Common terms & definitions

Bond
This is a certificate of debt where the issuer of the bond agrees to pay the purchaser of the bond the value of the bond itself, plus a fixed amount of interest at the end of a certain period. Should the issuing company go into bankruptcy, the bond holders have first-priority access to remaining funds before public shareholders.

ISA (Individual Savings Account)
An ISA offers up to three options, or components, for investing. Gilts or corporate bonds, as well as stocks and shares may be selected as part of the ISA. Earnings from an ISA are currently tax-exempt. ISAs were introduced to the market in 1999, replacing TESSAs & PEPs.

Interest
This is effectively a payment made to you by the bank or building society for the money you have deposited with them.

Compound Interest
Compound interest is based on the total sum of funds in your account, which is principle plus any additional interest earned. In other words, compound interest earns interest on interest already paid.

Simple Interest
Unlike compound interest, simple interest is based only on the principle you deposited into your savings account. Any additional interest previously paid is not figured into calculating how much interest your money earns.