WEEK 2 Savings And Investment Products UPDATED SRA Essay examples

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Level 3 Certificate in Financial Studies
Unit 2 – Financial Capability for the Medium and LongTerm (FCML)

Topic 2

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Level 3 Certificate in Financial Studies
Unit 2 – Financial Capability for the Medium and LongTerm (FCML)

Topic 2
Learning Outcomes:

Identify the key features of medium- and long-term savings accounts;
Differentiate between financial services products for investment;
Understand the impact of taxation;
Begin to understand the relationship between risk and reward.
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Why people save in the medium & long-term? 3

People save for long periods because they make a decision to save out of their current income to finance a future medium-term or long-term need, want or aspiration. These future needs, wants and aspirations will require a significant amount of money and so people must save for a longer period of time to achieve them.

Many investments can provide a mixture of both growth and income. There are two main ways in which people can use their savings or investment fund when it matures in the future:
They can hope for capital growth, i.e. that the market value of the investment is greater when sold than the amount they paid for it. When they cash in the investment, they will receive a lump sum (i.e. its full value), which they can use to finance their planned project.
They can use their fund for income – the investment will pay out a regular amount that they can use as part of their monthly income.

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Difference between Investments






Savings products are less risky than investment products.

Investment products are higher risk because their value at any time depends on the performance of the assets in which the money has been placed and also on general movements in the financial markets.

Savers deposit money with banks, building societies and credit unions and earn interest over the period. The capital sum they deposit is not at risk – a saver will not get back less money than they paid in.

Investments do not mature for many years, usually more years than a long-term savings product. Investments do not pay a stated rate of interest and investors hope that the capital value of the fund will grow over the period. Statistics show that, over history, money that people have invested in stock

markets over the medium to long term has given a higher return than cash left in

a savings account over the same period. But stocks and shares move up and down continuously and an investor always takes the risk that they might need to sell their investment at a time when their value is low. They need to be able to leave their money the investment for a long time.
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Providers of Long-term Savings & Investment
Banks, Building Societies, Credit Unions, NS&I and the Post Office provide longterm savings and investment products, with the exception of Credit Unions, which concentrate on short-term savings.
Friendly societies are mutual organisations offer short-term savings accounts
some also provide long-term savings, investments, life insurance, pensions and annuities.
Insurance companies

provide a wide range of long-term savings and life insurance, investment products and pensions.
Pension funds accept people’s savings throughout their working lives and invest the money so that the savers will eventually have a pension to finance their retirement. Investment companies offer a wide range of product types to meet their
particular needs. Investment products are divided into those that aim to grow the money over time and those that provide a regular income from the money invested.
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 Fund

companies offer packaged products that…