Chapter 9: Personal Banking Products, Services and Process Flashcards
How are clients identified at the banks?
Through Debit Cards & Credit Cards
What information does a client cared obtain? And what do you need to use it?
Name of the financial institution The client’s name Numeric identifiers Magnetic encoded band (stripe) Micro-chip encoding for enhanced security Client profile information A PIN
Who is the leader in Electronic Banking Development?
Canada is the most active debit user for retailing transactions.
Canada used debit cards 3 years before USA
Difference Between a Product and a Service?
A product is something that tends to be obtained from bank for a specific, or one-time.
ex. Mortgage, Car Loan, Term-Deposits
A service is something that a client will make repeated use of
ex. Bank Account, Line of Credit, Credit Card
What is a chequing account and what does it enable you to do?
This is a basic, primary, service that reflects one of the main functions of money: to facilitate the completion of transactions
Write cheques
Withdraw funds at an ATM / ABM
Use a debit card at a retailer
Access on-line or telephone banking
What is a cheque and why aren’t they being used as often?
cheque is a small piece of paper that enables money to be transferred from the account of one person to the account of another person or business.
It is not being used often because there is easier and more convenient ways of transferring money .
ex. Electronic Banking / E-Transfers
Services taking place of cheques
Direct Deposits - Eliminates Theft, Avoids Postal Delay
Automatic transfers - Chequings to savings specific dates
Pre-authorized payments - Pay certain bills ontime
Financial Institutions other than Banks
Credit unions / caisses populaires
Trust companies
Loan companies
Other FI’s, such as ATB Financial
3 Main Roles of Trust Companies
Wills and estate planning
- structure plans regarding assets to people when they die
- help client create and update will
- legal document of wishes to distribute assets
Estate and trust administration
- Assets currently using and to legally pass them when they die
- Other assets such as life insurance policies, death-benefit payments must be added to estate
Investment management services
-For affluent people
Purpose/ Duty of Trust Companies
caretaker or custodian of assets, financial and legal rights, and the personal well-being of clients
Two Main Reasons for Using Credit
Convenience: Use money of the issuer of the credit card until the statement arrives
Necessity: Certain assets require substantial amounts of money
What to consider when you imply to use Credit?
- Committing to a structured repayment schedule
- Incurring potentially large amounts of interest expense
- The impact of the loan on their cash flow
- Opportunity costs
What are the benefits to Using Credit Responsibly?
- Buying a new car and using it today
- The ability to start an advanced education now, rather than having to save up for tuition
- Purchasing a home,
What are overdraft facilities?
No adequate funds, this enables them to continue to use their accounts to complete transactions
What are Lines of Credit?
Fund Usage tends to be for longer periods of time
May be used for home renovations
What 4 things credit cards are convenient for?
- Eliminate carrying large amounts of cash
- Enable opportunity to not use their own money
- Accumulate points or discounts
- Book travel, hotels, or online purchases
3 Reasons Why Credit Cards are Dangerous
Are easy to obtain
Can provide large credit limits
Require only small minimum monthly payments
Why do people choose Fixed Rates and how much higher are they opposed to variable rates?
People choose fixed rates because they do not watch the market closely for interest fluctuations and to avoid market up-turns that would have an immediate effect on their interest rate and cost them.
They are typically 1.5% - 2.5% higher.
What do clients need to consider in regards to interest rates?
They need to be comfortable with the current state of affairs, and whether that low prime rate will remain the same for the term of their loan.
Why are Fixed Rates higher?
Because banks take money from client deposited money from GIC’s, and loan those out to fixed-rate borrowers.
ex. GIC investment is at (.80) and the fixed term is at (3.20%) the bank locks in 2.40% profit
How much can a bank finance of a purchase price of home insurance? and how long can a mortgage be amortized for?
80%
25 years up to 35 years
What happens if a client requires a mortgage for over 80% of the purchase price?
Client needs to pay a one-time fee of home insurance which is valued from 1% to 5% of the loan value.
Main Points Clients should consider when obtaining a mortgage?
How long can I take to pay off the mortgage?
What is the interest rate going to be?
What will my payments be each week / month?
Conditions in Mortgaging
The maximum period of amortization, for all new mortgages, has been reduced from 30 to 25 years
For homeowners wanting a mortgage of more than 80% of the home value, the insured value of a mortgage cannot be more than $ 1 million
The amount of equity that homeowners can take out of their homes via re-financing, is reduced from 85% to 80%ebt service ratio cannot exceed 39% and total debt service cannot exceed 44%
What 2 ways will differentiate a mortgage from any other loans?
Length of time
Security provided to the lender - Fail to make payments lender will take ownership
What are the 5-c’s of credit
Character - attitude toward financial obligation
Capital - net worth
Conditions - Factors of external environment
Capacity - ability to repay loan “Cash flow”
Collateral - security pledged by the borrower to lender
5 Credit Score Factors
Credit accounts and amounts owed on them
Payment history that shows how current a person is, and has been, with their payment obligations and due dates
Length of credit history, and how long a person has had accounts with their creditors
Credit accounts that have been applied for recently, with lower activity more favoured
Length of employment, history of employment and any gaps in the time between employers
