Cash Investments Flashcards
How is interest on cash usually paid?
Gross (Tax then needs to be submitted)
How is compounding expressed?
As an effective rate of return
What are the four types of cash accounts?
Instant access
Restricted access
Structured deposits
Cash Individual Savings Accounts
Which instant access accounts offer the best rate of return?
Those online due to less overhead
What is a structured deposit?
Guaranteed investment account.
Pays interest on the performance of an index in the form of guaranteed capital or a percentage of the performance.
What is the difference between structured deposits and structured products?
Structured products offer capital protection by a third party but add a couterparty risk.
Also, offer higher risk derivatives.
What is a flexible ISA
One that can have cash taken out then put back in without effecting the £20000 limit.
Child, LISAs, and help to buy are not flexible.
What are the rules regarding ISA transfers?
Can be transferred between ISAs
Previous years can be in full or part transfers
Current years must be in full, and the ISA is voided and replaced.
Describe NS&I direct ISA
Tax-free variable interest cash ISA with minimum £1
Describe NS&I junior ISA
Up to £9000 tax-free ISA
Describe fixed interest NS&I certificates
Lump sum tax-free investment that pays a fixed interest.
Penalty of 90 days interest for early withdrawal.
Describe index linked NS&I certificates
Rate of return linked to inflation
RPI for those renewed before 1/5/19
CPI for those renewed after.
90-day penalty for early withdrawal
Describe NS&I guaranteed growth bonds
Offer guaranteed fixed return
£500-£10000 per person
Interest paid gross but taxable
No withdrawal till the end of term
Available to anyone over 16 singles or jointly.
Describe NS&I income bonds
Regular variable monthly interest paid gross, but taxable
Available to anyone over 16
Can be held in trust
£500-£1m sole £2m joint
Easy access
Describe green savings bonds
Online savings bonds for aged 16 over
Fixed interest over 3 years. Gross but taxable
Describe NS&I investment accounts
£20-£1m sole £2m joint
There is no notice for withdrawals
Postal only
Interest paid gross, but taxable
Describe how NS&I direct saver account can be accessed? How much can be invested? How is interest paid and taxed?
Online or phone only
£1-£2m sole £4m joint
Interest paid gross but taxable
What tax-free NS&I products are there?
Primium bonds
ISA
Certificates
Kids ISA
What are the 3 instruments used in the money market?
Treasury bills
Certificates of deposit
Commercial bills
What are treasury bills?
Short-term money market instruments. 1-12 months
Managed by debt management office for government purposes.
Offered at bellow face value.
Redeemed at face value (par) (no interest)
Risk free investment
What are the certificates of deposit?
Ways for banks/building societies to raise money against deposits they hold.
Fixed interest
Fixed term (usually 1-3 months)
Paid on maturity
No withdrawals
Can be traded, which adds liquidity
Interest linked to SONIA
Yields depend on issuers’ credit rating and market interest.
What are commercial bills
Similar to treasury bills but for companies and not backed by government.
Less liquid
Not as safe
Higher yields
What are the rules for short-term money market funds?
Weighted average maturity no more than 60 days
Weighted average life no more than 120 days
What are the rules for standard money market funds
Weighted average maturity No more than 6 months
Weighted average life no more than 12 months.
What charge is usually associated with money market funds?
0.15% annually
How can an average investor access the money market?
This is impossible directly, but it can be done through certain investment products
What are the risks associated with cash
Inflation
Default
Interest and reinvestment risk
Currency and country risk
