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
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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  • how often money can be withdrawn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
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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)
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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
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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
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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
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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
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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
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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
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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
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