Different Types Of Savings And Investments Flashcards
What is ISA?
Individuals Savings Account is a type of saving account where the holder is not charged with income tax on the interest received.
Advantages of ISA’s?
- Acts an incentive to save as income tax is not charged on interest which allows a person to keep all of the rewards
- Interest rates are sometimes slightly higher than other alternative saving accounts
Disadvantages of ISA’s?
- Notice is required to make withdrawals
- Limit set on the number of withdrawals made
- Limit set on the annual number amount that can be placed
- If a saver makes more withdrawals than set out in the agreement then the penalty may cancel out the tax savings
What is a Deposit And Savings Account?
Accounts held with banks or building societies were interest is paid on positive balances.
Advantages of Deposit And Savings Accounts?
- Interest is earned on positive balances
- Accounts sometimes require regular deposits of a set amount which allows a person to follow a savings plan
Disadvantages of Deposit And Savings Accounts?
- Interest earned is taxed
- Notice must be given in order to withdraw funds
- The percentage rate of interest paid on savings is likely to be lower than interest to be paid on borrowing and therefore the benefits of savings are lost if the customer is also borrowing at the same time.
What is a Premium Bond?
A government scheme that allows individuals to save up to a set amount of buying bonds which is placed into a regular draw for cash prizes.
Advantages of Premium Bonds?
- The bond holder doesn’t receive interest on their savings
- Chance of winning is likely more that could be earned in interest
- Can be easily withdrawn with no loss or penalty
Disadvantages of Premium Bonds?
- No guaranteed return on investment
- Maximum amount is reviewed annually by the government
- The amount invested, assuming zero or low returns, loses value due to inflation
What is Bonds And Gilts?
Fixed term security where an individual lends money to a companies and governments in return for interest payments and is invested for a specific period of time.
Advantages of Bonds And Gilts?
- Regular fixed returns
- Spreads risks across a range of markets
Disadvantages of Bonds And Gilts?
- If the bond or guilt value drops, the lender could risk losing some or all of the value of the investment
- If the issuer is unable to make payments, interest payments may not be received
What is Shares?
When an individual invests in a business in return for equity, becoming a shareholder.
Advantages of Shares?
- 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 such as discounts and special offers
- For some investors, its more than just a way of saving but a pastime and creates interest
What is a Pension?
Can be state, company or private and is a long term saving plan where individuals make regular contributions called premium payments throughout their working life and is then repaid as either a lump sum, regular payments or a combination of the two upon retirement.
