Types of saving & investment Flashcards
Individual savings account(ISA)
Type of saving account where holder is not charged income tax on the interest received
ISA pro’s and con’s
Pro’s - tax not charged on interest so allows saver to keep all of the rewards for saving, interest rates slightly higher than other saving accounts.
Con’s - notice is required to make withdrawals, a penalty may cancel out tax savings if saver makes more withdrawals than set out, limit on amount you can put in.
Deposit account
Somewhere you put your money so it can grow in value, each accounts has a interest rate.
Deposit account pro’s and con’s
Pro’s - interest earned on positive balances, sometimes require regular deposits of a set amount forcing saver to follow savings plan.
Con’s - interest earned is taxed, must give notice before withdrawing funds, benefits of saving lost if customer is also borrowing.
Premium bonds
a government scheme that allows individuals to save up to a set amount by buying bonds. The bond holder does not receive interest on savings but each bond is placed into a regular draw for cash prizes.
Premium bonds pro’s and con’s
Pro’s - chances of winning substantially more than could be earned in interest, can be easily withdrawn with no loss.
Con’s - no guaranteed return on investment, maximum amount reviewed annually by government, amount invested loses value due to inflation.
Bonds and gilts
Fixed term securities where the lender lends money to companies and government in return for interest payments. The money is invested for a specified period of time.
Bonds and gilts pro’s and con’s
Pro’s - regular fixed returns, spreads risk across a range of markets.
Con’s - risk of losing some or all value of the investment if bond or guilt value falls, interest payments may not be received if the issuer is unable to make payments.
Shares
Shares involve investment in a business in return of part of owner of the business. The shareholder will receive dividends from the company’s profits and will want the value of shares to increase.
Shares pro’s and con’s
Pro’s - additional benefits including discounts and special offers, share prices fluctuate offering a potential high reward.
Con’s - share prices fluctuate offering a potential high risk, no guarantee of any rewards as all of the investment can be lost.
Pensions
long term saving plans where individuals make regular payment contributions called premium payment. This is then repaid as a lump sum, regular payments or both upon retirement. Can be state, company or private.
Pension pro’s and con’s
Pro’s - encourages people to save throughout working life, a persons savings may be boosted by a employees contribution increasing final value of saving.
Con’s - job movement reduces cumulative value of the savings, final outcome is difficult to predict, if compulsory payments are deducted this may affect the short term living standards
Saving pro’s and con’s
Pro’s - low or zero risk, can earn interest payments, very secure
Con’s - inflation can reduce spending power, receive low interest pay, easily accessible
Investment pro’s and con’s
Pro’s - potential for high returns, invest in a variety of different ways
Con’s - can go wrong, some or all of your investment can be lost, no guarantee of a return
