Glossary of stocks and shares ISA terms

We'll explain some of the words and phrases you're likely to see if you're considering our Stocks and Shares ISA.

• Annual management charge (AMC) - what your provider takes from your invested money to cover the cost of managing your investments. It will be either a set amount or a percentage of the total value of your investment.
• Beneficiary – the person or organisation you choose to benefit from your property when you pass away.
• Bonds - these are usually used by companies and governments to finance projects. A bond is a fixed-income investment product, where individuals lend money at a set interest rate, for a fixed amount of time.
• Capital Gains Tax – when you sell something that’s increased in value or transfer it to somebody else, like shares or property, you might be charged tax on the profits (the gain in value).
• Cash ISA - a cash savings account that earns interest free from income tax.
• Compound interest – when the interest you've earned on savings is added to your original investment so you can earn interest on that too.
• Deflation – is the opposite of inflation – so it’s when the cost of everyday things goes down.
• Diversification – a risk management strategy involving investing in a mix of different investments across sectors and geographies to limit the risk to the value of your investments if any particular investment performs poorly.
• Dividends – shareholders in a company are rewarded for investing in it with a share of the profits.
• EPS (earnings per share) - is a way to assess a company’s profitability, giving an amount of profit to each share.
• ESG (environment, social, and governance) - a way of investing to benefit society and the environment.
• Financial Services Compensation Scheme (FSCS) - this scheme protects the money you’ve saved or invested with a financial organisation, usually up to £85,000.
• FTSE 100 – this is the collective name for the largest 100 companies in the UK, based on their value. FTSE stands for ‘Financial Times Stock Exchange’.
• Funds – a collective investment (meaning they pool multiple investors' money together) which spreads invested money across a wide range of investments.
• HM Revenue and Customs (HMRC) - a government organisation for tax.
• Independent Financial Adviser (IFA) - is a regulated financial adviser who will give you impartial and independent advice.
• Interest rate – how much (usually as a percentage) you’re paid for the use of your money. Interest rates on your savings vary depending on the type of account you have, and who you have it with.
• Innovative finance ISA - a tax-efficient account that aims to make a return on your invested money from interest on peer-to-peer lending (loans directly to people and businesses).
• Junior ISA - savings for a child that can be withdrawn or transferred when they turn 18.
• Lifetime ISA - a savings account designed to help people save for their first home or retirement. You need to be under 40 years old to open it.
• Passive investing – a type of investing where investors use funds (see funds definition above) that aim to track and match the performance of a particular stock market or index.
• Power of Attorney – legal documents allowing someone else to act on and make decisions about your finances and/or medical needs.
• Property – when people invest in commercial property (rather than residential). It’s often talked about as ‘real estate’.
• Responsible investing – a catch-all name for investing (usually long-term) in things that positively benefit society and the environment.
• Shares – this is when you buy a part (share) in a company. The value changes depending on how it performs. They trade on the stock market – where companies are bought and sold.
• Standing order – it’s an instruction to your bank to make a regular payment for you. It could be used for things like your mortgage or rent, energy bills, mobile or internet payments.
• Stocks – a share of ownership in a company.
• Stocks and shares ISA - an investment account where your money will be put into a range of investments without paying UK income or capital gains tax on your returns.
• Stock market – a trading platform for investors to buy and sell shares for a collection of publicly-listed companies.
• Tax year – a twelve-month period beginning on 6 April and ending on 5 April. It is used for accounting and tax purposes.
• Volatility – looks at how much something fluctuates, like an investment’s risk level. The higher the volatility, the higher the risk.
• Yield – it measures income from an investment over a set amount of time, like dividends from shares, or interest.