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Financial Studies - Year 1 > Unit 1 Topic 5 > Flashcards

Unit 1 Topic 5 Flashcards

1
Q

What is the bank rate?

A

The interest rate that the Bank of England uses when it lends money to other banks. Financial services providers take account on the Bank rate when they decide how to set interest rates on their own products.

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2
Q

What is a Child Trust Fund (CTF)? Why were they set up? What were they replaced by?

A

A long-term savings account only available to children born between 1 September 2002 and 2 January 2011.
CTFs were set up by the government to encourage people to build up savings for their children.
They were replaced by junior ISAs.

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3
Q

What is the Consumer Prices Index (CPI)?

A

One of the means the government uses to measure inflation.

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4
Q

How is CPI calculated? What does this allow statisticians to do?

A

calculated by checking the price of a representative sample of goods on a monthly basis - this enables statisticians to measure how much prices are rising or falling.

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5
Q

What did Coronavirus cause?

A

a global pandemic with wide-ranging economic effects.

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6
Q

What is the Financial Conduct Authority (FCA)?

A

One of the two main regulators of financial services in the UK.

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7
Q

What is the Financial Services Compensation Scheme?

A

a compensation scheme that pays compensation to account holders of up to a certain amount per provider if the provider goes into default (in other words cannot pay account holders the money they have in their accounts).

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8
Q

What is the HMRC?

A

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

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9
Q

What is income tax?

A

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

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10
Q

What is an individuals savings account (ISA)?

A

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

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11
Q

What are the two types of ISAs?

A

cash ISAs
stocks and shares ISAs

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12
Q

Who are junior ISAs available to?

A

people under 18.

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13
Q

What is an instant access account?

A

An account from which the holder can withdraw their money at any time without loosing any interest.

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14
Q

What is NS&I?

A

National Savings and Investment

A provider that is backed by the Treasury (the government department that manages the UK’s finances).

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15
Q

What is a notice account?

A

An account for which the holder has to tell the provider in advance if they want to withdraw their money. If they don’t give the provider the required amount of notice, they lose interest on their savings.

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16
Q

What is a personal allowance?

A

The amount that an individual can earn before they have to pay income tax.

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17
Q

What is a personal savings allowance? How does this vary?

A

The amount of savings interest that can be earned before the saver pays tax.
The amount of the allowance varies according to how much other income the saver has earned in the tax year.

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18
Q

What is the rate of return?

A

The amount a saver gains in interest on their savings. For instance, an account paying 0.2% AER offers a lower rate of return than one paying 0.4% AER.

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19
Q

What is RPI?

A

Retail Prices Index

One of the ways the government measures inflation.

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20
Q

How is RPI calculated?

A

It is calculated by checking the price of a representative sample of goods on a monthly basis, but unlike CPI, it also takes into account mortgage interest payments and other costs associated with home ownership.

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21
Q

What are savings bonds?

A

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.

22
Q

What is the starting-rate band?

A

An amount of savings that an individual can earn tax-free if their total income is less than the personal allowance.

23
Q

What are stocks and shares?

A

Stocks, shares and equities are all words used to describe an investment that gives the holder part ownership of a company.

24
Q

Describe the relationship between stocks and shares and a companies value

A

If a company’s value increases, so does the value of your share; if its value falls, so does the value of your investment.

25
Q

How are shares bought and sold?

A

On stock exchanges.

26
Q

What is a tax year?

A

Also known as the financial year, the tax year runs from 6 April to 5 April in the following year. The tax people is is calculated according to how much they have earned April to April rather than January to December.

27
Q

Why are savings described as ‘delayed spending’?

A

Savings are ‘delayed spending’ because people save so they have the funds to pay for goods and services in the future.

28
Q

Name 3 general reason why people save

A

Needs
Wants
Aspirations

29
Q

Give a specific example of a need, want and aspiration

A

Need - rent for a flat
Want - computer
Aspiration - bigger house, new car, etc

30
Q

Name the 7 questions to consider when choosing a savings product

A

What is the rate of return?
How safe will my savings be?
Is the rate of return higher than inflation?
Will I need to pay tax on the interest my savings earn?
How often will I be able to withdraw money?
How regularly will I want to save?
How will I operate the account?

31
Q

Name 4 providers of savings products

A

Banks
Building Societies
Credit Unions
Friendly Societies

32
Q

Explain return on savings

A

The interest the provider pays the account holder, expressed as an AER.

33
Q

Why is AER influenced by?

A

Bank rates made by the Bank of England and savings rates by other providers.

34
Q

Who decides the base bank rate of interest?

A

The Bank of England.

35
Q

What is the current rate of interest?

A

5.25%

36
Q

Why should low interest rates ease a recession?

A

Low interest rates should ease a recession because loan demand declines, investors seek safety and consumers reduce spending.

37
Q

Name the seven factors that impact the return offered by savers

A

How often money is saved
How long the money is saved
The number of withdrawals the saver can make
Account application and operation channels
Tax status of account
Introductory bonuses

38
Q

How would raising the AER help slow spending?

A

Raising the ARR may help slow spending by increasing the cost of borrowing.

39
Q

What is the current rate of inflation?

A

6.7%

40
Q

How and who is the rate of inflation measured by?

A

The rate of inflation is measured by the bank of England by calculating the average change in prices of goods over a year.

41
Q

The tax that usually applies to interest in savings accounts is 0% (no tax is payed on it). True or false?

A

True

42
Q

What are the two levels of allowance?

A

£1,000 for basic-rate taxpayers

£500 for higher-rate taxpayers

43
Q

What is the level of tax on an ISA?

A

0% (tax free).

44
Q

Name the two ways in which deposits in an ISA can be invested

A

Exchange-traded funds

Individual stocks and shares

45
Q

What is the maximum amount that can be deposited in an ISA?

A

20,000

46
Q

What is the deposit limit on a junior ISA?

A

£9,000

47
Q

Name two features of a Help to Buy ISA

A

First time buyers can save up to £200 a month towards their first home and the government will boost their savings by 25% when the account is closed.

First time buyers who save £12,000 in their Help to Buy ISA will be eligible for the maximum government bonus of £3,000.

48
Q

Name 3 features of a lifetime ISA

A

You get a 25% bonus each tax year on up to £4,000

Your interest (or investment growth) is tax free

You can open and contribute to a cash ISA and a lifetime ISA in the same tax year

49
Q

If a provider goes out of business, how much will the FSCS compensate?

A

100% of what is owed up to £85,000 per person per provider

50
Q

Who is NS&I backed by?

A

Her Majesty’s Treasury

51
Q

Name seven product features to consider when choosing a savings product

A

Return
Inflation
Tax status
Access/Term
Frequency of deposits
Operation
Safety

Financial Studies - Year 1 (22 decks)

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