Why do people save?
So that they have the funds to pay for goods and services in the future.
What are savings?
Delayed spending
What could delayed spendings be for?
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
What 7 factors should be considered when choosing savings on a product?
- 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?
What is return on savings?
The intrest received from the provider payed by the account holder
Expressed as AER - annual equivalent rate
what is the AER?
Interest earned on the money in one year
How is AER decided?
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)
What can make the return on savings higher? (7)
- 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- an instant access account where the money can be withdrawn at any time will offer a lower rate of j retest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
what is meant by inflation?
sustained increase in the general price level
What must the relationship between the AER and inflation rate be to maintain purchasing power of their money? And why?
-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
What is the CPI?
The consumer prices index
What is the RPI?
The retail price index
What is the CPI used for?
To measure the inflation rate managed and quoted by BofE
How does the CPI and RPI measure inflation?
By calculating the average change in price of a basket good over a 12 month period
What’s the difference between a CPI and RPI?
RPI includes mortgage internet payments and other owner occupier costs, while CPI does not
What is an ISA?
Individual saving account that is paid free of tax
Why are ISAs good?
They were introduced by the government in 1999 to encourage people to save.
This is because AERs tend to be very competitive.
What was introduced to reduce how much can be saved in stocks and shares?
An ISA limit
What can be done with the money in ISAs?
Invested in cash or stocks and shares.
What are the two different types of ISAs
Cash
Stocks and sharws
What is a cash ISA
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.
What is a stocks and shares ISA?
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.
What limits are there on ISAs?
- 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.
Savers can transfer funds between ISAs. What are these dependent on?
The terms of both original isa and the new isa
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Topic 1 - Purposes of money25
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Topic 3 - Payment Methods31
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Topic 2 - The Personal Life Cycle14
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Topic 4 - Everyday Banking24
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Topic 5 - Saving Products34
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Topic 6 - Borrowing Products50
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Topic 7 - Providers42
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Topic 8 - Consumer Protection34
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Topic 9- Budgets And Forcasts42
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Topic 10 - Dealing With Unexpected Events37
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Topic 11 - Dealing With Debt40
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Topic 12 - Earnings42
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Case Study - Vea16
