Topic 5 - Saving Products Flashcards

1
Q

Why do people save?

A

So that they have the funds to pay for goods and services in the future.

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2
Q

What are savings?

A

Delayed spending

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3
Q

What could delayed spendings be for?

A

Needs - paying a deposit on a rented flat
Wants - items that savers cannot afford on a day to do basis eg computer
Aspirations - goods or services that they would like to have or to experience on the future such as holidays

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4
Q

What 7 factors should be considered when choosing savings on a product?

A
  • how safe they will be?
  • how regularly I want to save them?
  • how often will I be able to withdraw money?
  • will I pay tax on the interest on the savings earnt?
  • is the rate of return higher than inflations?
  • what is the rate of return?
  • how will the account be operated?
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5
Q

What is return on savings?

A

The intrest received from the provider payed by the account holder
Expressed as AER - annual equivalent rate

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6
Q

what is the AER?

A

Interest earned on the money in one year

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7
Q

How is AER decided?

A

by the provider of the savings account
- takes into account fees, charges with the account and whether the interest is paid (e.g. monthly or annually)

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8
Q

What can make the return on savings higher? (7)

A
  • The amount of money that is saved
  • how often money is saved
  • The length of time that they are held for
  • number of withdrawals a saver can make
    • an instant access account where the money can be withdrawn at any time will offer a lower rate of j retest
  • introductory bonus rate (just opening an account)
  • account opporation and application channels
    • online is cheaper
  • the tax status of the account
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9
Q

what is meant by inflation?

A

sustained increase in the general price level

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10
Q

What must the relationship between the AER and inflation rate be to maintain purchasing power of their money? And why?

A

-AER must be the same as or higher than the rate of inflation
- if the AER is high than inflation, the real value of their savings will grow because it’s purchasing power is increasing

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11
Q

What is the CPI?

A

The consumer prices index

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12
Q

What is the RPI?

A

The retail price index

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13
Q

What is the CPI used for?

A

To measure the inflation rate managed and quoted by BofE

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14
Q

How does the CPI and RPI measure inflation?

A

By calculating the average change in price of a basket good over a 12 month period

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15
Q

What’s the difference between a CPI and RPI?

A

RPI includes mortgage internet payments and other owner occupier costs, while CPI does not

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16
Q

What is an ISA?

A

Individual saving account that is paid free of tax

17
Q

Why are ISAs good?

A

They were introduced by the government in 1999 to encourage people to save.
This is because AERs tend to be very competitive.

18
Q

What was introduced to reduce how much can be saved in stocks and shares?

A

An ISA limit

19
Q

What can be done with the money in ISAs?

A

Invested in cash or stocks and shares.

20
Q

What are the two different types of ISAs

A

Cash
Stocks and sharws

21
Q

What is a cash ISA

A

An ISA available from the age of 16.
Interest is paid free of income tax and does not count towards the savers personal savings allowance.

22
Q

What is a stocks and shares ISA?

A

Available for savers from age 18
Return on stocks and shares ISA is paid free of income tax where the return is in the form of interest.
Any growth in the value of capital invested in a stocks and shares ISA is not subject to capital gains tax.

23
Q

What limits are there on ISAs?

A
  • savers are on,y allowed to contribute to one cash +/ stocks and shares ISA in a tax year
  • there is a maximum amount that can be deposited into an ISA in a tax year.
24
Q

Savers can transfer funds between ISAs. What are these dependent on?

A

The terms of both original isa and the new isa

25
Q

What is a junior ISA? (3

A
  • designed for savers under 18
  • it’s only available for those who don’t have a child trust fund account (CTF)
  • an individual with parental responsibilities of the child can open an account in their name. However only the child can have access to the account once they turn 18
26
Q

What is a help to Buy ISA?

A
  • First time buyers are able to save up to £200 a month towards their first home in a Help to Buy ISA and the government will boost their savings by 25% when the account is closed. - a £50 bonuses for every month saved, all interest earned is tax free
  • buyers who safe 12k will be eligible for the maximum govt bonus of £3k
  • as the accounts are for individuals, couples can save separately both receiving the govt bonus.
27
Q

Who is eligible for a lifetime ISA?

A

Anyone aged over 18 and under 40

28
Q

What is the purpose of a lifetime ISA?

A

To buy a first home or to save for retirement

29
Q

How does a Lifetime ISA work?

A

-Up to £4k can be saved every year until the saver is 50.
-The government will add a bonus of 25% at the end of every tax year.
-access to it is given when they buy their first home or when they reach 60 and keep the bonus otherwise you pay the 25% withdrawal charge on the total, losing the govt bonus

30
Q

What is safety in terms of money?

A

The likelihood that the money saved will be available when needed in the future.

31
Q

what does FSCS stand for?

A

Financial Services compensation scheme

32
Q

what does the FSCS do?

A

garuntee £85k of savings in any uk banks

33
Q

what is the NS&I?

A

National savings and investments are guaranteed by hmt (His majesties treasury

34
Q

What form can savings be in?

A

cash or stocks and shares.
- stocks and shares are more risky than cash savings as the value can go down as well as up
- recently due to the low interest rates sns savings hav outperformed cash