Topic 2; Savings and investments products

Question 1

Why do people save for long periods?

Answer 1

To finance a future medium-term or long-term need, want or aspiration

Question 2

What do people hope when saving and investing?

Answer 2

That their savings and investments will grow over the period to get a good return on the money by the time it matures

Question 3

What happens if the economy performs badly?

Answer 3

They may not get as good a return as they hoped

Question 4

What is the general rule with savings and investments?

Answer 4

The higher the risk, the greater the return (Other things being equal)

Question 5

How much £ is protected by the FSCS?

Answer 5

up to £85,000

Question 6

Savings accounts pay very high interest rates. True or False?

Answer 6

False

Question 7

Who are investments suitable for?

Answer 7

People who are prepared to invest for the medium to long term

Question 8

What is capital growth?

Answer 8

Buy now and save later for profit

Question 9

Why do people save and invest in terms of income?

Answer 9

Because the investment will supplement their income

Question 10

Give an example of earned income and unearned income

Answer 10

Earned income: Salary
Unearned income: Investment

Question 11

Risk and reward in investments

Answer 11

The higher the risk the higher the possible return

Question 12

Risk and reward in savings

Answer 12

Risk is moderately low. Profit is earned in the interest made from the money. Risk low because up to £85k is protected by the FSCS

Question 13

Who are the providers of savings and investment products?

Answer 13

Banks
NS&I
Building societies
Brokerage firms (solely for investments)

Question 14

What are the 2 savings products?

Answer 14

Fixed term account; money locked away from a period of time, penalty if withdrawn before said time

NS&I - premium bond; saver entered for a lottery draw with every £ in saving account for a reward for up to £1m. Can only save up to £50k in premium bond

Question 15

What are stocks and shares?

Answer 15

Stocks represents part ownership over company

Individual can make money off them by increasing stock price and selling it and/or dividend payments

Question 16

What are commodities?

Answer 16

Gold, fine art, rare watches. Only some of these will go up in value over time, individuals should invest if they’ve got good knowledge of whether it will go up in worth or not

Question 17

What are bonds?

Answer 17

Long terms loans made to large organisations. Borrowers promise to pay bond back at a certain date and pre-agree interest payments to bondholders

Question 18

Explain ISAs

Answer 18

Individual saving accounts which are exempt from tax returns. Have a limit on how much an individual can invest into the account in a year (22/23 szn was £20k). There are 2 types of ISAs: Cash ISAs where money is placed into the account by the saver and earns interest on it. And Stocks and Shares ISAs where the financial provider invests the money for the saver.