Regular Savings Account
These accounts are designed to persuade people to regularly save in their accounts. They require a monthly investment and this value can vary if it is decided. Many saving accounts do not permit lump sum payments and generally prefer instalments. Permission to access savings accounts is different to those of other accounts, some may require a certain period of time to elapse or others may require notice. Others may be fixed term, which means that the amount may only be accessed at the end of the phase.
Interest rates are changeable and there is a maximum and a minimum, which is sometimes required. Investments can be negotiated with the bank or building society. The minimum investment is generally £10 - £25 and the maximum varies from £100 – 150.
Foreign Currency Accounts
These accounts can be used internationally and can be opened in one country and provided in a bank in another. It is used Euros in Europe and £ sterling in other. If you regularly make or receive payments in a foreign currency, a foreign currency accounts, with quick, easy access to your money in a range of currencies, may be just what you need.
Student Accounts
These accounts are offered to students who are in higher education, such as college or university. They must be above the age of 18. These accounts help them pay tuition fees for their learning. Incentives are offered to encourage the students to appreciate the bank. Some interest rates and incentives are shown below:
The bank that offers the best range is HSBC as it offers the most appealing and useful incentive and it has the best overall rate, despite the fact that the incentives offered by the other banks are just as appealing. Halifax offers an unusually high interest rate for investors which would certainly interest investors.
ISA – (Individual Savings Account)
Individual Savings Accounts were introduced by the government in the spring of 1999 to replace the Personal Equity Plans (PEPs) and Tax-Exempt Special Savings Accounts (TESSAs) as a new way for UK savers to invest their money within a tax-favoured environment. When you save or invest through an ISA, the income and growth from your savings and investments are free of income tax and capital gains tax and you do not have to declare an ISA on your tax return.
An ISA is not itself an investment, but it what is often referred to as a ‘wrapper product.’ It is simply a ‘wrapper’ within which an underlying investment is held. The vast majority of investment trusts can be held in an ISA, as can unit trusts and most single company shares.
You can no longer take out a new PEP, but if you started one before the introduction of ISAs, you can transfer it to another provider or switch funds. PEPs have the same tax ‘benefits’ as ISAs.
ISAs can include one or more components: cash, life assurance and stocks and shares. There are strict rules regarding the maximum amount allowed for each component and the overall amount you can invest in any one tax year. Until April 2006 you can pay an overall total of £7,000 into ISAs each tax year. A tax year runs from 6th April one year to 5th April the following year.
You can have one Maxi ISA per year, held with a single manager, in which you could invest the full £7,000 in one or more investment trusts (the stocks and shares component). If you want to spread your investment across a range of assets, you can have up to three mini ISAs, one for cash, one for insurance products and one for stock and shares, with a different scheme manager for each if you wish. Stocks and shares mini ISAs can be used to invest in investment trusts. If you take out mini ISAs, the limit for stocks and shares is currently £3,000. If you have a lump sum to invest, investing in an investment trust ISA is simple and you can invest in some from just £250.
For those who prefer to save on a regular basis, you can invest from as little as £30 a month in one of the many investment trust ISA schemes on offer, up to £583 per month to use your full £7,000 annual allowance.
The benefits of an ISA account are:
- You don’t pay tax on any interest or dividends you get from the investments within your ISA.
- If you have an ISA and it increases in value you will not have to pay Capital Gains Tax (CGT) on this increase.
- ISAs can save you time on administrating your investments since any money invested in an ISA does not have to be mentioned on your self-assessment tax return.
- Gives you instant access in your cash when you need it.
- The interest rate can either go up or down, but it is guaranteed that it will not go below 2%.
- There are no fixed terms, so the savings will continue to earn tax-free on the investment.
Summary of Banking Investments
I can see that the most profitable account is investing in an ISA. The account has benefits as it produces the most amount of money over a short period of time. Another major benefit is you do not have to pay tax on any interest or dividends you get from the investments within your ISA.
