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Glossary of terms

Find out the meaning of those technical terms. Click the letter that the word begins with.


Active fund

Active funds have managers who will actively seek the greatest return. Passive funds generally rely on the market to dictate performance.

Active fund manager

Fund managers who move investments between different assets often to get the best return for their investors. Active fund managers usually have teams that analyse all the available information and use complicated forecasting techniques to get the best performance for the funds they manage.


A person who sells financial advice and/or products. They include financial advisers, insurance agents, planners, sharebrokers, mortgage brokers and bank managers or agents. They may be salaried, paid a commission or have an hourly rate.


An asset is something of value that can usually be converted into cash – like a house or car.

Asset classes

Types of investment, e.g. shares, property, bonds, cash deposits.

Automatic payments

Automatic payments (APs) are a way of paying someone a set amount direct from your bank account, usually on a fixed day of the month. Automatic payments are ideal for bills that are the same amount each month, like rent.



Bankruptcy is a term used to describe the inability of a person or company to pay their debts.

Break fee

A fee charged by a lender for early repayment of a mortgage, for example when you leave a fixed term mortgage early to move to a lower interest rate.


Capital gain

The profit you make when you sell an investment for more than you paid for it. If you buy a house for $300,000 and sell it for $320,000, your capital gain is $20,000. A capital loss is when you sell an investment for less than you paid for it.

Capital growth

When the value of your investment (your capital) grows. If you invested $100,000 in shares last year that are worth $110,000 this year, your capital growth is $10,000, or 10%.

Cash advance

A cash advance is when you withdraw money from your credit card account, usually through an ATM. Cash advances are an expensive option because you get charged interest from the day you withdraw the money.


The money paid to a broker, financial adviser or planner, who sell products on behalf of a company. Commission can be based on the number and/or the value of the investments they sell.

Compound interest

Interest paid on interest. You earn compound interest if you have savings and don't spend the money you earn from the interest on those savings. For example, if you save $100 at 3%, you'll earn $3 in the first year. You now have $103. In the next year, you earn 3% interest on your $103. The 3% you earn on the $3 you earned as interest last year is compound interest. Over the long term, compound interest makes your money grow faster.


The amount of protection your insurance gives you.



An amount taken out of your bank account to pay for something.


Debt is what you owe - it comes in many forms, including mortgages, personal loans, credit card balances, hire purchase agreements, loans from family.

Direct debits

Direct debits (DDs) are a way of paying someone a variable amount direct from your bank account, usually on a fixed day of the month. Direct debits are ideal for bills that are a different amount each month – like telephone and power bills.

Dumb debt

High-interest debt that can easily be avoided.



This is the money you receive from others as payment for the use of your money.

Employer contributions

If you’re employed, what your employer puts into your KiwiSaver account. In addition to contributions from you and the government, employers are required to put in at least 3% of employees’ pay (before tax).


The amount you would get if you sold an asset and paid back any money you owed on it. For example, if you have a house worth $350,000, and a $300,000 mortgage, your equity in your house is $50,000.


Everything you own at the time of your death.


The amount you agree to pay when you make an insurance claim. For example, if the excess on your car insurance is $250 and you have an accident that causes $750 damage to your car, you will pay $250 and the insurer will pay $500.


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 from 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. However, if interest rates rise, then the opposite effect happens, either your repayments need to be increased or the term of your loan is extended.



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



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. For example, if you could buy something with $1000 now, in one year’s time, you would need $1020 to buy that same thing (assuming 2% inflation).


Increasing an amount of money each year by the same amount as inflation each year. For example, if you saved $1,000 last year, and the rate of inflation for the 12 months was 2%, you should increase this year's savings by 2%. So $1,000 inflation adjusted, is now $1,020. You make an inflation adjustment to maintain the value of your savings.


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 rates

The amount of interest you pay on a loan or are paid for an investment, usually expressed as a percentage.



The $1,000 you receive from the government when you join KiwiSaver.



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


How easily you can turn your investments into cash.


