Topic 2: Savings and investment products

Question 1

Annual exempt amount

Answer 1

The annual tax-free allowance for capital gains tax.

Question 2

Annunity

Answer 2

A financial product that pays a regular guaranteed income, in return for a lump sum paid to the product provider. It is used by people when they retire

Question 3

Assets

Answer 3

Things that a person or a business owns. For a person their assets might include property, jewellery or financial products such as company shares

Question 4

Bonds

Answer 4

See corporate bond, government bond and savings bond

Question 5

Capital gains tax

Answer 5

A tax payable on the gain (profit) made when you sell or give away an asset, for example property or shares. Each person is
allowed to make a certain level of profit before being taxed on it (see annual exempt amount)

Question 6

Capital growth

Answer 6

An increase in the market value of an investment, over and above the amount the investor paid for it or paid into it.

Question 7

Capital Sum

Answer 7

The total amount borrowed or saved/invested, before the addition of interest. For instance, it can refer to the amount borrowed with a mortgage loan, or the amount paid into an
investment product

Question 8

Cash ISA (individual savings account)

Answer 8

An account that pays interest tax-free on cash savings up to a certain level.

Question 9

Children’s bond

Answer 9

An investment bond taken out by a parent, legal guardian or (great) grandparent for a child under the age of 16. Investing
between £25 and £3,000, the investor was guaranteed interest at a fixed rate for five years, after which the Bond matured. A nominated parent or guardian controlled the Bond until the child reached 16.

Question 10

Collective investments

Answer 10

Investment products such as unit trusts or open-ended investment companies (OEICs) that let many retail investors pool their money together.

Question 11

Commodity

Answer 11

Goods that share the same characteristics wherever they are produced and whoever produces them – unlike a manufactured
product, where different manufacturers can add specific features. Examples include raw materials such as iron ore, gold and silver, or agricultural produce such as wheat and rice.

Question 12

Coronavirus

Answer 12

Coronavirus disease, known as Covid-19, is a respiratory illness that causes mild to moderate symptoms in a majority of cases
but proves debilitating or fatal for a significant minority. It caused a global pandemic with wide-ranging economic effects

Question 13

Corporate bond

Answer 13

A product that companies can use to borrow money over periods of five years or more. The company offers a number of bonds for sale; buyers can then sell the bonds on to other investors if they wish. A key difference between bonds and shares is that
bondholders do not own a share in the company.

Question 14

Corporation tax

Answer 14

A tax levied on the taxable profits of limited companies and some other organisations.

Question 15

Credit union

Answer 15

A mutual organisation (that is, owned by its members) that provides a range of financial products to members, eg savings accounts and personal loans. Members of a credit union must share a common bond, eg all work for the same employer or all work in the same district.

Question 16

Deposit

Answer 16

A sum of money placed by a customer with a financial services provider.

Question 17

Diversification

Answer 17

Spreading investments across a range of different products, funds or types of asset so as to reduce the potential impact of any doing particularly badly.

Question 18

Dividend

Answer 18

A payment of profits from a company to its shareholders, often at twice-yearly intervals, either as cash or (depending on the
plan) as further shares or reacquisition of shares

Question 19

Endowment policy

Answer 19

An insurance product that pays out a lump sum after a specified term or if the insured person dies before the end of the term.
Endowment policies are often used as a way of saving over the long term

Question 20

Final salary scheme

Answer 20

A type of occupational pension that pays an income related to the amount of the last salary an individual earned before retirement. Final salary schemes have largely been replaced by
money purchase schemes

Question 21

Friendly society

Answer 21

A mutual organisation that offers its members a wide range of financial products

Question 22

FTSE 100

Answer 22

The Financial Times Stock Exchange Index, known as the ‘footsie’. It is an index of the share price of the 100 companies
with the highest ‘market capitalisation’ (total value of issued shares) listed on the London Stock Exchange

Question 23

Gilt

Answer 23

A bond issued by the UK government as a way for the government to borrow money. Most gilts are issued with a redemption date – that is, the date at which the government
agrees to buy them back. Between their issue and the redemption date the gilts can be traded

Question 24

Government bond

Answer 24

A bond issued by a national government – it is a way for thegovernment to borrow money. Gilts are bonds issued by the UK government

Question 25

Hedge fund

Answer 25

An organisation that takes in funds from investors such as pension companies, insurance companies and very wealthy
individuals and invests those funds to try to get a high return. Investment in such funds is seen as a high risk

Question 26

HMRC

Answer 26

Her Majesty’s Revenue and Customs – the organisation that collects taxes on behalf of the government.

