Topic 5 Saving and Borrowing

Question 1

Why is saving important?

Answer 1

Saving is important in order to:
• Purchase something in the future, such as a new car
• To have money available for unexpected bills
• To provide income for us when we retire

Question 2

What is a commercial bank?

Answer 2

A commercial bank is a financial institution that offers a range of financial services to its customers. Examples of commercial banks include AIB, Permanent TSB, Bank of Ireland, KBC etc

Question 3

What is a notice deposit account?

Answer 3

Demand Deposit Account is for customers that to save their money but also have access to their savings.

Question 4

What is a fixed term deposit account?

Answer 4

Fixed-Term Deposit Account is for customers that want to save money and are prepared to leave the money in an account for a minimum of three months and a maximum of ten years, without having access to it.

Question 5

What is a credit union?

Answer 5

A credit union is a co-operative organisation where a group of people save together and lend to each other at low interest rates.

Question 6

What does An post offer?

Answer 6

An Post offers a number of savings options to members of the public including Fixed-term savings, Deposit accounts, Prize bonds and smart current accounts.

Question 7

What is simple interest?

Answer 7

Simple interest is where the interest you receive is calculated as a percentage of the amount of money you have put into the account. It does not take into consideration any previous interest that has been added to your account by the financial institution.

Question 8

What is compound interest?

Answer 8

Compound Interest is where the interest you receive is calculated as a percentage of the total amount in the account at the end of each year.

Question 9

What is annual equivalent rate?

Answer 9

Annual Equivalent Rate (AER) is the rate of interest you will receive from a bank or financial institution, by saving your money with them.

Question 10

What is investing?

Answer 10

Investing is using your money to earn a greater return than is possible from an ordinary savings account.

Question 11

Short term borrowing

Answer 11

Short term (up to 1 year) sources of finance include bank overdrafts, credit cards and moneylenders

Question 12

Medium term borrowing

Answer 12

Medium term (1 – 5 years) sources of finance include term loans, personal loans, hire purchase and renting.

Question 13

Long term borrowing

Answer 13

Long term (more than 5 years) sources of finance include a long-term loan or a mortgage.

Question 14

What is a bank overdraft?

Answer 14

An overdraft is permission from your bank to withdraw more money than you have in your bank account. An overdraft is usually given up to a certain limit

Question 15

What is a credit card?

Answer 15

Credit cards can be used to pay for goods and services without the need for cash up to a certain agreed limit.

Question 16

What are moneylenders?

Answer 16

Moneylenders provide loans to people who cannot borrow money from the bank. Sometimes, this is because the person is unemployed, or they may have a loan that they have not yet paid back.

Question 17

What are term loans?

Answer 17

Term loans are loans from banks or other financial institutions, that are taken out for a fixed period of time.

Question 18

What is hire purchase?

Answer 18

Hire Purchase involves three parties: the buyer, the seller and a financial institution. The consumer purchases an item from a retailer and signs a credit agreement. The financial institution pays the retailer in full for the item, for example a laptop. The financial institution then collects regular payments from the consumer over an agreed period of time.

Question 19

What is Annual percentage rate (APR)?

Answer 19

Annual Percentage Rate (APR) is the actual rate of interest charged on a loan each year. It takes into account that the amount owed is going down each year as some of the loan is repaid.

Question 20

What are some borrowers rights and responsibility?

Answer 20

Rights include:
• They must be told the APR
• They must be informed of the total cost of the loan
• They have the right to cancel the loan within 14 days of signing the loan agreement.
Responsibilities include:
• Budgeting responsibly so they have enough money each month to cover the loan repayment.
• Repay the loan fully.
• Use the money loaned for the agreed purpose.