A4 Managing Personal Finance - Different types of saving and investment

Question 1

what is saving ?

Answer 1

saving is placing money in a secure place so that it grows in value and can be used in the future.

Question 2

what is investment ?

Answer 2

Investment is a commitment to a business in the hope that is generated a financial reward in the future.

Question 3

what are the 6 different types of saving and investment ?

Answer 3

• Individual savings account .
• deposits and savings account.
• Premium Bonds.
• Bonds and gifts.
• Shares
• Pension.

Question 4

what is an individual savings account ?

Answer 4

This is the type of savings account where the holder is not charged income tax on the interest received.

There may be conditions set for example a period of notice has to be given before savings are withdrawn.

There is a limit on the annual amount that can be placed in an individual savings account.

Question 5

what is a deposit and savings account

Answer 5

These are accounts where interest is paid on the balance and normally the holder needs to give notice before withdrawing funds.

Question 6

What are Premium bonds ?

Answer 6

A government scheme that allows individuals to save up to a set amount by buying Premium bonds.
The bond holders does not receive interest on their savings.
Each premium bond is placed into a regular draw for cash prizes.

Question 7

What are bonds and gifts ?

Answer 7

They are fixed term securities where the lender lends money to companies and governments in return for interest payments.

The money is invested for a specific period of time . The initial sum is repaid in full at a set point in the future.

Question 8

What are shares ?

Answer 8

Shares involve investment in a company in return for equity.
The shareholder becomes a part owner of the business.
The shareholder will receive dividends from the company’s profits and will want the value of the shares to increase.
Share prices can go up and down though and dividends are not guaranteed.

Question 9

what are pensions ?

Answer 9

Pensions are a savings plan where the individual makes regular contributions to a pension policy.

The objective of a pension is too plan for the future so that an income is available upon retirement.

Pensions can give a lump sum or regular payement or a combination of the two.

Pensions can be state , company or private.

Question 10

what are the advantages of an Individual savings account ?

Answer 10

• ## tax is not charged on interest earned allowing the save to keep al the rewards of saving.

Question 11

what are the disadvantages of an individual savings account ?

Answer 11

• there is limit on the amount you can put in an individual savings account.
• you may need to give notice if you wish to make withdrawals from the individual savings account.

Question 12

what are the advantages of savings and deposit accounts ?

Answer 12

• interest is earned on positive balances.
• money can usually be accessed easily.
• can be used for an emergency/ unexpected events.
• risk free

Question 13

What are the disadvantages of savings and deposit accounts ?

Answer 13

• interest earned is taxed.
• the percentage rate of interest paid on savings is likely to be lower than the interest paid.

Question 14

what are the advantages of premium bonds ?

Answer 14

• chance of winning more that could be earned in interest.
• can be easily withdrawn with no loss or penalty.
• no risk.
• don’t lose initial investment.
• a tax free - method of saving.

Question 15

what are the disadvantages of Premium bonds ?

Answer 15

• no guaranteed return on your investment - not guaranteed to win.
• No interest paid.
• There is a maximum limit as to how much you can invest in premium bonds
• there is a minimum purchase amount.

Question 16

what are the advantages of Bonds and gifts ?

Answer 16

• regular fixed return regular income.
• can be sold at any time to other investors.
• relatively low risk.

Question 17

what are the disadvantages of bonds and gifts ?

Answer 17

• the value of the bond or gift may decrease.
• income is taxable.
• company bonds have higher risk because they are affected by the financial stability of the company.

Question 18

what are the advantages of shares ?

Answer 18

• shareholders can receive dividend payement.
• could receive discounts on the company’s products or services.

Question 19

what are the disadvantages of shares ?

Answer 19

• not easy to access money if invested.
• dividends may not be paid , it depends on the discretion of the company.
• there is no guarantee of any reward or return.

Question 20

what are the advantages of a pension ?

Answer 20

• encourages individuals to save throughout their working life for their retirement.
• Regular contributions are made.

Question 21

what are the disadvantages of a pension ?

Answer 21

• cannot be obtained before retirement.
• movement between jobs may mean that one policy stops and another starts