AER (annual equivalent rate)

This the annual rate of interest, taking into account how often the interest is added to your account. The higher the AER, the better the return.

Capital

Your overall amount of money invested.

Fixed interest

The interest rate is fixed for a set period. So you win if interest rates on other accounts later fall, but you will be stuck on a poor rate if interest rates rise. There are usually penalties to stop you switching to another account and you may not be able to get your money out early.

Gross interest

Interest paid to you before tax is taken off is ‘gross’ interest. If you are a non–taxpayer you can register to have the interest paid gross – ask the bank or building society for Form R85.

Instant access accounts

These let you take your money out whenever you want, without penalty.

Interest

Your savings earn interest. This can go up or down or may be fixed. Once interest is added to your savings your money grows.

ISA
Individual Savings Account – a tax-efficient way of saving or investing, with limits on how much you can pay in each tax year.

Net interest

Savings accounts from banks and building societies pay interest after the tax is taken off. This is called ‘net’ interest.

Notice period

You have to notify the bank or building society a set number of days before you make a withdrawal – 30, 60 or 90 days are common notice periods. You can usually get your money out earlier, but if you do, you lose 30, 60 or 90 days' interest, depending on the notice period.

Term account

Term accounts last for a set period – two years, say. You may not be able to get your money out early.

Variable interest

Most current accounts pay variable interest, which means the interest rate goes up or down. From time to time you should check whether you could get a higher interest rate from a different account and, if so, be prepared to switch.