Features of financial institutions Flashcards
What is a financial institution
Organisations (e.g banks) that provide financial services
What are the Bank Of England’s 2 core functions
Maintaining financial stability in the monetary system (banker to the banks)
Helps the government achieve targets in the state of the economy
What do banks do
Banks can offer financial services to the public/businesses
Distribute funds from savers to borrowers(provides liquidity to the economy)
Create money by making loans to households/businesses then charging interest
Advantages of banks
Convenient locations(online/high street)
Wide range of services
Confidence
Advice
Disadvantages of banks
Interest charged can be high
Savings only covered up to £75,000
High charges on missed repayments and exceeded overdrafts
What are building societies
Mutual financial institution owned by customers that provide financial services to members
Customers entitled to a share of profits
Offers mortgages
Receives money from members who are paid interest. This money is lent out to other members who pay interest.
Competitor to high street banks
Advantages of a building society
Wide range of services No shareholders(no conflict between profit/service) Confidence Advice Interest on positive balances
Disadvantages of building societies
Interest charged on loans/overdrafts etc can be high
High charges if repayments are missed or overdrafts exceeded
Savings only covered up to £75,000
What is a credit union
Institution funded by members that provide loans to members
Local
Non profit organisation
Advantages of a credit union
Open to anyone
Helps people unable to get a loan from a bank
Better terms than payday loans
Disadvantages of a credit union
Small loans
Saving rates are less than banks
Low online presence
What is National savings and Investments (NS&I)
State owned savings bank that attracts individual savers reducing the governments need to borrow
Sells premium bonds
Advantages of NS&I
100% safe guarantee from the treasury
Some products are tax free
May win big with premium bonds
Disadvantages of NS&I
Low rates
Bank savings are tax free
May win nothing with premium bonds
What are insurance companies
Offers policies to protect individuals or groups from loss
Advantages of insurance companies
Small premium may result in a big pay out
Peace of mind
Disadvantages of insurance companies
Could pay for something you’ll never use
Policy excesses may reduce the benefits
What are pension companies
Institutions that provide long term saving plans to fund retirement.
Includes schemes for individuals and schemes run by employers
Advantages of pension companies
Tax free
Employers often contribute to their in house scheme
Disadvantages of pension companies
May die before retirement
Pension benefits subject to tax
What are pawnbrokers
Institutions that provide short term loans subject to interest secured by an asset
Advantages of pawnbrokers
Easier to be accepted than a bank loan
Flexible terms
Missed repayment doesn’t affect your credit rating
Disadvantages of pawnbrokers
Asset will be sold if loan isnt repaid
Interest rates higher than from banks
What are payday loan companies
Institutions that provide short term loans secured by a post dated cheque
Advantages of payday loan companies
Available quickly
Can be for short term(few days)
Disadvantages of payday loan companies
Very high interest rates
Usually for less than £1000
Full cost of the loan isnt always obvious to the borrower
