A4 Saving and Investment Features
What do you do with money you have left over from your salary after you have bought all of the goods and services you want and need? You may want to put some money away for future use. This may be short term such as for a holiday later in the year or more longer term, such as to put a deposit on a house or for your retirement.
Individual Savings Accounts (ISAs) are savings accounts in the UK that allow people to save up to 20,000 per year without having to pay tax on their dividends.
Deposit and Savings Accounts are bank accounts where you can put money away for savings. Different savings accounts have different rates of interest. Usually the longer you agree to leave the money in the account, the more favourable the interest rate.
Premium Bonds are bond certificates you can buy from the government for £25 each. Any interest accrued each month is entered into a lottery to win jackpots of up to £1m. So you may win a prize or receive nothing each month.
A bond is a loan that you make to a company or a government when they need to raise capital. You benefit from them paying you back with interest. However, these are higher risk than a traditional savings account. Gilts are bonds issued by the British Government.
Shares are portions of ownership of a company that you can buy. The value of your share or share will fluctuate as the company increases and decreases in value. You will also receive dividends which are your share of the company profits (if they are profitable).
Pension schemes are long term savings plans where you deposit money throughout your working life into a fund which you can draw upon as a salary when you retire.
Saving v Investment?
Saving
Your balance will not drop below the deposited amount
Future value is fairly predictable
Potentially lower returns
May not keep pace with inflation in terms of changing the value of money
Lower Risk
Often free or cheap to set up
Investment
Potentially higher returns than savings
If good investments are made, less money has to be invested for the same returns
Offers a higher chance of increasing value of money at a faster pace than inflation reduces it
Your balance can drop below the deposited amount
Higher risk
Can be expensive in terms of transaction fees