Learn the lingo
Understanding the language used around saving and investing may sometimes be difficult. But worry no more – we have put together a glossary to help guide you through the most common terms.
Glossary of savings terms
Accounts, equities and funds
Current account and savings account
A current account or a disposal account is a deposit account designed for managing your day-to-day finances. A savings account is meant for your savings and you can choose between a continuous or fixed-term savings account.
Book-entry account
Book-entry securities are investments such as shares and bonds whose ownership is recorded electronically.
Book-entry account and safe custody
An investor’s personal custody account for their book-entry and other securities. Book-entry securities are recorded in the customer’s book-entry account. Before you buy shares or other securities for the first time, your bank or brokerage company will conclude a safe custody agreement for you. You may open a separate equity savings account instead of or alongside a book-entry account.
Equity savings account
The equity savings account is a new type of account introduced on 1 January 2020. You can trade in listed shares with an equity savings account without having to instantly pay taxes on your returns from trading. Dividends also will not be taxed at the time they are paid into the equity savings account, so you can re-invest your dividend yields in full. (NB. Tax-at-source may be levied on dividends from foreign equities.) You only pay taxes on your returns once you withdraw assets from your equity savings account.
Asset class
Equities, fixed income instruments and cash are examples of asset classes.
Security
Security is a general term for a certificate or book-entry security such as a share, investment fund unit or bond.
Share
A share represents a proportion of a limited liability company’s share capital. The share capital is divided into a certain number of shares. Shares are securities that the shareholder can usually sell or otherwise transfer to another person. A listed company’s shares are publicly traded on stock exchanges. This means you can buy or sell such shares in Nordea Netbank, for example.
Limited liability company
Shares represent ownership interest held by shareholders in a limited liability company. A limited liability company is a company form. Its ownership is divided into a certain number of shares. In other words, shareholders get a number of shares that corresponds to the amount they have invested. The assets invested in the company by its owners comprise the share capital of the company.
Share price
The price of shares fluctuates. Anyone can buy and sell the shares of a listed company on a stock exchange. The price of a company’s share on a stock exchange is determined by supply and demand. Listed companies often have thousands of shareholders – many of them regular savers, i.e. small investors. When more people want to buy the share than to sell it, the share price goes up. And when more people want to sell the share than to buy it, the price goes down. This is called share price performance.
Dividend
A dividend is the distribution of a portion of the company’s earnings to its shareholders. If the company decides to distribute a portion of its earnings to its shareholders, each shareholder receives a dividend yield in proportion to their shareholding. Dividends are expressed as dividend per share. They are not always distributed, for example, if a company is doing poorly.
Fund, investment fund
An investment fund is made up of a big pool of money collected from many investors. Different types of funds invest in different types of markets. For example, a fixed-income fund mainly invests in the fixed-income market and an equity fund mainly invests in equities. A fund that invests in both the fixed-income market and the equity market is called a balanced fund. An investment fund may be a good option for beginner investors, as the fund is managed by professionals. This means that the investors do not have to monitor the markets or companies as closely as, for example, when investing directly in equities.
Fund units
The money in a fund is divided into equal shares that are called fund units. This means that each fund unit corresponds to a share of the fund’s total assets. When you invest in a fund, you are buying fund units. When you invest in a limited liability company, you are buying shares.
Fund saving
A way of saving in which you buy fund units with your savings. If you want to save in funds, you can invest a larger one-time lump sum or smaller amounts regularly – for example 20 euros a month. Monthly saving is a good way to grow your wealth in the long term.
Interest and return
Capital
In saving and investing, capital means the amount of money you have saved or invested.
Price
The price of an investment depends on its valuation as well as on supply and demand. The price is higher when more people want to buy the asset and vice versa. The market price is the current price at which a security can be bought or sold in the market.
Return
The total return consist of both the dividend yield and the increase in value. The value of an investment may also decrease. If you invest 100 euros and in a year the value of your investment increases to 110 euros, the return on your investment is +10 euros, i.e. +10%. If the value of your 100-euro investment decreases to 90 euros in a year, the return on your investment is -10 euros, i.e. -10%.
Expected return
The expected return is the profit or loss anticipated on an investment and it is estimated based on historical data and market forecasts. However, reliable assumptions on future return or performance cannot be made based on past performance.
Interest
Interest is the price of money. Interest is money you make on your savings or investments for the period of time you hold them. On the other hand, it is also compensation paid by a borrower to a lender for the use of the money during the loan period.
Interest rate period
An interest rate period is the period on which the interest is calculated. The interest rate period is usually one year regardless of the length of the deposit period. The annual interest rate is often indicated with the term “per annum”, or “p.a.”
Fixed interest rate
A fixed interest rate remains unchanged throughout the deposit period.
Variable interest rate
A variable rate may change during the deposit period.
Reference rate
A reference rate indicates the market interest rate which your deposit or investment is linked to, such as the Euribor or your bank’s own Prime rate. The interest rate laid down in your agreement will follow the fluctuations of the reference rate.
Fee
As an investor, you pay your bank or investment service company fees for manging your investments and trading. For example, you may be charged a subscription fee for buying fund units and a redemption fee for selling fund units. Fees may also include the management fee paid by the fund to the fund company, for example.