banking and economics
financial concepts: yank speak to the queen’s english
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So yesterday, when I pointed out the free download that was available of Suze Orman’s book Women and Money, I said that I’d explain how some of her ideas relate to British personal finance products
checking accounts = current accounts
You probably know that what are called checking accounts in the US, are called current accounts in the UK. Suze recommends that you open a new checking account with the following features:
- no monthly fee
- a low balance to qualify for free checking
- free checks and check writing
- online access and free online bill pay
- insurance coverage
In the UK, you should actually be able to do a lot better than that. Every single bank in the UK offers at least one (and sometimes many) current accounts with those features. To that list you can also add:
- high interest
- FSA registered
- telephone banking
- the ability to set up direct debits and standing orders
- free cash machine transactions at all banks
Currently the best accounts if you are in credit are with First Direct (it’s a high cash bonus rather than a high interest rate) or Alliance and Leicester or Cahoot . Which one you should get depends on how much you earn and deposit each month .
FDIC = FSCS
Just like the Yanks have insurance on bank deposits, so do us Brits. Every bank, building society or credit union regulated by the FSA is insured by the Financial Services Compensation Scheme (FSCS). In the event of a bank or building society failing, the first £35k that you hold in all your accounts combined at the bank will definitely be returned to you.
401(k) = direct benefit (money purchase) pension
A 401(k) scheme or similar is an employment based retirement account. The exact equivalent in the UK is a direct benefit pension, often called a money purchase pension. As in the US, these usually come with employer contributions, which may or may not be dependent on your own contributions.
There are more generous limits on contributions. You may contribute up to the lower of your annual earnings and £215k over all your pensions, including private pensions.
roth IRA = stocks and shares ISA, sort of
The closest thing that we have in the UK to a Roth IRA is a stocks and shares ISA . Stocks and shares ISAs are more flexible than Roth IRAs, which has it’s own disadvantages. You can contribute up to £7000 per year (increasing to £7200 in April) to a stocks and shares ISA, but this limit is dependant on whether you have a cash ISA as well.
Anyone over the age of 18 may hold a stocks and shares ISA, regardless of their earnings.
traditional IRA = private pension, sort of
A traditional IRA in the US, is much the same as a British personal pension, but the limits on making tax-free contributions are much more generous. They are the same as those for an employment based defined benefit pension.
In addition, you can contribute up to £2,808 before tax (which HMRC will top up to £3600) even if you don’t have any earnings, there is no age limit on this.
advance directive / healthcare DPOA = living will: advance statement and advance directive
In the UK, the way to specify in advance what you would like to have happen to you should you become incapacitated is through a living will with an advance statement and/or an advance directive.
An advance statement describes treatment that you would be happy to have, want to have or prefer not to have. It also indicates who you would like to be consulted over your treatment. It is not legally binding, but healthcare professionals must take it into account.
An advance directive is a refusal in advance of certain types of treatment. It is legally binding and must be followed except in a few cases .
anything else?
I’ve given equivalents all the American financial products that I noticed featuring heavily, but if you spot any others, let me know. I’m always happy to try to translate from yank speak to the Queen’s English.
Image by jennifrog
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Tags: 401(k), checking account, current account, equivalence, financial products, IRA, ISA, Roth IRA, uk, us Discussion
19 comments for “financial concepts: yank speak to the queen’s english”
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Plonkee, I had thought the British didn’t have anything quite like FDIC. I remember reading that after the run on Northern Rock. Researching it, I see that I was wrong and that it just wasn’t quite as generous as FDIC which insures 100% of the first $100,000. From what I’ve read, the FSCS only 100% protected the first 2000 pounds with the next 33,000 pounds being 90% protected.
I also see this was changed after Northern Rock so that the first 35,000 pounds are 100% protected. This is a wise move and should keep another bank run from occurring.
@Andrew:
Yes, the FSCS isn’t quite as generous as FDIC insurance. Although the amount insured has increased, I don’t think that will have too much effect (by itself) on whether there’s a bank run - most people weren’t aware that there was any insurance and didn’t want to risk having to wait ages for their money.
The Bank of England’s and the Government’s actions to effectively shore up Northern Rock is more likely to give people a (potentially false) sense of security.
Plonkee- fantastic, ta so much for this. I thought I’d got US-speak straight in my head, but it seems there were some gaps in my knowledge. Do you think that the advantages of a living will are diminished by the state-funded healthcare compared to private medical cos (who’d happily turn off a switch to save a dime if they could get away with it?)
@Andrew- I don’t think FSCS guarantees would stop a bank run; the original allowances were really pretty generous (and aren’t really so much better now), but when you get stampede mentality, logic goes out the window.
Plonkee and Pippin, well, we agree that it’s not as generous as FDIC. However, don’t underestimate the difference between insuring 90% and insuring 100%. Presumably, most people don’t have more than 35,000 pounds in their savings account so their money is now perfectly safe. However, I’m sure lots of people had more than 2000 pounds in their savings account, so they were at risk of a 10% loss on the excess if the bank failed.
Of course, the government will have to make people aware that their deposits are protected in order to prevent more bank runs. I think this will occur after a few bank failures if the British are as efficient and quick as the U.S. is in the event of a bank failure. One of the reasons the U.S. doesn’t see panics like this (despite a massive number of bank failures, particularly savings and loans, back in the ’80s) is because a lot of people have had experiences with FDIC taking over the bank and paying out depositors and the experiences have always been positive ones.
Never knew about the FSCS thing, pretty interesting. I don’t know (really) if the ‘insurance’ the FDIC provides has assured me that the banks won’t dry up and blow away with my money someday, but it’s better than nothing.
P.S. Love the picture of the bears. I’m in Kansas City, and we have a number of Cows scattered around the city painted in different motifs. (KC = Cattle town originally)
I think it’s funny how Brits call things ’schemes’ (referring to the Financial Services Compensation Scheme, FDIC eqivalent); it makes it sound a bit shifty and illegal.
I can appreciate it somewhat as I’m orginally from a British colony, where we had ‘housing schemes’, ‘pension schemes’, and the like.
@Andrew:It’s certainly true that there haven’t been that many runs on the banks, but then in the UK, there hasn’t been a failed bank in years, which is not so much reflection of people’s confidence in the insurance as that UK banking was consolidated about 100 years ago. It’s just not in people’s psyche, at all.
That used to be true in the U.S. as well. It was very, very difficult for a bank to fail. That changed when the savings and loans were deregulated. But we also have tons and tons and tons of tiny little community banks and savings and loans and community credit unions, nothing like the consolidation in Britain.
Thank you! It is great to have a Rosetta Stone for all of my fav UK bloggers!
Rich Money Million took my comment! I don’t think the word “scheme” would ever work for a similar program in America. Great list!
Thanks a million for this post! As a recent expat to the UK from the US, I’ve been spending a lot of time on bank websites trying to figure out what everything is and their equivalents in the US. This has helped to clarify a lot of things (especially ISAs). I’ve been frequenting Yank pf websites for the past year or so, so I was really excited to find yours, a UK-based one .
It’s really an amazing time in their lives, but they must be prepared as you mentioned. Keep up the fantastic blog, and God bless you. Thanks again.
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Stocks and Shares ISA