The Top 25 Most Confusing Financial Terms: From Capital Gains To Compound Interest

The top 25 most confusing financial terms and acronyms include 'capital gains', 'compound interest' and 'variable rate'.

A poll of 2,000 adults revealed 56 per cent are overwhelmed by financial phrases, with 42 per cent admitting this puts them off investing.

Nearly a third (31 per cent) don't fully understand what is meant by 'capital gains', while 23 per cent aren't confident they could explain what 'APR' means.

Others don't feel they know what an 'unarranged overdraft' (17 per cent), 'credit score' (17 per cent) or 'standing order' (15 per cent) is.

It also emerged less than one in five (17 per cent) feel they completely understand the upcoming changes to ISAs, which will see the Cash ISA allowance changed from £20,000 a year to £12,000 for under 65s, as well as a 22 per cent tax on interest earned on uninvested cash held within a Stocks & Shares ISA.

Even among those who said they had at least some understanding of the changes, 41 per cent could not correctly identify the new Cash ISA allowance as £12,000.

The study was commissioned by smart money app Plum, which is helping to cut through the confusion by creating a glossary of the most confusing financial terms [].

Rajan Lakhani, personal finance expert for the app said:“Finances can be tricky to navigate, especially with the forthcoming changes to Cash ISAs and Stocks & Shares ISAs.

“Money is something we deal with every day and not understanding something related to our personal finances could cost us dearly.

“But some of the jargon can be overwhelming – leaving many people simply avoiding their finances and possibly missing out as a result.

"For example, investing has historically been the most reliable way to help avoid inflation eroding the value of your money in the long-term, yet many people are missing out because they don't understand the terms.

“We want people to feel confident managing their money, so hope these clear explanations of the most confusing terms will help when someone isn't sure what something means and how it will impact them.”

The study also found 28 per cent of adults don't feel at all confident in understanding information from banks and financial providers, with 54 per cent feeling overwhelmed when it comes to making a savings and investment decision.

The internet is the top place people turn to help them make a financial decision (41 per cent), ahead of banks themselves (29 per cent) and family members (21 per cent).

But 27 per cent of Gen Z turn to social media, compared to just one per cent of Boomers.

And with 45 per cent of UK adults concerned with making a costly mistake when it comes to understanding the information they receive from their bank, 65 per cent search online to help decipher it, according to the OnePoll research.

The way we use the internet is changing too, with 25 per cent of people using AI platforms to check what a financial term means, and 20 per cent using it to find financial information.

Clearer explanations from banks (51 per cent), being taught banking terms in school (46 per cent) and using less jargon in emails and information (43 per cent) were all top solutions to a better understanding.

Rajan, from Plum, added:“The research shows confusion about financial terminology makes decisions about money more daunting. It also highlights that many people are not turning to reliable, curated and regulated sources of information.

“We hope by making bitesize financial information accessible and easier to understand, we can help people of all generations feel assured taking control of their finances and planning for the future.”

TOP 25 MOST CONFUSING FINANCIAL TERMS AND ACRONYMS:

1. ETF
2. IPO
3. IBAN
4. BIC/ SWIFT code
5. AER
6. Capital Gains
7. Compound interest
8. Bond
9. FSCS Protection
10. Dividend
11. APR
12. Stocks & Shares ISA
13. Accrued Interest
14. Maturity
15. Cash ISA
16. ISA
17. GBP
18. Remortgaging
19. Unarranged Overdraft
20. Credit score
21. Variable rate
22. Mortgage
23. Investment
24. Standing Order
25. Credit limit

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