Home Loans Personal Loans Savings and Term Deposits Credit Cards Transaction Accounts CFDs
Global Terms
IBVR (InfoChoice Benchmark Variable Rate) - This is our calculated weighted average interest rate paid for standard loans at variable rates, and taking into account all types of lenders and discount packages. We publish this rate for use as a yardstick against which to measure other products, mainly because the 'standard variable rate' in the home loan market has ceased to become a meaningful indicator of home loan rates. Despite this, the variable rate is still the starting point we all use - lenders, brokers and borrowers - in comparing home loans.
The IBVR is a weighted average of the rates offered on full featured variable loans of approximately one hundred large and small lenders around Australia.
Home Loans
Low-Doc / Sub-prime / Non-conforming Loan – Products that cater for those borrowers who do not meet the standard income verification and credit history criteria that mainstream lenders like banks and mortgage originators use for other customers. Such borrowers include those who are self-employed, have a poor credit record or who have recently arrived in Australia. These loans usually carry a higher interest rate, to reflect the higher risk associated with this type of borrower, and a requirement for mortgage insurance, where applicable.
Introductory (Intro) or Honeymoon Rate – A special low rate, which may be up to two percentage points lower than the lender’s standard home loan rate. A fixed introductory period, usually six to 12 months, applies to these rates, after which the rate reverts to that lender’s standard rate. As such, customers should use the Comparison Rate to compare these products with others instead of the time-limited Intro Rate.
Reverse Mortgage – A loan that allows the home-owning customers to borrow against the value of the home they live in, without having to sell it. No repayments are required during the loan term, with the total interest, fees and charges being taken out of the estate upon the death of the borrower.
Minimum Age of Borrower – Reverse Mortgages are generally only available to senior citizens, and as such a minimum age limit applies to these products, usually 60 or 65 years.
Early Termination Fee – An early termination penalty or fee may be charged by a lender if the customer refinances or otherwise pays out their loan within a specified period, usually limited to the first 3 to 5 years of a loan.
Exit Fee – Some lenders charge an additional fee when the customer pays off a loan at any time earlier than the expected final pay-out date.
Discharge Fee – The one-off fee charged upon final pay-out of a loan.
Personal Loans
Security / Collateral – In lending agreements, an asset offered as security by a borrower is forfeited to the lender if the borrower is unable to pay back the principal and interest on the loan. In that instance, the borrower is said to default on the loan, in which case the lender becomes the owner of the asset used as security (typically this will be a house or vehicle). Some personal loans do not require security, while a car loan product might use, for example, the vehicle to be purchased as the security for the loan.
Overdraft – An overdraft is the facility afforded by a bank to a customer whose account is overdrawn (i.e. where the total withdrawals exceed the account balance, giving a negative balance). Interest can be charged on the debt until it is repaid, but there are no fixed terms for the repayment. As such, an overdraft is a simple form of personal credit.
Official Cash Rate – The interest rate set by the Reserve Bank of Australia and used to influence the general level of interest rates in banking and the economy. When the Reserve Bank makes changes to the cash rate, also termed "official interest rates", high-street lenders usually follow suit and adjust their own interest rates by the same amount. See RateWatch.
Credit Cards
Annual Fee – An ongoing service fee charged each year for keeping the account open.
BPay – BPay is an Australia-wide electronic bill payment service, offered by most financial institutions. It enables consumers to pay bills to a range of businesses registered with the service via their telephone banking or internet banking account. A similar rival service, set up by Australia Post, is called Postbillpay.
Credit Card – A type of payment card with which the issuer lends money to the card holder, to be paid later to the merchant. Credit card lenders often require a minimum monthly payment on any outstanding balance, usually a set percentage of the balance, while the remainder can roll over from one month to the next.
Charge Card – Similar to a credit card, except that the balance must be paid in full each month
Debit Card – Also known as a bank card, a debit card is similar in operation to writing a cheque, since the funds are drawn directly from the card holder’s account, or in some cases, from a balance allocated to the card itself. Debit cards usually also act as ATM cards.
