Cash Deposits

Question 1

Advantages of investing in cash

Answer 1

Interest earned

Liquidity

Capital Protection ( up to 85,000)

Question 2

Disadvantages of investing in cash

Answer 2

Low rates of return

Inflation corrodes value

Investment not protected above 85,000

Currency risk if held overseas

Question 3

Rates of Interest

Answer 3

Interest is % of funds deposited

Fixed vs Variable

Longer term deposits = higher rates

No capital growth on cash deposits

Question 4

Notice Accounts

Answer 4

Cant withdraw until certain days notice

Better rate of interest

Penalty for early withdrawal

Question 5

Instant Access Accounts

Answer 5

Current account

Flexible

Lower rate of interest

Question 6

Basic rate Tax payers

Answer 6

First £1000 of interest rate tax free

20% Taxed above this figure

Question 7

Higher rate Tax payers

Answer 7

First £500 of interest rate tax free

40% taxed above this figure

Question 8

Additional Higher rate Tax payers

Answer 8

No tax free allowance

Taxed at 45%

Question 9

Tax year

Answer 9

6th April to 5th April following year

Question 10

Annual Effective Rate

Answer 10

Period Rate = Annual Rate / NO of Periods

AER = (1+ calculation above as a decimal ) x no of periods