Unit 1 Topic 6

Question 1

What is asset ?

Answer 1

An asset is something you own or control that has monetary value.
Some examples of assets are cash, investments, property, equipment,

Question 2

What is capital ?

Answer 2

Capital refers to money that is used to obtain assets. You use your available capital to acquire assets, and then those assets have the potential to grow your overall wealth and capital over time.

Question 3

What are the main asset classes ?

Answer 3

Property - this includes real estate, like buy-to-let investments

• Cash - money held in savings and deposit accounts
• Fixed interest securities - examples are gilts and corporate bonds
• Equities - equities refer to shares or stocks in companies

Question 4

What is deposit account ?

Answer 4

are a classic savings option. They offer security, convenience, and easy accessibility. Deposit accounts are best suited for short term savings goals, like an emergency fund or upcoming vacation. You can be certain your money is safe.

Question 5

Banks and building societies offer two main account types:

Answer 5

Current accounts - these are used for everyday spending needs. Your wages can be paid into a current account, and you can pay bills or make purchases directly from it.

Savings accounts - with these accounts you set aside money strictly for saving. It accumulates over time and may earn interest.

Question 6

What is traditional current account

Answer 6

the standard account for day-to-day money management. Comes with a debit card, ability to set up direct debits and standing orders. Many allow overdrafts

Question 7

What is basic account

Answer 7

these are simplified current accounts designed for people new to banking or with low incomes. They have fewer fees and requirements.

Question 8

What is interest-bearing current accounts

Answer 8

these accounts allow you to earn interest on your balance and receive cashback on spending. However, you usually need to meet a minimum monthly income level to qualify.

Question 9

What is packed current accounts?

Answer 9

these accounts bundle extras like travel insurance, roadside assistance, phone insurance, etc alongside the main account. You pay a monthly or annual fee

Question 10

What is instant saving account

Answer 10

As the name suggests, you can access your funds anytime with these accounts. The interest rate paid tends to be lower given the flexibility. Good for emergency funds.

Question 11

What is restricted access savings

Answer 11

For these accounts, your money is locked away for a set period of time, often 1 year. The interest rate is higher but penalties apply if you need early access.

Question 12

What is structured deposit accounts

Answer 12

The interest paid is linked to the performance of a market index like the FTSE 100. Provides potential for higher returns but no guarantee.

Question 13

What is national savings & investments

Answer 13

offer a range of savings and investments products backed by the UK government. Due to the government guarantee, they are considered very low risk.
An interesting feature is prize draws you are entered into when you deposit - you can win tax-free monthly prizes ranging from £25 to £1 million!

Question 14

What is cash ISA

Answer 14

Cash ISAs allow you to earn tax-free interest on your savings, up to an annual limit. They are a useful addition to taxable savings accounts. You can open Cash ISAs through banks, building societies, etc.

Question 15

What is offshore accounts and investments ?

Answer 15

these are based outside of the UK, often in countries with advantageous tax regimes aka tax havens. There’s a perception offshore accounts are used to shelter undeclared income, but requirements are now in place to share info with HMRC.

Question 16

Some points with the offshore accounts:

Answer 16

Potentially higher risk than comparable onshore options due to exchange rate fluctuations and lack of investor protection.

Can be useful for those with foreign property or who spend significant time abroad.

Interest earned is taxable. Must be declared to HMRC.

Attractive to those seeking to minimize taxes.

Question 17

What are gilts ?

Answer 17

Gilts are bonds issued by the UK government to borrow money, considered very safe as the government is highly unlikely to default.

Question 18

How are gilts categorised by debt management office

Answer 18

Short dated gilts - under 7 years (debt management office)

Medium dated gilts - 7-15 years (debt management office)

Question 19

What is cupon

Answer 19

The coupon is the interest rate paid on the gilt’s value. It is fixed and paid semiannually.

Question 20

How gilts are paid ?

Answer 20

Gilt interest is normally paid gross without tax deducted

Question 21

What is index-linked gilts ?

Answer 21

Index-linked gilts provide interest and capital growth in line with inflation.

Question 22

What is local authority bonds ?

Answer 22

Local authority bonds - these are issued by local councils and governments to borrow money. They are backed by local assets and pay a fixed rate of interest over a defined term. However, they are not guaranteed by the national government like gilts are.

Question 23

What are permanent interest bearing shares

Answer 23

also known as PIBS, these are issued by building societies to raise capital. A fixed interest rate is paid semiannually. Because PIBS holders are paid after regular account holders, they are at high risk if the building society fails.

Question 24

What is corporate bonds

Answer 24

companies issue these bonds to raise money for long term financing needs. Bonds secured on company assets are called debentures. The risk depends on the financial health of the issuing company. The interest rate is higher than gilts given the greater risk.

Question 25

What is Eurobonds

Answer 25

these are bonds issued and traded outside the home country of the issuer/currency. Often used by multinational organizations and governments seeking to borrow in foreign markets.

Question 26

What is peer to peer lending

Answer 26

platforms allow individuals to lend money directly to businesses. Returns can be attractive but there is no FSCS protection. Higher risk than conventional fixed income options.

Question 27

How income for those investments are taxed?

Answer 27

Local authority bonds, corporate bonds, PIBS and Eurobonds pay interest gross without tax deducted. The interest counts as savings income and is taxed based on the individual’s marginal rate if it exceeds allowances.