Savings and Term Deposits
Term Deposit – Fixed-term deposits are savings accounts which offer higher rates of interest than a standard savings account in return for committing funds to the account for a set period. Usually, the longer the customer is prepared to save (i.e. the longer the term), the higher the rate of interest paid to them. The trade-off for this higher rate is that funds saved in a term deposit account cannot be accessed or withdrawn at will, unlike a standard "at-call" savings account.
At-Call Savings Accounts – At-Call savings accounts are those which allow the customer to access their savings at any time, as opposed to a Term Deposit. In practice, this access may be restricted to the opening hours of the financial institution or the type of withdrawal access it offers. Institutions may take up to 24 hours to process withdrawals (notably some cash management trusts), or they may offer true instant access via ATMs and internet banking.
Transaction Accounts
Direct Debit – Automated payment of funds out of an account, in accordance with an agreement between the account holder and the payee, usually on a monthly or quarterly basis. The account holder has to authorise the payments, but thereinafter payments are made automatically. As such, many monthly bills can be paid by direct debit, which eliminates the possibility of the account holder forgetting to pay. A fee is usually charged if a scheduled payment cannot be made due to lack of funds in the account.
Direct Credit – Automatic payment of funds into an account. The most common use of this feature is for the payment of wages or salary into a customer’s account.
Small Business Accounts
[See Savings/Transaction Accounts]
Travel Money
Traveller’s Cheques – Pre-printed, fixed-amount cheques, with no expiry date, usable overseas in place of cash. In recent decades the use of traveller’s cheques has declined in favour of the now more widely accepted credit card system. Additionally, debit cards can usually be used to withdraw cash overseas, in the local currency, via ATM access.
Investments and Brokers
CHESS (Clearing House Electronic Sub-register System) – This is the Australian Stock Exchange's computer-based share transaction and settlement system. It provides a central book-entry register using electronic transfer of share ownership, recording users’ holdings in a secure central database. Instead of being issued with physical share certificates, investors receive an easy-to-read holding statement, similar to a bank statement. There is no charge for joining the system, and the use of it eliminates the risk of losing share certificates.
Debentures – Debentures are fixed-interest securities on which the issuer pays interest at a fixed rate and for a specific term. They differ from term deposits in that debentures are issued by companies which are not licensed to take deposits; instead, such companies are subject to debt securities law and must issue a prospectus. Often, the interest income paid on debentures is higher than the rate paid on cash investments because of the longer term of the investment.
Financial Instrument – A traded instrument is typically either cash, or the ownership interest in an entity (such as a stock holding) or other asset.
Index (Stock Market Index) – A stock market index is a list, a method of measuring a given section of the stock market. In Australia, the All Ordinaries is a broad-base index (one that represents the movements of an entire market), linked to the Australian Stock Exchange. The closing value of an index fluctuates daily depending on the price movements of the listed stocks and shares.
Margin Lending – This is the process of obtaining a loan purely for the purpose of investment.
Market Depth – An indicator of whether the greater price pressure on a given instrument is on the buying side or the selling side, which works by showing the number of orders (or bids and offers) on each side.
ETOs (Exchange Traded Options) – ETOs are a derivative product issued over existing shares with each option being for a package of a thousand shares in the underlying company’s shares. There are two kinds of ETOs – “Call Options”, giving the buyer the right to buy shares at a specific time and price, and “Put Options”, giving the buyer the right to sell shares in the company. All ETOs will have a Strike Price and an Expiry Date. They are generally only issued over large cap stocks with good liquidity.
Call Option Protection – Protected equity lenders broadly offer two different ways to reduce the high interest costs of their capital protected loans. Some protected equity lenders offer investors the ability to write call options over the stocks in their loan portfolio at preset "strike" prices. The sale proceeds from these options can be used to help fund the loan interest, but this also means that if the price of a stock in the portfolio rises above the option strike price, the buyers of the call options can then buy the stock outright from the investor, leaving the investor with only the capital growth up to the strike price.
