves your balance, Direct Debits, standing orders and payees to a new bank within seven working days, and redirects payments to your old account for at least three years. Over 99% of UK current accounts are covered. Get the switch checklist →
- CHAPS
- Same-day high-value payment system, typically used for house purchases. Banks usually charge £20–£35 per CHAPS payment. Not for everyday use — Faster Payments covers most needs free.
- Compounding
- Earning interest on your interest. Monthly compounding means each month's interest starts earning its own interest the next month — over years this is where the real growth comes from. See compounding in action →
- Confirmation of Payee
- A name-checking service: when you set up a new payee, your bank checks the name you typed against the name on the receiving account. Designed to catch misdirected payments and some push-payment scams.
D
- Direct Debit
- An instruction letting a company collect varying amounts from your account (energy bills, subscriptions). Protected by the Direct Debit Guarantee — you're entitled to an immediate refund for any payment taken in error. Moves automatically with CASS switches.
E
- EAR (Equivalent Annual Rate)
- The annual cost of an overdraft shown as a percentage, including compounding but excluding fees. All banks must show overdraft costs as EAR so you can compare them directly. Calculate overdraft cost →
- E-money institution
- A firm licensed to hold electronic money (like Wise or Revolut's UK entity). Your balance is 'safeguarded' — held in separate accounts at real banks — but it is NOT FSCS-protected if the institution fails.
F
- Faster Payments
- The near-instant UK bank transfer system, free for personal use at virtually all banks. Most payments arrive in seconds, day or night, up to £1 million per payment (bank limits are usually lower).
- FSCS (Financial Services Compensation Scheme)
- The UK's deposit protection scheme. If a UK-authorised bank fails, the FSCS protects eligible deposits up to £120,000 per person per banking licence (£240,000 joint). Crucially, brands sharing one licence share one limit. Check which banks share a licence →
G
- Gross rate
- The interest rate before tax and without compounding — unlike AER, which includes compounding. If interest is paid monthly, the gross rate is slightly lower than the AER for the same account.
I
- ISA (Individual Savings Account)
- A tax-free savings or investment wrapper. You can pay in up to £20,000 per tax year (6 April to 5 April), and interest or gains are never taxed. Unused allowance doesn't roll over. Check the tax-year countdown →
L
- Linked saver
- A savings account only available to a bank's current account customers — often paying a headline rate (sometimes with a bonus period) as a loyalty incentive. Check whether the current account has a fee before counting the gain.
N
- Notice account
- A savings account where you must give advance notice (commonly 30–120 days) before withdrawing. Rates usually sit between easy-access and fixed-term accounts.
O
- Open Banking
- Regulated framework letting you share your bank data with authorised apps (budgeting tools, account aggregators) via secure APIs — never by handing over your password. You can revoke access at any time.
P
- Packaged account
- A current account with a monthly fee that bundles insurance and perks — typically travel insurance, mobile phone cover and breakdown cover. Worth it only if you'd use and can't beat the bundle price separately.
- Personal Savings Allowance
- The amount of savings interest you can earn tax-free each year outside an ISA: £1,000 for basic-rate taxpayers, £500 for higher-rate, £0 for additional-rate. Above this, interest is taxed as income.
R
- Regular saver
- A savings account paying a high headline rate on limited monthly deposits (typically £25–£500/month) for a fixed term, usually 12 months. Great for building a habit; the cap means total interest is modest. Project a regular saver →
- Ring-fencing
- Since 2019, large UK banks must separate everyday banking (the ring-fenced bank, e.g. Barclays Bank UK) from investment banking. Your deposits sit with the ring-fenced entity.
S
- Safeguarding
- The protection e-money firms must use: your money is kept in segregated accounts at banks or in low-risk assets. It protects against the firm misusing funds, but — unlike FSCS — payout after a failure isn't guaranteed to be fast or complete.
- Standing order
- An instruction to pay a fixed amount on a regular schedule (e.g. rent). Unlike a Direct Debit, you control it — the receiver can't change the amount. Both move automatically in a CASS switch.
T
- Tax year
- The UK tax year runs 6 April to 5 April. ISA allowances reset at midnight on 5 April — use it or lose it. See the countdown →