different types of savings and investment Flashcards
1
Q
Define ‘Expenditure’
A
- the amount of money you need to cover all expenses
e.g. mortgages and bills
2
Q
Name all the different types of savings and investments (5)
A
- Individual Savings Account (ISA)
- Deposit and savings account
- Premium bonds
- Shares
- Pensions
3
Q
What is ISA
A
- A type of savings account where the holder is not charged income tax on the interest received
4
Q
What is one advantage of ISA
A
- Tax is not charged on interest earned allowing the saver to keep all the rewards for saving
- Interest rates are sometimes slightly higher than in alternative savings account
5
Q
What is one disadvantage of ISA
A
- Notice is often required to make withdrawals and according to the agreement there may be a limit set on the number of withdrawals made
- If the saver makes more withdrawals than set out in the agreement then the penalty may cancel out the tax savings
- There is a limit set on the annual amount that can be placed in an ISA
6
Q
What is a Deposit and savings accounts
A
These are accounts where interest is paid on the balance and normally the holder needs to give notice before withdrawing fund
7
Q
What is an advantage of deposit and savings account
A
- interest earned on positive balances
- Accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan
8
Q
What is a disadvantage of a deposit and savings account
A
- interest earned is taxed
- The percentage rate of interest paid on savings is likely to be lower than the interest to be paid on borrowing, therefore the benefits of savings are lost if the customer is borrowing at the same time
9
Q
What are Premium Bonds
A
- a government scheme that allows individuals to save up to a set amount by buying bonds. The bond holder doesn’t receive interest on their savings but each bond is placed into a regular draw for cash prizes
10
Q
What is an advantage to Premium bonds
A
- chance of winning substantially more than could be earned in interest
- can be easily withdrawn with No loss or penalty
11
Q
What is a disadvantage of Premium bonds
A
- No guaranteed return on investment
- Maximum amount reviewed annually by the government
- The amount invested, assuming zero or low returns, loses value due to inflation
12
Q
What are Bonds and gilts
A
- These are fixed-term securities where the lender (individuals) lend money to companies and governments in return for interest payments. The money is invested for a specific period of time
13
Q
What is an advantage of Bonds and gilts
A
- Regular fixed returns
- Spreads risk across a range of market
14
Q
What is a disadvantage of Bonds and gilts
A
- Risk of losing some/all of the value of the investment if the bond/gilt value falls
- Interest payments may not be received if the issuer is unable to make payments
15
Q
What are Shares
A
- It involves investment in a business in return for equity.
16
Q
What is an advantage for Shares
A
- Share prices fluctuate offering a potential high reward
- Shareholders’ returns can include dividend payments and an increase in share value
- As part owners in a business there may be additional benefits including discounts
17
Q
What is a disadvantage for Shares
A
- Share prices fluctuate offering a potentially high risk
- There is No guarantee of any reward/return as all of an investment can be lost
18
Q
What are Pensions
A
- Long-term savings plans where individuals make regular contributions, called premium payments, throughout their working life. This is then repaid as either a lump sum, regular payments or a combination of the two upon retirement
19
Q
What is an advantage of Pensions
A
- Encourages individuals to save throughout their working life for retirement
- Depending upon the policy, an individual’s savings may be boosted by an employer’s contributions increasing the final value of the savings
- Regular payments are deducted, sometimes at source, meaning the individual is tied into making the regular contributions
