Finance glossary

TER (total expense ratio)

A fund's or ETF's annual running cost in percent. It directly reduces your return – the lower, the better.

Annuity (loan payment)

The constant monthly loan payment made up of interest and repayment. Early on it is mostly interest, later mostly repayment.

Nominal interest rate

The pure annual interest you pay on a loan, before fees. The effective rate also includes the costs.

Repayment (principal)

The part of the loan payment that actually reduces the debt. A higher initial repayment means debt-free sooner.

ETF

An exchange-traded index fund that automatically tracks many stocks of an index – cheap and broadly diversified.

Compound interest

Interest that itself earns interest. Over long periods it is the strongest lever for building wealth.

Inflation

The general rise in prices – your money loses purchasing power even though the amount stays the same.

Emergency fund

A reserve of 3–6 months of expenses in an instant-access account, for unexpected costs.

Savings rate

The share of your income you save. Even 10–20 % makes a big difference over the years.

Diversification

Spreading money across many investments so a single failure doesn't hurt much.

Liquidity

How quickly you can access your money. Liquid funds (e.g. instant-access savings) are available at once, property is not.

Gross / net

Gross is your income before deductions, net is what reaches your account after tax and contributions.

Return (yield)

An investment's annual gain in percent; the real return is the one after subtracting inflation.

Overdraft interest

The high interest for going into the red on your current account – often over 10 %. Expensive debt to clear fast.

Equity / down payment

Your own money you put in – e.g. when buying property. More equity lowers the loan, payment and interest cost.

Remaining balance

The loan amount still outstanding at a point in time – e.g. at the end of the fixed-rate period when you refinance.

Accumulating / distributing

Accumulating funds reinvest gains automatically (compounding); distributing funds pay them out.

Sinking fund

Setting aside small monthly amounts for a larger, foreseeable expense (e.g. holiday, new car) instead of paying it all at once.

FIRE

Financial Independence, Retire Early – being free once your invested wealth covers your spending (often the 4 % rule).

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