Here’s my US – UK personal finance dictionary.
If you’re a Brit, have you ever started reading personal finance blogs written by American writers, only to get a bit lost when you hear terms you don’t recognise?
If you’re an American, do you get baffled by phrases used by UK money bloggers?
This article is to help explain US personal finance terms to UK readers, and define British terms and phrases to an American audience.
Why write a transatlantic personal finance glossary?
I’m originally from Barbados, but I spent a significant part of my life in the USA. I even had a green card (permanent residence) before moving the UK, and all of my immediate relatives are US citizens. So I have a personal interest in being able to understand US personal finance in order to help my family.
Maybe you want to move to the US or the UK, or perhaps, like me, you want to help and understand friends and relatives across the pond. Or perhaps you simply like to read lots of personal finance blogs, but find yourself a bit stumped when the jargon doesn’t match up.
Either way, I’ve compiled a list of terms that are different or unknown in money-speak on opposite sides of the Atlantic, with US terms first, followed by UK phrases.
US to UK Translations
A 401(k) is similar to a pension plan. It’s a defined contribution retirement plan that companies may offer into which the company, employee (or both) can pay in pre-tax contributions.
There are different defined contribution pension plans, with the 401(k) and 403(b) being the most common forms. The 401(k) gets its name from the subsection of the tax code that governs it. The closest UK equivalent is a personal pension scheme.
AGI stands for Adjusted Gross Income. It refers to an individual’s total gross income minus specific personal expenses and deductions – the amount that’s left after these deductions, the AGI, is what is then considered for tax purposes.
ARM stands for Adjustable Rate Mortgage.
This type of mortgage has a fixed rate for a period of time at the outset of the term, and after this point, rises to a rate set out in the mortgage terms. Confusingly, this type of mortgage is referred to as a fixed rate mortgage in the UK, but a fixed rate mortgage in the US is fixed for the entire life of the loan.
The US form of bankruptcy, usually seen as quite lenient, which allows debtors to restructure or reorganize their debts concerning their business. There are five forms of bankruptcy named for their corresponding chapters in the US Bankruptcy Code, namely Chapters 5, 7, 9, 11 and 13.
The Federal National Mortgage Association is commonly known as Fannie Mae.
They lend to the lenders; it was set up during the Great Depression to fire up the housing market by making more mortgages available to low income (and mid income) borrowers. It purchases and guarantees mortgages on the secondary market, usually from commercial banks.
Federal Reserve/The Fed
The Federal Reserve System – to give it its full name – is the United States’ central bank. It is the equivalent of the UK’s Bank of England in that it runs monetary policy, regulates inflation by setting targets and polices the financial system.
FICO stands for Fair Isaac Corporation, which was a company that created the method for credit scoring. The FICO score is a number used by financial institutions as a measure of an individual’s creditworthiness. FICO scores have a range between 300 to 850, with a higher score being better.
This sounds as though there is one unified credit score, but in fact, each of the three major credit referencing agencies in the US – TransUnion, Experian and Equifax – keeps its own unique FICO score on individuals… so at any time, one person can have three different scores. Not so different from the UK.
The Federal Home Loan Mortgage Corporation is commonly known as Freddie Mac. This entity also works in the same way to Fannie Mae, buying mortgages on the secondary market, but was set up in 1970, and buys largely from smaller banks.
The Individual Retirement Account, or IRA, is easily translated as the US version of an ISA (Individual Savings Account)as it is a wrapper that protects the funds therein from tax, but as the “retirement” part suggests, there are limitations as to when money can be withdrawn without penalty.
As the UK has a variety of ISA accounts, there are a staggering amount of variations of IRAs, most notably the Roth IRA, in which contributions are made with after-tax assets and withdrawals can be made tax-free.
Of course, IRS stands for the Internal Revenue Service. Most of us are familiar with the American version of HMRC, thanks to the television and movie industries!
PMI stands for Private Mortgage Insurance.
Mortgage lenders require private mortgage insurance when home buyers put down a deposit of less than 20 percent; it serves to protect the lender against defaults. This also makes buyers’ monthly repayments more expensive each month.
The SLM corporation, formerly known as the Student Loan Marketing corporation, is commonly referred to as Sallie Mae.
Isn’t it interesting how these corporations have been given such folksy, non-threatening names? Originally a government entity, it was eventually privatised and now offers and collects private student loans.
Possibly the most-discussed topic amongst American personal finance writers, and for good reason: student loans are the second-biggest form of debt in the US, behind mortgages.
The sums owed by individuals can be eye-watering, and can linger for a long, long time. It is possible for both federal and privately issued student loans to be discharged by bankruptcy, but only in limited cases.
UK to US translations
The Bank of England is the UK’s central bank, owned by the UK government but acting independently in setting monetary policy. It sets the Bank Rate, also known as Base Rate, which is the UK’s official interest rate.
Her Majesty’s Revenue And Customs is the UK’s taxes and customs authority; essentially it is the UK version of the USA’s IRS.
An ISA is a tax-efficient savings account; there are variations such as cash ISAs, stocks and shares ISAs and Innovative Finance ISAs which encompass peer-to-peer investments, and others including junior ISAs (for those 18 and younger), lifetime ISAs which can either fund a first-time house purchase or retirement, and Help To Buy ISAs which fund a first-time house purchase (but are being phased out) .
Payment Protection Insurance was sold to individuals taking out credit as a way to ensure repayments were made in the eventuality of accidents, illness, disability, or redundancy. Many complained about having been mis-sold PPI when taking out a loan or other form of credit, with some unaware that they could refuse or shop around.
More than £27 billion to date has been repaid to customers who were mis-sold PPI, and it seems as though there have been 27 billion ads, cold-calls and junk mail folders sent out hectoring the UK population into claiming PPI refunds.
Zero-hours employment contracts are a kind of on-call contract which means that there is no minimum guaranteed amount of work, and therefore no guaranteed amount of earnings. Despite being widely seen as exploitative, zero-hours contracts are widely used by retailers, fast food restaurants and other industries.
There you have it –
A very brief selection of words and phrases. Even though the terms and names of institutions as well as laws change from country to country, the basic principles of personal finance stay the same. We’ve got a lot to learn from each other, and I’ve got a lot to add to this post!
Over to you…
If there are any terms you would like to see included in this list, leave your comment below.
This is brilliant! I beg for a follow up post with more definitions of U.K. terms. I know I’ve run across some real bafflers this year, but I can only remember a few of them now. Is “superannuation” a U.K. term or is it just for Aussies? Same question about “redundancy”. In the U.S. we call that getting fired, I think. If I come across some more puzzling U.K. terms, I will let you know.
Hey, thanks for that! Redundancy is pretty much the same, but superannuation is a confusing one because we have that term here, but apparently it means something different to the Aussie/New Zealand version. I’m on the case! Please do let me know of any more to include 🙂
Cool post. Fannie and Sally Mae had previously baffled me. Glad to have that cleaned up.
In an unrelated but super helpful request, if you have any knowledge of UK pensions, that would be a great post. I now seem to know more about how 401(k)s and other American things work than I do the UK pension. This is in terms of FIRE.
I’ll get on it as soon as I can! I think that’s a great suggestion 🙂