topic 5 libf

Money that we don’t need or want to spend now can be put away to spend later. These are our savings. Some people’s attitude to spending is to spend all the money they have, and not to save.

But if we don’t save money now, we will not be able to do some of the things we want to do in the future. We might want to save money for a:

-          deposit to buy a home.

-          Holiday overseas

We must save money so that we can live comfortably when we retire.

If we budget to have money left over, it makes sense to put the savings in an account to earn more money. Interest on savings counts as income, so savers pay tax on it. If savers earn below a certain amount of interest, they pay no tax on it.

There are different types of savings account for different purposes. You might want to save a large sum of money for a long time or you may want to save a small amount each month from your earnings.

-          INSTANT-ACCESS ACCOUNT lets you take your money out at any time. You can deposit as much money as you want.

-          NOTICE ACCOUNT you must tell the bank in advance (ie give notice) before taking out any of your money. The interest paid is very low. The interest paid is higher than for instant-access account. The longer the notice you need to give, the higher the interest rate paid.

Cash individual savings account (ISA)

A cash ISA lets you save money tax free up to a maximum sum per year. The money is available instantly and the interest paid is usually higher than on a regular instant-access account.

When choosing an account, savers ask what the interest rate is. The higher the interest rate paid the more savers will earn on their money. But different accounts pay interest in different ways. Some pay it monthly, others pay at the end of the year. To compare these would be like comparing apples and oranges. So that savers can compare rates, account providers must state their interest as an annual equivalent rate (AER). This is what the rate would be if interest was paid once a year.

People look for different features in a savings account depending on their reasons for saving. Here is how some accounts compare.

                                                            instant access                    notice                    cash ISA

High interest rate                                         ❌                                   ✔️                            ✔️ 

Withdraw the money at any time                  ✔️                                  ❌                            ✔️   

Tax free                                                        ❌                                  ❌                            ✔️

Unlimited deposits                                        ✔️                                   ✔️                            ❌ 

Selling is when we exchange items for money. Selling something that we no longer want is one way to make money. We might have outgrown an item or not want it anymore.

Selling items we no longer want can increase our income. We might not make lots of money, but we can add what we do make to our savings. Or, depending on your attitude to spending, you might spend the extra money you make.

We can sell unwanted items in many places to different groups of people, across the world (through our online auction), in our country, locals or family and friends.

A popular way of selling for adults is online. An auction on a website (such as eBay) lets people across the country and the world see your item. An ‘auction’ is where people can offer to pay an amount of money for an item. This is called ‘bidding’. The person who bids the most money buys the item. A second-hand item is worth what people are willing to pay for it. On an online auction site, you can search for similar items before listing your own. The seller lists their item on the auction website. They include an accurate description of the item and a photo. They choose the item’s starting price. A low price attracts bidders but might mean the seller doesn’t get the price they really wanted. If the item is sold, the seller gets the money (minus fees paid to the auction website) and the buyer gets the item. The seller and buyer give each other feedback. This is important, as it lets people know whether buyers and sellers can be trusted. An online auction are for people ages 18 and over.

Car boot and garage sales - People can meet to sell items out of their car at a car boot sale, or from their garage whenever they want.

Online marketplaces – (such as gumtree) let sellers advertise their items for free. Buyers can offer a price they think is fair.

Cash converters – if you need cash urgently, a cash converter will buy an item from you. The price paid will be quite low

Recycling mobile phones – some companies will buy your own phone, repair it if necessary, then sell it to people second-hand.

However you choose to sell an item, remember you may have to pay costs. Advertising in a newspaper sometimes cost money. There is an entrance fee to sell items at a car boot sale. Online auction websites deduct fees from the price a buyer pays. Cash converters and gold buyers will pay less than the item is worth. This is a ‘cost’ because you could make more money by selling the item another way.