different types of savings and investment

Question 1

Define ‘Expenditure’

Answer 1

• the amount of money you need to cover all expenses
  e.g. mortgages and bills

Question 2

Name all the different types of savings and investments (5)

Answer 2

1. Individual Savings Account (ISA)
2. Deposit and savings account
3. Premium bonds
4. Shares
5. Pensions

Question 3

What is ISA

Answer 3

• A type of savings account where the holder is not charged income tax on the interest received

Question 4

What is one advantage of ISA

Answer 4

• 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

Question 5

What is one disadvantage of ISA

Answer 5

• 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

Question 6

What is a Deposit and savings accounts

Answer 6

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

Question 7

What is an advantage of deposit and savings account

Answer 7

• interest earned on positive balances
• Accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan

Question 8

What is a disadvantage of a deposit and savings account

Answer 8

• 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

Question 9

What are Premium Bonds

Answer 9

• 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

Question 10

What is an advantage to Premium bonds

Answer 10

• chance of winning substantially more than could be earned in interest
• can be easily withdrawn with No loss or penalty

Question 11

What is a disadvantage of Premium bonds

Answer 11

• 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

Question 12

What are Bonds and gilts

Answer 12

• 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

Question 13

What is an advantage of Bonds and gilts

Answer 13

• Regular fixed returns
• Spreads risk across a range of market

Question 14

What is a disadvantage of Bonds and gilts

Answer 14

• 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

Question 15

What are Shares

Answer 15

• It involves investment in a business in return for equity.

Question 16

What is an advantage for Shares

Answer 16

• 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

Question 17

What is a disadvantage for Shares

Answer 17

• Share prices fluctuate offering a potentially high risk
• There is No guarantee of any reward/return as all of an investment can be lost

Question 18

What are Pensions

Answer 18

• 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

Question 19

What is an advantage of Pensions

Answer 19

• 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