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Different Type of Investments (Savings Account (Savings accounts are…
Different Type of Investments
ISA's
An ISA is an individual savings account. this is different from a standard savings account as all of the interest that is acquired
Savings Account
Savings accounts are specialising bank accounts that are designed to encourage people to save. They tend to have higher interest rates than current accounts but they can be held along side a current account.
Saving accounts do vary in types as some allow instant access, however some saving accounts require you to "lock in" your savings for a set time.
Interest on saving will now mainly become tax free for most people, however technically interest on saving account is taxable.
Advantages:
Money is safe and protected
competition enables better rates and perks to be offered
Helps to negate impacts of inflation
Money can be easily accessed and inputted and withdrawn when required.
Disadvantages:
Lower interest rates than those typically on ISA
Better rates are offered for people willing to lock in their savings
Interest rate typically lower than the rate of inflation
Tax is charged on interest paid
Premium Bonds
Premium bonds are a product that is offered by NS&I. However unlike an investment bond you can choose to withdraw your money at anytime and “cash in” your bonds.
Think of the premium Bonds like an investment lottery, without ever losing (well technically you do), as each bond that you buy has a unique number. Each month a machine draws numbers and if your bond number comes up then you win a prize.
Each month one person will become a millionaire and any prizes that you win will be tax -free so you get to keep it all.
Premium bonds are very much a low risk investment
Advantages for savers who:
Want the chance every month to win a £1million jackpot and other tax-free prizes
Have £100 or more invest
Want 100% security for their money
Want to make the most of tax-free investment opportunities
Disadvantages for saver who:
Want a regular income
Are looking for guaranteed returns
Are concerned about inflation their savings
Want to buy them a gift, unless for their child or (great) grandchild
Bonds and Gilts
Gilts and bonds are type of lending which happened over a fixed period of time, in
return for a fixed rate of interest.
Advantages:
Government gilts are typically seen as a safe sound investment as Government tent to always have capital to make repayments.
Bonds and gilts tend to return a higher rate of interest payments that are available elsewhere
Disadvantages:
If a government was to run out of capital for some reason, then you run the risk of not being repaid your gilt on “maturity”
The money you invest in bonds & gilts can only be released when it matures
Pensions
A pension scheme is a saving scheme; with the aim of “cashing” this is when you get to retirement age.
The Government has now made it law that all employees should access to a workplace pension. Employee’s pay in a percentage of their wages into scheme and in most cases employers will also make a contribution.
Fund managers basically invest your funds in the socket market, with the aim of making you more money, enhancing your retirement pension pot.
Once you reach at least 55, then you can usually cash in this pension.
Advantages:
Money put into pensions will qualify for a tax-relief
Employers will top up the amount that is paid into your pension
Should have the ability of a tax lump sum (up to a quarter of its value)
Disadvantages:
Linked to the performance of the stock market
Money is typically tied up in these schemes and can’t be released until it has matured
Pensions fund has to be used by annuity (rates vary vastly)
Tax is payable on income from pension