Chapter 14- Saving and Investing

Question 1

What are savings?

Answer 1

The part of our income we choose not to spend, it is money set aside with the plan to spend it in the future

Question 2

What are savings also called?

Answer 2

Deferred spending

Question 3

What is investing?

Answer 3

Is putting money aside in order to make more money at a later date, like saving but you receive reward

Question 4

Examples of investing include:

Answer 4

Investing money in a company (buying shares), buying a house

Question 5

Liquidity:

Answer 5

Means how quickly we can get access to and get our money back when we want to

Question 6

Risk

Answer 6

Refers to how safe and secure our money is in the place we decide to save or invest it in

Question 7

Interest

Answer 7

Is extra money you receive on top of the money you have saved in a financial institution

Question 8

DIRT

Answer 8

(Deposit Interest Retention Tax) Tax that must be paid by and individual on interest earned in a savings account

Question 9

Reasons for saving

Answer 9

• for future spending e.g. holiday
• for emergencies
• for major family events e.g. wedding
• for retirement
• to improve your credit rating

Question 10

Factors to consider when saving or investing

Answer 10

Risk
Reward (interest rates)
Liquidity
Taxation (will you have to pay DIRT?)
Ease of access (easy to lodge and withdraw regularly?)
Terms and conditions (fees)

Question 11

WHERE TO SAVE: Commercial Banks

Answer 11

E.g. AIB

• offer savings (deposit) and current accounts
• deposit account:
• –similar to current account but not used for day-to-day use, saves money for a rainy day
• –demand deposit account (no notice to withdraw)
• –term deposit account (fixed time till withdrawal)
• –notice deposit account (weeks notice)
• interest earned and DIRT paid

Question 12

WHERE TO SAVE: An Post (post office)

Answer 12

• range of saving products (dif accounts)
• savings are state-guaranteed
• interest earned and some cases DIRT not paid

Question 13

WHERE TO SAVE: Credit Unions

Answer 13

• owned by members who save together (savings = shares) and lend to each other
• good interest rates available and DIRT must be paid
• DIVIDEND: money earned on shares, paid annually

Question 14

WHERE TO SAVE: Building Societies

Answer 14

• pays interest on savings
• lends money to people buying/upgrading property
• usually used for mortgage

Question 15

Simple Interest (info)

Answer 15

• ‘flat rate of interest’
• earn by investing sum of money (principal)
• percent of principal calculated and added

Question 16

Formula for simple interest

Answer 16

PRINCIPAL x RATE x TIME

Question 17

Compound interest (info)

Answer 17

Interest added to savings and added interest also earns interest

Question 18

AER

Answer 18

(Annual Equivalent Rate)

• shows real interest gained on savings
• higher the AER, more interest
• allows customers to compare financial institutions and interest rates

Question 19

DIRT

Answer 19

Deducted at source by financial institution and paid to Revenue Commissioners - customers don’t have to calculate DIRT

Question 20

DIRT: Steps for Calculating

Answer 20

1- calculate Interest
2- calculate DIRT
3- calculate Net Interest
4- calculate amount in account