Question 27

Income tax

Answer 27

Tax paid on earnings from employment, self-employment and interest on savings.

Question 28

Index-linked

Answer 28

Rising in line with inflation.

Question 29

Individual savings account (ISA)

Answer 29

An account that pays interest tax-free on savings up to a certain level. There are two types of ISA: cash ISAs and stocks and
shares ISAs. Junior ISAs are available for people under 18.

Question 30

Investment trust

Answer 30

A type of collective investment, which operates as a public limited company. Investors buy shares in the investment trust, and the trust then uses the money from the share issue to trade in the stocks and shares of other companies.

Question 31

Junior ISA

Answer 31

Junior ISAs are long-term savings accounts set up by a parent or guardian specifically for the child’s future. The child can only access the money once they turn 18 years old

Question 32

Money purchase scheme

Answer 32

A type of pension where the employee pays into the plan over their working life. The scheme is invested and provides the employee with the resulting lump sum on retirement. The amount they receive depends on how the scheme has performed. Also known as a ‘defined-contribution’ scheme

Question 33

National employment savings trust (NEST)

Answer 33

A pension scheme run by a public organisation, which aims to ensure that the majority of workers are enrolled in an occupational pension

Question 34

National insurance contributions

Answer 34

Money deducted from the pay of people who are employed or self-employed and used by the government to fund state pensions and other benefits

Question 35

NS&I

Answer 35

National Savings & Investments, a provider that is backed by the Treasury (the government department that manages the UK’s finances).

Question 36

Open-ended investment company (OEIC) fund

Answer 36

A pooled collective investment vehicle, which is a cross between a unit trust and an investment trust. The number of shares
issued can vary and be created or liquidated according to the number of buyers and sellers in the market. The OEIC expands as people invest and shrinks as they withdraw their money

Question 37

Pension

Answer 37

An income that people receive after retiring from work. In the UK, people receive a pension from the state; some people also receive pension payments from schemes run by their former employers or arrangements that they have made for themselves

Question 38

Personal pension plan

Answer 38

Long-term money-purchase products provided by banks, insurance companies and other providers to help customers to build up a pot of money they can use to buy an income when
they retire. There is tax relief on the payments made into the plan.

Question 39

Portfolio

Answer 39

The combination of long-term savings and investment products chosen by any particular investor

Question 40

Return

Answer 40

The amount of money gained or lost on an investment relative to the amount invested. Also known as the rate of return (ROR)
or return on investment (ROI).

Question 41

Savings bond

Answer 41

A savings product held for a fixed period eg two years. The holder can only make a limited number of withdrawals, or none at all, during that period without incurring a penalty

Question 42

Shares

Answer 42

Investments that represent part-ownership of a company.

Question 43

Stock exchange

Answer 43

A formal marketplace for the trading of shares and other investments

Question 44

Tax relief

Answer 44

An amount deducted from annual income (for example a pension contribution) to reduce the amount on which an individual must pay tax.

Question 45

Tax return

Answer 45

A tax form completed annually by people in certain situations (eg self-employed people or employed people who receive money in addition to their salary). It sets out details of income and expenditure and allows the taxpayer or HMRC to calculate the amount of tax and NI contributions owed

Question 46

Term assurance

Answer 46

An insurance plan that runs for a fixed period of time and pays out a lump sum if the insured person dies during the term

Question 47

Unit trust

Answer 47

A type of collective investment, the most common form in the UK.

Question 48

Volatility

Answer 48

When the value of an investment varies often and widely.