Different types of saving and investment

Question 1

What type of saving account is this?

Where the holder is not charged income tax on the interest received.

Answer 1

Individual savings accounts (ISA)?

Question 2

The advantages of an ISA?

Answer 2

• Tax is not charged on interest earned allowing the saver to keep all of the rewards for saving
• Interest rates are sometimes slightly higher than in alternative savings accounts

Question 3

The disadvantages of an ISA?

Answer 3

• May be a limit set on the number of withdrawals made
• If the saver makes more withdrawals than set out
  in the agreement then the penalty may cancel
  out the tax savings
• There is a limit set on the annual amount that can
  be placed in an ISA

Question 4

What type of saving account is this?

Where interest is paid on the balance and normally
the holder needs to give notice before withdrawing funds

Answer 4

Deposit and savings account

Question 5

The advantages of a Deposit and Savings account?

Answer 5

• Interest is earned on positive balances

- Accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan

Question 6

The disadvantages of a Deposit and Savings account?

Answer 6

• Interest earned is taxed
• The percentage rate of interest paid on savings
  is likely to be lower than interest to be paid on
  borrowing, therefore the benefits of savings are
  lost if the customer is borrowing at the same time

Question 7

What type of saving account is this?

A government scheme that allows individuals to save up to a set amount by buying bonds. The bond holder does not receive interest on their savings but each bond is placed into a regular draw for cash prizes

Answer 7

Premium bonds account

Question 8

The advantages of a Premium Bonds account?

Answer 8

• Chance of winning substantially more than could be earned in interest
• Can be easily withdrawn with no loss or penalty

Question 9

The disadvantages of a Premium Bonds account ?

Answer 9

• Not guaranteed return on investment
• Maximum amount reviewed annually by the government
• The amount invested, assuming zero or low
  returns, loses value due to inflation count

Question 10

What type of saving account is this?

Fixed term securities where the lenders (the individual) lends money to
companies and governments in return for interest payments.
The money is invested for a specified period of time

Answer 10

Bonds and Gilts account

Question 11

The advantages a Bonds and Gilts account?

Answer 11

• Regular fixed returns

- Spreads risk across a range of markets

Question 12

The disadvantages a Bonds and Gilts account?

Answer 12

• Risk of losing some or all of the value of the investment if the bond or guilt value falls
• Interest payments may not be received if the
  issuer is unable to make payments

Question 13

What type of saving account is this?

Involves investment in a business in return for equity, i.e. the shareholder becomes a part owner of the business.
They will receive dividends from the company’s profits and will also want the value of the shares to increase.

Answer 13

Shares

Question 14

The advantages of Shares?

Answer 14

• Share prices fluctuate offering a potential high reward
• Shareholders’ returns can include dividend payments and an increase in share value
  As part owners in a business there may be additional benefits including discounts and special offers

Question 15

The disadvantages of Shares?

Answer 15

• Share prices fluctuate offering a potential high
  risk
• There is no guarantee of any reward or return as
  all of an investment can be lost

Question 16

What type of saving account is this?

Can be state, company or private
long-term savings plans where individuals make regular contributions (premium payments) throughout their working life.
This is then repaid as either a lump sum, regular payments or a combination of the two upon retirement.

Answer 16

Pensions

Question 17

The advantages of Pensions?

Answer 17

• Encourages individuals to save throughout their working life for retirement
• An employer’s contributions could increase the final
  value of the saving
• Regular payments are deducted, sometimes at source, meaning the individual is tied into making the regular contributions

Question 18

The disadvantages of Pensions?

Answer 18

• Movement between jobs may mean that one
  policy stops and another starts, thus reducing the
  overall cumulative value of the savings
• Final outcome is difficult to predict
• If compulsory payments are deducted this may
  affect short-term living standards