SAVING AND BORROWING BUSINESS

What to consider when saving with a financial institution

safety-no risk of theft government protectio

interest-interest is paid by the financial institution

conevenience-acess to savings at any time

credit rating-savers can build up a good credit rating

commercial banks

A commericial bank is a business that provides financial services to personal and business customers

credit rating

a measure of your ability to repay a loan

Saving options in a bank

Demand Deposit Account

Notice Deposit Account

Fixed Term Deposit account

Demand deposit account

Saving money but have access to savings at any time to withdraw or add to them.

Notice Deposit Account

Saving money but willing to give notice before withdrawing money

Fixed Term deposit account

Save money but leave it in an account for 3 months to 10 years without access

Benefits of Saving with a bank

Gain interest every year

Protected by the government Deposit Guarantee scheme

No bank charges

Risks of saving with a bank

very little risk

deposit interest

Retention Tax[DIRT] is paid

Charges for withdrawing money early

Where can you save?

Credit Union

AN Post

Credit Union?

A financial institution where people save together and lend together at a fair and reasonable interest

not-for-profit

co-operative 

INTEREST ON SAVINGS

the return[money] you recieve from a financial institution for saving your money with them

Calculating Interest

Simple Interest-calculated as a % of the money you have put in

amount saved x perecntage[rate] x time

Compound Interest-calculated as a % of the money you have in total at the end of each year

DIRT

Deposit Retention Tax-tax to be paid on the interest earned on savings

AER

Annual Equivalent Rate- the true rate of interest over a period of time

Investing

Using our money to earn a greater return than is possible from an ordinary savings account e.g buying shares,buying property

Factors to consider before investing

How much money can we make?

Is there any risk involved?

What do i get from this investment?

Saving

The part of our income that we dont spend

Reasons for Saving

To purchase something in the future[car,deposit for house]

To have money available for any unexpected bills

To have a rainy day fund

BORROWING

Taking and using money that belongs to another person or financial institution ewth their agreement with a promise ot pay it back some time in the future

LOAN

Money borrowed from another person or financial institution

Reasons for borrowing

To fufill your needs if your income is not large enough to do this

To pay for and unexpected event,such as an urgent medical procedure

To help you through and expensive period of time such as christmas or going to college

Deciding to borrow

do i really need it?

Can i get the money another way?

Can i afford the repayments?

Where can you borrow from?

Banks 

Credit Unions

Money lenders

Sources and uses of finance -short term

Short term[up to 1 year]

Bank overdraft

Credit cards

Money lender

USES

Holiday expenses

School Costs

Sources and uses of finance -medium term

medium term [1-5 years]

Term/personal loan

Hire purchase

renting

USES

motor car

new kitchen

Sources and uses of finance -long term

Long term[more than 5 years]

Long term loan or

Mortgage

USES]

New hosue 

attic conversion

BANK OVERDRAFT

Short term

Take out more money than is in you account[agreed amount]

PURPOSE

short on money e.g Christmas

COST

Interest

RISK

high interest rates

CREDIT CARD

short term

used instead of cash[pay back]

PURPOSE

instead of cash

COST

no interest if paid by due date

RISK

lose it

MONEY LENDER

short term

Someone other than a finacial institution who provides loans

PURPOSE

short term loand[if unable to get from the bank]

COST

high interest rates

RISK

more debt 

dangerous ppl chasing you

PERSONAL LOAN

Medium term

loan from financial institution[1-5 years]

PURPOSE

dont have the cash to pay for the item

COST

interest must be paid

RISK

interest must be paid back

HIRE PURCHASE

medium term

form of borrowing- puchase it now and pay for it over a certain period of time in installments[own after last purchase]

BUYER,SELLER,FINANCIAL INSTITUTION[F-I]

FI-pays RETAILER- consumer pays FI in installments

PURPOSE

dont have the cash to pay for item but can afford payments over time

COST

item + fees

RISK

expensive-higher than bank rates

RENTING

Long term

type of borrowing but never own item

PURPOSE

use item but too expensive to purchase

COST

renting is low compared to cost as payments are spread out

RISK

more expensive than buying

never own item

LONG TERM LOAN

long term

borrowing item-over 5 years

PURPOSE

purchase smth expensive

COST

interest paid

RISK

if do not pay bank will sell property

INTEREST[borrowing]

the price we pay for borrowing money - extra money paid

FIXED INTEREST RATE

The percentage paid back stays the same

VARIABLE INTEREST RATE

The percentage paid back can go up or down

Flat Interest Rate

interest paid based on original amount borrowed it does not take into account the amount owed is going down with each repaymnet

ANNUAL PERCENTAGE RATE- APR

Takes into account the amount owed is going down with each repayment-true rate of interest

Rights of a borrower

Must be told APR

Must be told the total cost of the loan

Must be told the number of payments

Be made aware of any deposit to be paid

Right to cancel withing 14 days of signing agreement

Responsibilities of a borrower

must budget properly to be able to make loan repayments

make sure loan is fully repaid within agreed timeframe

use the money for the agreed purpose

APPLYING FOR A LOAN-security

when applying for a loan you may need to offer security

security-anything of value that a lender will except in exchange for a loan

Security offered must be smth that can be easily turned into cash, e.g deeds of a house,shares ,life insurance