Saving & Investing Money Flashcards
What are saving
Savings can be defined as the part of our income we choose not to spen
What is investing
Investing is putting money aside in order to make more money at a later date.
Key terms
Liquidity, risk, interest, dirt (deposit interest retention tax)
Liquidity
means how quickly we can get access to and get our money back when we want to.
Risk
refers to the how safe and secure our money is in the place we decide to save or invest it in.
Interest
is extra money you receive on top of the money you have saved in a financial institution.
DIRT (Deposit Interest Retention Tax)
Tax that must be paid by an individual on interest earned in a savings account.
Reasons for saving
- For future planned spending e.g a holiday
- For emergencies
- For major family events e.g a family wedding 4. For retirement (when you stop working)
- To improve your credit rating
Key Term: Credit Rating refers to how likely a person is to repay a loan. A financial institution will consider their savings, their income and if they have repaid previous loans on time and in full.
Factors to consider when saving or investing
Risk, reward, liquidity, taxation, ease of access, terms and conditions
Where to save
Commercial Banks e.g AIB, Bank of Ireland
● Banks offer Savings (Deposit) Accounts to their customers.
● Savings (Deposit) Accounts - similar to a current account but it is not used for
day-to-day use. You save money for a rainy day.
● There are three main type of Saving Accounts: a) Demand Deposit Account
b) Term Deposit Account c) Notice Deposit Account.
● Interest is earned but DIRT will be paid.
Calculating interest
Interest is a reward from saving money with a financial institution.
● There are two ways to calculate interest:
1. Simple Interest
2. Compound Interest
Simple interest
● Also known as ‘flat rate of interest’
● Interest that you earn by investing a sum of money (called ‘the principal’).
● A percentage of the principal is calculated and added to it, making your
money grow.
Formula for Simple Interest: Principal x Rate x Time
Compound interest
● Compound interest is when interest is added to the savings and that added interest also earns interest from then on.
● The saver is earning interest on their interest.
Annual Equivalent Rate (AER)
● The AER shows you the real interest you will have gained on savings at the end of the year.
● The higher the AER, the more interest you will earn
● It allows customers to compare different financial institutions and the interest rates being offered by them
Deposit Interest Retention Tax (DIRT)
Notes Copy
● DIRT is a tax on interest that a person earns on a deposit (savings) account.
● It is deducted at source by the financial institution and paid over to the Revenue Commissioners - this means customers do not have to calculate the DIRT they have to pay and pay it to the Revenue themselves.
