Topic 2; Savings and investments products Flashcards
Why do people save for long periods?
To finance a future medium-term or long-term need, want or aspiration
What do people hope when saving and investing?
That their savings and investments will grow over the period to get a good return on the money by the time it matures
What happens if the economy performs badly?
They may not get as good a return as they hoped
What is the general rule with savings and investments?
The higher the risk, the greater the return (Other things being equal)
How much £ is protected by the FSCS?
up to £85,000
Savings accounts pay very high interest rates. True or False?
False
Who are investments suitable for?
People who are prepared to invest for the medium to long term
What is capital growth?
Buy now and save later for profit
Why do people save and invest in terms of income?
Because the investment will supplement their income
Give an example of earned income and unearned income
Earned income: Salary
Unearned income: Investment
Risk and reward in investments
The higher the risk the higher the possible return
Risk and reward in savings
Risk is moderately low. Profit is earned in the interest made from the money. Risk low because up to £85k is protected by the FSCS
Who are the providers of savings and investment products?
Banks
NS&I
Building societies
Brokerage firms (solely for investments)
What are the 2 savings products?
Fixed term account; money locked away from a period of time, penalty if withdrawn before said time
NS&I - premium bond; saver entered for a lottery draw with every £ in saving account for a reward for up to £1m. Can only save up to £50k in premium bond
What are stocks and shares?
Stocks represents part ownership over company
Individual can make money off them by increasing stock price and selling it and/or dividend payments
What are commodities?
Gold, fine art, rare watches. Only some of these will go up in value over time, individuals should invest if they’ve got good knowledge of whether it will go up in worth or not
What are bonds?
Long terms loans made to large organisations. Borrowers promise to pay bond back at a certain date and pre-agree interest payments to bondholders
Explain ISAs
Individual saving accounts which are exempt from tax returns. Have a limit on how much an individual can invest into the account in a year (22/23 szn was £20k). There are 2 types of ISAs: Cash ISAs where money is placed into the account by the saver and earns interest on it. And Stocks and Shares ISAs where the financial provider invests the money for the saver.
