B.1 Features of financial institutions Flashcards
What are the different financial institutions?
- Bank of England
- Banks
- Building societies
- Credit unions
- National savings and investments
- Insurance companies
- Pensions companies
- Pawnbrokers
- Payday loans
What is the Bank of England?
The UK’s central bank who have the responsibility of maintaining a healthy level of financial stability for the country. Responsibilities include issuing legal tender, setting interest rates and controlling the national debt.
What is a bank?
An organisation that handles financial transactions and stores money on behalf of its customers.
What are building societies?
Organisations that handle financial transactions and store money on behalf of their members. The members are part owners of the building society and have the right to vote and receive information on the running of the society.
What are credit unions?
Not for profit organisations that handle financial transactions and store money on behalf of their members. Their desire is to support the community. Their employees are volunteers and are there to help you with financial advice and lend you money at a cheaper rate than the bank.
What are national savings and investments?
Government-backed organisation that offers a secure saving option.
What are insurance companies?
Businesses that protect against the risk of loss in return for a premium.
What are pension companies?
Sell policies to individuals, either privately or through employers, to allow them to save now to fund retirement in the future.
What are pawnbrokers?
Businesses or individuals who loan money against the security of a personal asset. If the asset is not bought back from the pawnbroker within a specific period of time then it will be sold on.
What are payday loans?
Organisations that offer a short-term source of finance used to bridge the gap between now and the next receiving of wage. Only really suitable in emergencies.
What are the advantages of the Bank of England?
- Sets interest rates at a level designed to help achieve a stable economy
- Lends to banks
What are the disadvantages of the Bank of England?
- Not a bank for members of the general public
2. Can raise interest rates making borrowing more expensive
What are the advantages of banks?
- Offers a range of services and account types
- Provides a secure place to store money
- Pays interest on credit balances on most types of accounts
What are the disadvantages of banks?
- Savings are only protected up to the value of £85,000, so if a bank goes bankrupt, savings above this would be lost
- Profit making organisations are owned by shareholders, therefore costs to individuals may be higher than necessary in order to fulfil shareholder objectives
What are the advantages of building societies?
- Offers a range of services and account types
- Provides a secure money to store money
- Pays interest on credit balances on most types of accounts
- Owned by members and therefore costs can be kept down allowing for higher interest payments
What are the disadvantages of building societies?
- Savings are only protected up to the value of £85,000, so if a building society goes bankrupt, savings above this would be lost
- May lack the business drive of a commercial bank
What are the advantages of credit unions?
- Offers a range of services and account types
- Provides a secure money to store money
- Owned by members and therefore costs can be kept down allowing for higher interest payments
- Often offer additional benefits to the community or a good cause
What are the disadvantages of credit unions?
- Savings are only protected up to the value of £85,000, so if a building society goes bankrupt, savings above this would be lost
- May lack the business drive of a commercial bank
What are the advantages of national savings and investments?
- Government-backed, therefore offering security on 100% of savings with no upper limit
- Offers additional services/methods of savings e.g. premium bonds
What are disadvantages of national savings and investments?
- Rates are variable
- Not as easy access due to lack of a high street presence
- Often required to give notice on withdrawals
What are the advantages of insurance companies?
- Protect against unexpected losses or financial expenses
- Easy and regular monthly payments make planning easy
- Wide range of services and levels of cover to suit the needs of individuals
What are the disadvantages of insurance companies?
- Premiums are assessed on the estimated degree of risk which may be seen to penalise some members or groups of society too harshly
- Profit making organisations, therefore premiums will be charged to ensure shareholder needs are met
What are the advantages of pension companies?
- Provides a structure to help plan for financial security after retirement
- Deductions can be taken directly from pay and be filly or partially matched by an employee’s contribution
- Experts are employed to make investment decisions
What are the disadvantages of pension companies?
- Poor investment decisions by the pension company may result in a disappointing return
- Money already invested in a pension cannot be released prior to the dates agreed in the policy
What are the advantages of pawnbrokers?
- A quick way of acquiring cash needed for a short period time
- The asset can be brought back within a set period of time
- No interest
What are the disadvantages of pawnbrokers?
- The amount given for the asset is often substantially lower than its actual worth
- If the money is not repaid within the agreed period, the asset will be sold on
What are the advantages of payday loans?
- A quick way of acquiring cash needed for a short period time
What are the disadvantages of payday loans?
- Interest charges are likely to be very high
2. Often results in paying back a final sum substantially higher than the initial amount borrowed