Investing in a Business
Starting a new business is an exciting prospect but can be a daunting task. The advantage of buying an existing business is that its infrastructure, clients and reputation already exist. It is less of a risk, and businesses with a good track record stand a better chance of getting financial support. Plus, it can be very satisfying to take an existing business and inject your own personality into it. On the flip side, there may be hidden problems that are difficult to correct, like poor customer service or long-standing problems with staff. Also the previous owners are likely to have built up a very loyal customer base, which can be a double-edged sword – while you have a ready-made audience; you need to think about how you’re going to convince them that you are a worthy successor.
Sole Trader
Most small businesses are sole traders. You do not need to do anything except start trading. Examples of sole traders are: plumbers, hairdressers, newsagents and fishmongers.
The advantages of sole traders are:
- They are easy to set up.
- You are in charge.
- You decide what happens to any profit.
Disadvantages of being a sole trader:
- You work long hours and do not get many holidays.
- You have unlimited liability. If the business goes bust and owes £1 million, you must have to sell your personal belongings to pay off debts.
- Sole traders are unincorporated. The business is not legally separate from its owner. So if someone dies after eating fish, they sue the fishmonger personally – not the business.
Partnerships
Partnerships are not that common – but you get them in jobs like accountancy, solicitors and doctors. Partners have an equal say in making choices and an equal share of the profits – unless that is they have an agreement called a deed of partnership that says different.
Advantages of partnerships are:
- More owners mean innovation, and more people to share the work.
- More owners mean more capital can be invested into the business.
Disadvantages of partnerships are:
- Each partner is legally responsible for each others actions.
- Partnerships are unincorporated and have unlimited liability.
- More owners can result in disagreements.
Limited Companies
Limited companies are very expensive to setup but carry less financial risk for the owners. There are two types of limited company – private and public. But both kinds have these five important differences compared to sole traders and partnerships.
- The business is incorporated – has a separate legal identity from the owner.
- It has limited liability so the owners only risk losing the money the money they invest in the business – no matter how big its debts are.
- It must have a Memorandum of Association. This tells the world who the business is and where it is based.
- It must also have an Article of Association. This sets out how the business will be run.
- It is owned by shareholders. The more shares you own, the more control you get.
Private Limited Companies (LTD)
Private means that shares can only be sold if all the shareholders agree. The shareholders often all members of the same family. Private limited companies have Ltd. After the name.
Private Limited Companies advantages:
- The major advantage over sole traders and partnerships is limited liability – you can’t lose more than you invest.
- Being incorporated, the company can continue trading after s shareholder dies – unlike partnerships.
Private Limited Companies disadvantages:
- They are more expensive to set up than partnerships because of all the legal paperwork you have to do.
- Unlike sole traders or partnerships, the company is legally obliged to publish its accounts every year.
Public Limited Companies (PLC)
Public means that anyone can buy shares in the company – if they can find someone who wants to sell them. Public Limited Companies have PLC after their name. By law a PLC must have £50,000 in share capital to start.
Firms generally become PLCs when they wish to expand.
Public Limited Companies – Advantages:
- Much more capital can be raised by a PLC than by any other kind of business.
- That helps the company to expand and diversify.
Public Limited Companies – Disadvantages:
- Each shareholder has very little say in how the business is run- unless they own lots of shares.
- It’s easy for someone to buy enough shares to take over the company – if they think they can make more profit.
- That means unlike other companies, a PLC cannot sacrifice profit to other objectives, like helping the environment.
After assessing the risk of being a sole trader and the hassle of being a limited company, I have decided on opening an accounting firm as a partnership. In this case, I have an idea to take over a medium sized accounting firm. It will have up to seven workers. Therefore, the business will be a partnership. Having unlimited liability and being unincorporated is a very big responsibility for the partners. But as a partnership outweighs the other options of job types, it proves to be the most rewarding and most manageable.