Shared Upside – Gives the borrower a lower interest rate in return for sharing any capital growth at the end of the loan term with the borrower at a set proportion, typically 25 or 50 per cent.
Establishment Fee Protection – Under a protected equity loan arrangement, some lenders include the value of the establishment fee in the capital guaranteed amount. For example, if the amount borrowed and invested is $100,000 and $1000 is taken out in establishment fees, some lenders will still provide a capital guarantee over $100,000; others will only guarantee $99,000.
Brokerage Fees – The fees charged by brokers for buying and selling shares on the stock exchange on the investor's behalf. In our Online Broking tables it refers to the minimum charge by the online broker for trades up to a specified limit. For trades greater than this limit a percentage brokerage fee will usually be charged, such as 0.1% for trades greater than $10,000. In our protected equity tables in Margin lending, the "Brokerage" column reveals whether lenders pass on the brokerage fees incurred for shares bought in the loan portfolio. On sale, they may also pass on the brokerage fees or absorb them.
Real-Time Data – The provision of instant updates on price and trading data.
CFDs
CFD (Contract for Difference) – A CFD is a derivative trading instrument, a contract between two parties (a buyer and a seller), in which the seller speculates upon movements in price of a traded asset between its current value and its value at an agreed future date. The seller typically agrees to pay this price difference to the buyer, unless the difference is negative, in which case the buyer pays instead to the seller. Unlike a futures contract, there is no fixed expiry date.
Sector CFDs – This is where a CFD is linked to an entire industry sector, one of several currently traded on the Australian Stock Exchange. Sectors are groups of companies, grouped by their relative industries according to international standards. A Sector CFD can be useful for the investor who does not wish to specify a particular stock.
Stop-Loss Order – One of the most effective ways to manage a CFD trade is touse a stop-loss order, which will take the investor out of a trade once the price of a CFD reaches a set point or level that the investor considers negative.
GSLO (Guaranteed Stop-Loss Order) – This variation on the Stop-Loss order guarantees that CFDs are taken out (bought) at a pre-set price even if the share CFD price varies greatly against the investor. There is usually a modest premium for this order. Unlike the regular stop-loss order that can be placed on electronic trading platforms, GSLOs can only be placed by a CFD provider on the telephone during market hours.
Limit Order – A Limit Order is an order to buy or sell a share at a specific price. The order will only be carried out by the broker at that price, or a better one. If the broker cannot fulfil the Limit Order, it lapses.
One Cancels (the) Other (OCO) – This is an advanced type of order which links two orders. In this instance the execution of the first order will mean the automatic cancellation of the other order linked to it. A usual application of an OCO is to link a Limit Order with a stop order.
If Done Order – Similar to an OCO (see “One Cancels the other”), an “if done” order links two orders together. The difference in this type of order is that once the first order is executed the second one is automatically entered into. A usual application of this order is to set a Limit Order and ‘If done’ a stop-loss level.
Portfolio Diversification – Long term ‘buy and hold’ investors can use CFDs to take advantage of short-term, profitable moves in the market, using such moves to deliver profit without affecting their long-term investments.
Portfolio Hedge, Hedging – Protecting or attempting to minimise risk that may affect an investor’s portfolio is called Hedging. It typically involves deriving profit from a secondary source, in case the main portfolio does not perform well. Contracts for Difference (CFDs) are increasingly being used by investors to protect their share portfolios and equity investments.
Tradable on Margin – this term refers to the use of borrowed capital (“Margin”) to finance trading. A smaller percentage of trading capital can be used to open up more, or larger, positions than would be possible if trading shares directly. The ability to trade on margin is the one of the greatest attractions of CFDs because it increases the opportunity to make profit using a small capital; however, it is a double-edged sword, since it magnifies the potential for both profits and losses.