3.2 Products And Sevices To Meet Customers Needs Flashcards
Core banking services fall under:
- accepting deposits in current and savings account to help customers manage their money and earn a return on any surplus money that they have
- lending money to customers to help purchase things
- providing payment mechanism so they can pay and receive money
- providing products and services including insurance and financial advice
Deposit services
Is available to people who need to manage the day-to-day income and expenditure and who want to save this up plus funds
Deposit services, the main products
- current accounts
- savings accounts
- investments accounts
Current accounts
(Each one is different in terms and conditions)
1. Deposits ➡️ make or arrange for money to be paid into the account
- Withdrawals ➡️ when purchasing goods and services
- First baking product ➡️ current account
- Credit checking process ➡️
When applying for a loan, bank will look at how they use their current account
Overdrafts
= a credit facility that allows customers to spend more money than they already have in their current account
Arranged overdrafts
Is a specific limit agreed, interest only paid on that amount of the overdraft that is used
Example - if a customer has a overdraft of £1000 and only use £600 interest is only paid on the £600
Unarranged overdrafts
This occurs when the customer becomes overdrawn without having an arrangement in place or when exceeded their limit.
Banked can’t charge a higher rate of interest on this compared to you and arranged overdraft
In some countries like France banks will only arrange overdrafts for credit worthy customers and may not honour and unarranged overdraft at all
Savings and investments products
Aimed at retail customers
Why customers want a savings account
- maybe saving up for a particular expenditure (e.g. car or holiday) or put away in a deposit account (kept separate from everyday spending)
- value of money put in doesn’t rise or fall when markets changes
- banks offer range of savings accounts, differ to the amount you must deposit, rate of interest paid and period of notice required for withdrawal
A fixed term will pay a higher rate of interest
Why customers want a saving account?
- banked must always have enough money/ liquidity, easier to manage when bank know the date of withdrawal in advance (this is why they offer a high interest rate on account with specific notice period.
- UK offer cash individual savings account (cash ISA)
the government set a limit on the amount that can be saved in a tax-free ISA every year
Was £20,000 per person in 2022/23
Tax-free saving account (TFSAs) in South Africa
Are available to offer tax exempt investment opportunities to help people to save more money and reduce their borrowing
Investment product
= money that people put aside for a longer period of time
- can be placed into a mutual fund (unit trust)
Investment products (bonds)
Growth or income
Bonds = form of loan to government or a company
They are issued by a bank for a fixed term (1-2 years)
- annual rate of interest is fixed
(longer term of bond = higher rate of interest)
Some bonds, they can’t be no withdrawals till the end of period where as others allow up to a stated number of withdrawals
Earn higher ROI or more risk = invest in financial markets, example government or corporate bonds or company shares
Customers can purchase stock and shares ISAa
Interest is tax free
There is a maximum annual limit (similar to cash ISA)
The money is invested in companies and government
Higher rate of interest but more risky as the savers invest in a range of shares in companies and bonds
Under capital sum can rise or fall depending on the market performance
Pensions
= tax efficient long-term investment that people paid into our working and receive income when retired.
- occupational pension scheme at work
Are complex and required specialist advice
- have to buy own pension plan (self employed)
Tax Advantage: reduce taxable income whilst working
Lending products
- funding a deficit, need to borrow money
Three main lending products:
Credit Card
Personal loans
Mortgages
Lending agreements known as regulated credit agreements = have to comply with many requirements to keep customers protected
Most personal lending products are regulated under the consumer credit regulations as secured over the charge of borrowers home.
Loans to company do not fall under this regulation
Mortgages and other loans that is secured over the borrowers home are separately regulated.
Credit cards (IR is high)
= allows the purchase of goods and services without paying it at the time (as the credit card provider funds the purchase) and customer repays at a later date
- no interest is charged if paid in full by a certain date
(Have to pay the min amount each month)
Over indebted = multiple CC and use one to pay off another
- Alpha Bank in Greece offers 13 diff types of CC with all diff features
Personal loans
= can borrow a fixed amount and spread repayment over a set period
- Getting one depends on customers borrowing history and circumstance
-Good for purchases such as car, wedding, holiday
Failure to repay = affect credit score
- are unsecured = no security is taken in the form of a charge over an asset owned by the customer.
Interest charged ➡️ amount borrowed and longer term of loan
There can be secured personal loans = bank can take possession of an specific asset (home)
Can use that asset to repay the loan if borrower defaults
Mortgages (interest rate lower than PL and CT)
= long-term bank loans that finance the purchase of a house
Repayment around 25 years
If borrower fails to pay = bank has the right to repossessed to recover their money
Can remortgage > take advantage of better interest rates elsewhere and can borrow more money against property during the term
What lending products has the highest rate of interest
Credit card
Personal loan
Mortgage
Equity
Value of property over and above the mortgage
Credit score
When assessing a mortgage applicant, if they can afford the loan, a bank takes into account their credit score
