Topic 5 - Savings Flashcards
1
Q
What are reasons for saving?
A
- needs: to pay for a deposit on a property
- wants: something that would be nice to have
- aspirations: good or services to enjoy in future
- precautionary: in case of an unexpected event
2
Q
Key consideration when choosing a savings product
A
- rate of return
- how often money can be withdrawn
- how regularly I want to save
- is the rate > inflation (real interest rate +?)
- is the interest my savings earn taxed
- are the savings safe
3
Q
Return on savings
A
- return: interest on savings (expresses as AER)
- AER: interest earned on money in 1yr (decided by provider)
- takes into account: fees, changes w account, how often interest is paid (monthly/annually)
4
Q
Factors making return on savings higher
A
- large sums of money
- saving specific amount each month
- the longer the savings are held (longer saving bonds)
- account w restricted access (certain number of withdrawals)
- introductory bonus rate
5
Q
Impacts of inflation
A
- inflation: sustained inc in general price level
- dec purchasing power of money/savings: real interest rate must be + for savings to gain value
- measured by: RPI (retail price index) includes mortgage interest payments, CPI (consumer price index) the measure Bank of England use for their target rate of inflation
6
Q
ISAs (Individual savings accounts)
A
- some accounts have no tax
- interest paid free of tex
- money can be invested in cash ISAs (>16yrs) or stocks + shares ISAs (>18yrs)
- savers can contribute to only 1 cash ISA and/or stocks + shares ISA in a tax yr (limit = £20,000/yr)
- max. amount deposited into an ISA in only 1 tax yr can be split between cash + stocks + shares
- savers can transfer funds between ISAs depending on terms of both ISAs
7
Q
Junior ISAs
A
- available for <18s (parents open accounts for <16s)
- can’t withdraw funds until 18
- only available to those w/o a CTF
- savings can’t exceed £9,000 for 2022/23
8
Q
Help to buy ISAs
A
- 1st time buyers can save up to £200/month towards their 1st home + gov. boost their account by 25% when the account is closed
- max. bonus is £3000
- accounts are for individuals
9
Q
Lifetime ISAs
A
- for anyone >18 + <40
- up to £4,000 can be saved each yr until reaching 50 (gov. will add bonus of 25%)
- money for buying home or use in retirement
- money withdrawn before 60 w/o buying 1st home = gov. bonus lost
10
Q
Safety
A
- FSCS guarantees £85,000 of savings in UK banks
- National savings + investments (NS&I) guaranteed by Her Majesty’s Treasury so 100% savings guaranteed
- stocks + shares more risky as value can go down as well as up