IFA, ISA, PSA, … WTF?

The financial acronyms you need to know.  

PSA = Personal Saving Allowance

Each year you can earn a certain amount of interest tax-free. Interest earnings can be made from saving accounts, peer-to-peer lending or investments. The tax-free amount depends on your income tax band (table below). Any interest you earn over your allowance will be taxed as income unless you save or invest using an ISA (yep, another acronym…don’t worry, we’ve covered it below.)

Your Earnings	Income Tax Band	Your Allowance (PSA)
£0 to £11,500	No Rate	£1,000
£11,501 to £45,000	Basic Rate (20%)	£1,000
£45,001 to £150,000	Higher Rate (40%)	£500
Over £150,000	Additional Rate (45%)	£0

ISA = Individual Savings Account

Save or invest your money using an ISA and you won’t get taxed on any income you make. It’s really that simple! There are many different ISAs to choose from but generally they all fit into two main categories; Cash ISAs and Stocks & Shares ISA. Cash ISAs are for your savings and you receive interest tax-free. Help-to-Buy and Lifetime ISAs are also Cash ISAs which offer a 25% bonus towards your first home. Stocks & Shares ISAs are used to make investments. Think: shares, bonds or funds. Pssst! we have a guide for these. 

IFA = Independent Financial Advisor

Financial advisors give you advice by recommending certain investments based on your current finances and future plans. An ‘independent’ financial advisor is someone who is trained and regulated to provide advice on many different financial products and isn’t restricted to a specific investment or provider. There is one catch: IFAs come at a price. Read our guide to find out if they’re worth the splurge.

AER = Annual Earnings Rate 

You’ll see this acronym crop up when it comes to saving accounts. It tells you how much interest you’ll earn if you were to keep your money in the account for a year. For example, a 3% AER means you will earn £30/year for every £1,000 kept in the account. The AER helps you compare interest rates across different saving accounts. 

APR = Annual Percentage Rate 

This is a big one to know because it relates to credit cards and loans. It tells you how much you’ll pay when you borrow money for a year – it includes interest payments as well as any other charges. For example, a 19% APR means you will pay £190 /year for every £1,000 you borrow. It’s particularly helpful when shopping around for a loan or when looking to reduce your credit card bill. 

OCF = Ongoing Charges Figure

This is a yearly fee paid when you invest in a fund which, BTW, affects all of us because that’s where pension contributions go (that’s into a fund, if you haven’t been following). The fee is a percentage of your total investment and is paid to the fund’s managers. It can range from 0.1% to 2.0%, which is £10 to £200 a year for every £10,000 invested. The riskier funds, aiming for higher returns, charge the most while the tracker funds charge the least because they don’t require ongoing management. Whatever the charge, you want to be happy with what you get back after the fee has been deducted… We have a guide for this. 

Side note: On top of the OCF fee, pension providers – who set-up your account, give you access to funds and look-after ongoing admin – may also charge a yearly fee.