Glossary Of Terms

Fixed Interest Investments :Long-term interest-earning investments, such as bank term deposits and government stock. These investments are generally low-risk, and offer a reliable return rather than growth of capital.

Fixed rate :The rate of interest paid on a loan may be either a fixed rate or a floating rate. For a fixed rate loan, the interest rate is set at the date you take out your loan and remains the same throughout the term of your loan, irrespective of whether bank interest rates rise or fall.

Floating rate :The rate of interest paid on a loan may be either a fixed rate or a floating rate. For a floating rate loan, the interest varies rfrom time to time. If interest rates fall, then so does the amount you have to repay. Or you can choose to continue with the same level of repayment and reduce the term of your loan.

HP :Hire Purchase is an agreement to buy something on credit, without paying the complete amount straight away. With HP you usually pay a deposit followed by monthly payments (including any interest and fees charged) over a set period of time. These days HP is often called a credit sale or a credit contract.

Inflation :Inflation is the rate at which the prices of goods and services increase over time. The effect of this is to reduce the purchasing power of money.

Inflation-adjusted: :Increasing an amount of money each year by the same amount as inflation each year. You make an inflation adjustment to maintain the value of your savings.

Interest :Money paid in return for the use of money. If the bank is using your money (in a savings account) they pay you interest. If you have a loan, you pay the lender interest.

Interest ratese :The amount of interest you pay on a loan or are paid for an investment, usually expressed in terms of percentage.

Liability :What you owe- a debt or a promise to pay money for something in the future.

Liquidity :How easily you can turn your investments into cash.

Loan :Money given to you to use over a set period of time. A payment (interest) is exchanged for this use. The money (loan amount) is also paid back.

Locked in :Being unable to remove your money from an investment or savings scheme without paying any penalty. Usually an investment is locked in for a certain period - a number of years, months or until an event, like your retirement.

Lump sum :A large one-time payment of money.

Managed funds :A pool of money from many investors that is then invested (managed) by a specialist fund manager. Managed funds are often very large, and can be invested in many more areas than a single investor could.

Net worth :Your overall financial position - the value of your assets minus your debts.

Nominal return :The money you make on your investment without taking into account inflation. Your real return on an investment is where payment is made for inflation.

OCR :Official Cash Rate used to control the interest rate charged by the Reserve Bank on money it lends to NZ banks. Changes in the OCR can affect how much you pay on your mortgage and how much you earn on your savings.