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A4: Managing Personal Finance - Coggle Diagram
A4: Managing Personal Finance
Financial borrowing products
Overdraft
A value of money that allows you to borrow from as an extra function of a current account. However this is paid back with interest of 40%
Personal loans
A set amount of money borrowed from a bank and repayed in regular installments over a period of time with a fixed rate interest
Long term borrowing (repaid within 1 year)
Hire purchace
A secured loan (the provider can reposes what you bought if you do not keep up the payments)
suitable for infrequent purchases like a car, TV, fridge
Mortgages
Used as long term loans to buy properties
secured against the asset
normally repaid over 25 years
interest rates can be fixed or variable
An increase in interest rates may affect your ability to repay it. The bank can reposes the house if it is not repayed
payday loans
Short term source of finance (should be repaid when you next get paid)
Available for small amounts of time at very high rates
credit card
a method of payment that allows you to borrow money, and pay back later with interest
Investment products
Individual savings accounts (ISAs)
An ISA allows you to save without paying tax on the interest or profits you earn. There is a limit on the amount you can put into an ISA each year. You may need to give notice if you wish to make a withdrawal. There are two main types of ISAs
Cash ISA
A savings account where interest is paid tax free
Stocks and shares ISA
Funds are invested in shares or bonds, and profits/ returns earned are tax-free
Deposit and savings accounts
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below. Additionally, some banks pay customers interest on their account balances.
Premium bonds
Don't earn interest, instead the interest funds the monthly prize draw
They offer 100% capital security, backed by HM treasury
They are more attractive returns on other savings and investments, but premium bonds may be competitive with easy access accounts
Bonds and guilts
A loan made by an investor to a borrower (either a company or government)
Corporate bonds are issued by a company
Government bonds are called gilts
They pay investors regular interest over a set period of time
Shares
(or equities) give investors part ownership of a company
In return for their investment, shareholders receive payments, or divedens
The share value can go up or down
Pensions
Long term savings designed to save for retirement
employers pay into the state pension through national insurance contributions
Workplace pensions put a percentage of an employee's pay into a pension scheme, with a contribution usually added by the employer
Also available are private pensions
Risks and rewards of savings vs investment
Savings
Risks
Low to zero because savings are protected by the FSCS up to 85,000, but inflation can reduce the spending power if interest rates are low
Rewards
Financial peace of mind
Interest is paid
Investments
Risks
You can lose some of the money, no guarantee of a return
Rewards
If successful, Potential for high financial return. It can also be exciting for some people
Different types of insurance products
Car
It is a legal requirement to insure any car that is on the road
Three types of car insurance
Third party
Only pays for damages to the other car/ driver involved in the accident
Third party theft and fires
Fully comprehenncive
Covers for both cars involved in accident including policy holder's car
Home and Contents
Home insurance, also commonly called homeowner's insurance, is a type of property insurance that covers a private residence.
Contents insurance is insurance that pays for damage to, or loss of, an individual’s personal possessions while they are located within that individual’ In this context "possessions" means anything
Life assurance and insurance
Insurance
A policy for a set period of time, to pay a lump sum if you die within that time period
Assurance
An ongoing policy to pay a lump sum upon death
Travel
Contents insurance is insurance that pays for damage to, or loss of, an individual’s personal possessions while they are located within that individual’ In this context "possessions" means anything
Pet
Pet insurance pays, partly or in total, for veterinary treatment of the insured person's ill or injured pet. Some policies will pay out when the pet dies, or if the pet is lost or stolen.
Health
Health insurance, often called private medical insurance, is an insurance policy that covers the costs of private healthcare, from diagnosis to treatment. You will pay a monthly subscription that covers all or some of the cost of treatment for acute conditions that develop after your health insurance policy has begun.
FSCS
Financial services compensation scheme, protection services for savings accounts
protects up to 85,000 of savings