Investment and Savings Products
Core concepts
Candidates must know the main savings and investment vehicles: cash deposits, National Savings and Investments (NS&I) products, individual savings accounts (ISAs) (cash, stocks and shares, innovative finance, and lifetime ISA), unit trusts and OEICs, investment trusts, exchange-traded funds, bonds and gilts, and with-profits funds. Understand the risk/return relationship, diversification, liquidity, and time horizon.
Learn the difference between unit trusts (open-ended, priced at net asset value, dual-priced historically) and investment trusts (closed-ended companies with shares that can trade at a premium or discount). Know how OEICs differ (single-priced, open-ended). Understand accumulation versus income units, charges (initial, annual management, platform), and the effect of compounding.
Traps
A common trap is confusing investment trusts (closed-ended, can borrow, share price may differ from NAV) with unit trusts (open-ended, units created/cancelled). Another is assuming an ISA is a product - it is a tax wrapper that can hold cash or investments. Watch for questions on capital at risk (stocks and shares ISAs can fall in value; cash ISAs are generally protected up to the deposit protection limit).
Worked rule of thumb
Use the rule of 72: divide 72 by the annual return to estimate doubling time. At 6% a year, money doubles in about 12 years (72 ÷ 6). This helps compare savings versus investment time horizons.