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 some kind of penalty. Usually an investment is locked in for a certain period - a number of years, months or until an event, like your retirement. For example if you make a six month fixed interest investment at the bank, your money is locked in for six months.

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. Or the difference between what you own and what you owe.

Nominal return

The money you make on your investment without taking into account inflation. Your real return on an investment is where allowance is made for inflation. For example if your investment has achieved a nominal return of 10% and inflation was 2% then your real rate of return is 10% less 2% giving a return of 8%.

NZ Super

New Zealand Superannuation is the pension currently paid by the government to all eligible New Zealanders aged 65 or over. To be eligible for NZ Super you also need to be a legal resident of New Zealand, having lived here for at least ten years since you turned 20. Five of those years have to be since you turned 50.



Official Cash Rate – used to control the interest rate the Reserve Bank charges 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.


Passive fund

Passive funds generally rely on the market to dictate performance. A passive fund is likely to be a lower risk investment than an active fund, but also has less potential for higher returns.

Passive fund manager

Passive fund managers don't move the money they manage between different assets as much as active fund managers. Passive fund managers generally rely on the market to dictate the performance of their fund.


An income paid at regular intervals to a retired person, by a government or through an employer superannuation scheme.

Per annum

Yearly. Per annum is often shortened to p.a.

Physical assets

Assets that have a physical presence, such as real estate or jewellery, as opposed to financial assets, such as shares or bonds.


PIEs (Portfolio Investment Entities) are types of savings or investment funds that have special tax advantages. If you save through or invest in a PIE you will pay either 0%, 10.5%, 17.5% or 28% tax on your share of the PIE’s income, depending on your own income.


The written contract between you and your insurer.


The amount you pay to buy insurance.


The amount you borrow when you take out a loan or mortgage.


A company such as a bank, finance or insurance company that creates and provides insurance, mortgage, banking, savings or investment products.


Rate of return

What you earn on your investment as a percentage of the amount you invested. For example, if you by a house for $300,000, and it makes you $15,000 from rent each year (after all the running costs have been paid), the rate of return on your asset (the house) is 5% ($15,000 is 5% of $300,000).


Changing the terms of your loan, or replacing your existing loan with a new one. Refinancing is often associated with going to a different lender.


The change in the value of your investment over a period of time plus the value of any income received from it (e.g. dividends from shares). Returns can be both positive and negative.


Risk is the chance that an investment will not be as good as you expected or were promised. It means that you might not get some or all of your money back and you might not get any additional returns (e.g. interest or dividends or capital growth). Risk is also about volatility - the possibility that the value of your investment will go up and down.


Secured loan

A secured loan is secured against some or all of a borrower's assets, reducing the lender’s risk on the loan. If the borrower defaults on the loan (fails to make repayments), the lender may get some/all of these assets in order to cover the outstanding loan amount.


A security is the piece of paper that proves ownership of stocks, bonds and other investments.


Shares and equities refer to the same thing - a share in the ownership of a company and entitlement to any distributions (e.g. dividends).


Any security traded on a public exchange including fixed interest or equity securities.

Superannuation scheme

Funds specifically designed for people saving for their retirement. They are in the form of retail funds available to all savers, or employer funds available only to employees of the sponsoring employer.


Table mortgage

A loan that is paid back by making regular payments of fixed amounts. Each payment pays back part of both the interest and the capital.

Term deposit

Money deposited for a fixed term - usually between 30 days and five years. If you want your money back before the term is up you may have to forego a portion of your interest as a penalty.

Trustee company

Trustee companies were originally established to manage a deceased person's estate and trust funds. These companies now actively manage money on behalf of clients through will preparation, estate planning, as well as trust and estate administration.


Unit trusts

A type of managed fund. Managed funds work by pooling money from a number of investors and then using this money to buy a variety of investments. In a unit trust, each investor owns a proportion of the total fund.

Unsecured loan

A loan which is not secured against any of the borrower’s assets and so is more risky for a lender than a secured loan. To compensate for this, the lender charges a higher interest rate.