UNIT 4 Banking, Saving and Borrowing


Key Terms/Summary


Savings: Part of income which is not spent.


Interest on savings: The return an individual or organisation receives from a financial institution for saving money with them. This is liable for tax, i.e. DIRT.


Borrowing: Receiving a loan (money) from a financial institution and repaying that loan with interest.


Bank overdraft: The individual or household is given permission by the bank to withdraw more money than is in their account.


Hire purchase (HP): The consumer purchases the good from the retailer through a HP company. The HP company pays the full cost to the retailer and the consumer relays the HP company in instalments over an agreed time.


Interest: The cost of borrowing (also known as the cost of credit). It is the difference between the amount the household/


individual borrows and the total amount they repay.


Current accounts: Consumers take money out of their account to pay bills such as groceries (withdrawal) or their income gets paid into the account (lodgement). We can access our account in person in the bank, online or by using the debit card associated with the account.


Standing order: An instruction by the account holder to a financial institution to pay a fixed amount to an organisation on a regular date, e.g. a mortgage.


Credit transfer: A once- off instruction from a current account holder to the financial institution to transfer money into another account.


Mortgage: Taken out by the household/ individual from a financial institution to pay for a house.


Deposit accounts: These types of accounts are savings accounts which offer interest on savings. All savings accounts in banks are subject to DIRT (tax on interest).


Direct debit: The current account holder gives permission to another person or organisation to request the withdrawal of variable amounts from the account, e.g. phone bills.


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