Investing in a Property
For many people, buying a house is a financial priority. But along with the rewards of owning a house come a lot of responsibilities — from looking after the lawn and landscaping, to maintaining its plumbing, electricity, roof, and other aspects. Taking good care of your house not only improves your quality of life and that of your neighbours, but it can help maintain — and even enhance — the value of your investment.
Many first-time homebuyers underestimate the time, effort, and expense of maintaining a property. If something breaks, as owner it will be your responsibility to fix it — or have it fixed. From basic maintenance to major emergencies, the costs of owning a house — not to mention the hassles — can mount up.
My parents bought my house 35 years ago for £12,750 and now it is worth £420,659. One of the main causes in this sudden rise in value is due to the fact that a lot of building has occurred to the house. For example: converting a single bedroom into a double bedroom, building a shed and an extension. This is due to the pay of jobs rising. Therefore, creating the prices of goods to increase.
I have found a house valued at £194,950. It is well located with many facilities within a 10 minute rang. It has Hounslow East tube station within a 5 minute walk and 0 minutes away from Hounslow Central. There is a primary school within a 5 minute walk and a secondary school within a 10 minute walk. It is situated near Hounslow High Street and is 15 minutes away from the Hounslow Bus Depot. It is a 3-bedroom, semi-detached house, with a rear garden and a garage.
I found this house from the internet from ‘Major Estates.’ It is an ideal house to purchase and is a very good buy.
To buy the house, I would have to raise another £144,950. One way to do this would be to pool friends and relatives money together and get a mortgage. There are two mortgages that I could choose from, which are repayment and interest rate or interest only. The first option means you pay back the repayment and interest on top. The second option means you only pay the interest. This can be used if the person buying the house wants to keep it for a short period of time, then after a while they would sell the house.
Investing in a Vehicle
If I had the choice to invest in a luxury car, I would choose the Mercedes S320 3.2 CDi Saloon. This is a very luxurious car and has many features. It is a family car and is metallic silver. It has air conditioning, air bags, alloy wheels, satellite navigation system, a TV and a wooden trim. Being a diesel car, the Mercedes consumes less fuel than the average petrol car. It is valued at £27,999. To get this in instalments over a period of 12 months I would pay £2,333.25 every month. Once the car has been purchased, I could consider selling it on. I would ensure the car was brought up to higher standards by giving it an entire service check. This would cost approximately £200. Then I would put it on the market at £33,000. If a buyer offered to purchase it at this price, I would accept this offer. If they wished to pay instalments, the plan would be over a two year period with APR (Annual Percentage Rate) — A percentage calculation that reflects the total cost of a loan (interest plus all fees) on an annual basis. Therefore, the buyer would pay £2,750 per annum. The profit that I will have gained would be £5,001. This is quite a rise. The risk could occur if there were no buyers. This illustrates the risk of investing in a car. I would not personally decide to do this, if I had the option.
Conclusion
After investing each alternative method of investing £50,000, other than the stock exchange, I have come to a conclusion that banking is the safest option. However, I believe that the least secure bank account is an Internet account. This is because it could be hacked into and accessed as the data is intangible. I also found that ISAs were an excellent investment for small savings (£3,000) but as I had £50,000 it would not be useful.
After considering a business I found that each type of business ownership had its own shortcoming. For example, limited companies were better off than other business structures i.e. – sole trader, partnership. This showed me that limited companies were a possible option as I had a lot of capital to setup and maintain the company.
Investing in a property would be a good option for people who were married or retired as the house I found was well located and had a fair price. The house price would surely inflate once it has been paid off and could be sold off for a bigger price. There would also be some problems with the property. For example the depreciation of the property would cost money if the property was damaged or suffered from wear and tear.
Investing in a vehicle is not very appropriate for my investment, as buying a car for a small amount of money and selling it on is not a realistic decision.
Other alternatives that I could investigate could be: clothes, furniture, jewellery and more. In my opinion these sorts of industries are less risky than the other alternatives that I have investigated, and if researched in depth could be a fool proof option.