Learning Aim B Flashcards
Financial institutions (9) ?
Bank of England
Banks
Building societies
Credit unions
National savings and investments
Insurance companies
Pension companies
Pawnbrokers
Payday loans
Features of the Bank of England?
UK’s central bank
Responsibility for maintaining healthy level of financial stability for the UK
Responsibilities include issuing legal tender, setting interest rates, and controlling national debt
Features of banks ?
Organisation that handles financial transactions and stores money on behalf of its customers
Services offered include holding deposits, making payments and supplying credit
Features of building societies?
Handle financial transactions and store money on behalf of its members
Members are part owners and have the right to vote and receive info on running the society
Features of credit unions ?
Not for profit organisation that handle financial transactions and store money on behalf of its members
Often a desire to support a community made up of its members
Members are owners and have a voting right
Features of national savings and investments ?
Government backed organisation that offers a secure saving option
Offers range of options including ISAs, premium bonds and bonds and gilts
Features of insurance companies?
Businesses that protect against the risk of loss in return for a premium
Profit making organisations
Features of pension companies ?
Businesses that sell policies to people allowing them to save for retirement
Normally they’ll invest the money paid to them in order to increase its value.
Features of pawnbrokers ?
Businesses or individuals who loan money against the security of a personal asset E.g. jewellery
Features of payday loans ?
Organisations that offer a short term source of finance to bridge gap between now and payday
Advantages of the Bank of England ?
Set interest rates to achieve stable economy
Lends to banks
Disadvantages of the Bank of England ?
Not a bank for members of the general public
Ability to raise interest rates and make borrowing more expensive
Advantages of banks ?
Offer range of services and account types
Provide secure place to store money
Pay interest on credit balances for most accounts
Disadvantages of banks ?
Savings only protected up to £75,000. Therefore if bank goes bankrupt, this will be lost
Profit making organisation owned by shareholders, therefore costs to individuals may be higher to meet shareholder objectives
Advantages of building societies?
Offer range of services and account types
Secure place to store money
Interest paid on credit balances
Owned by members therefore costs can be kept down allowing for higher interest payments
Disadvantages of building societies?
Savings only protected up to £75,000. Therefore if bank goes bankrupt, this will be lost
May lack business drive of commercial banks
Advantages of credit unions ?
Offer range of accounts and services
Secure place to store money
Owned by members, therefore costs can be kept down
Offer additional benefits to the community or a good cause
Disadvantages of credit unions ?
Savings only protected up to £75,000. Therefore if bank goes bankrupt, this will be lost
May lack business drive of commercial banks
Advantages of national savings and investment?
Government backed therefore offering security on 100% of savings
Offers additional services and Methods of saving E.g. premium bonds
Disadvantages of national savings and investment ?
Rates are variable
Not as easy to access due to lack of high street presence
Often required to give notice on withdrawals
Advantages of insurance companies?
Protection against unexpected loss or financial expenses
Easy and regular monthly payments making planning easier
Wide range of services and cover to suit needs of all customers
Disadvantages of insurance companies?
Premiums are assessed on estimated degree of risk - may penalise some people too harshly
Profit making organisation therefore premiums will be charged
Advantages of pension companies?
Help to plan for financial security after retirement
Deductions can be taken directly from pay
Experts employed to make best investment decisions
Disadvantages of pension companies?
Poor investment decisions may result in a disappointing return
Money already invested can’t be released until agreed policy dates
Advantages of pawnbrokers ?
Quick way of acquiring cash
Asset can be brought back within set period of time
Interest is not charged
Disadvantages of pawnbrokers?
Amount given for asset is usually substantially lower than its actual worth
If Money is not repaid within agreed time, the asset will be sold on
Advantages of payday loans ?
Quick way of acquiring cash for short term
Disadvantages of payday loans ?
Interest charges are likely to be very high
Often results in paying back a final sim usually much higher than intial amount borrowed
Communicating with customers (5) ?
Branch
Online banking
Telephone banking
Mobile banking
Postal banking
Advantages of communicating with customers through a branch ?
Opportunity to build a relationship, trust and brand loyalty
Transactions can be conducted then and there
Advice can be offered
Gives customer high level of confidence
Disadvantages of communicating through a branch ?
Need to travel resulting is potential travel costs
Restricted to bank opening hours
Time consuming E.g. long queues and travel time
Advantages of communicating with customers through online banking ?
Available 24/7
Privacy
Convenient
Disadvantages of communicating through online banking ?
Takes time to set up or apply
Not suitable for cash withdrawals
Risk of cyber crime
If only an online account, facilities may be limited
Advantages of communicating with customers through telephone banking ?
Convenient especially for basic functions E.g. checking a balance
No additional charges
Disadvantages of communicating through telephone banking?
Full access may be limited to set hours
Call centres and automated systems may frustrate customers
Higher risk of fraud or identity theft
Advantages of communicating with customers through mobile banking?
Convenient
Available 24/7
No additional charges
Disadvantages of communicating through mobile banking?
May need to download specific apps to access
Higher security risk due to increase risk of fraud of theft of mobile
Can be prone to hackers sending fake texts
Advantages of communicating with customers through postal banking
Traditional method, many customers feel comfortable
Doesn’t require technology
Disadvantages of communicating through postal banking?
Can be slow due to postal system
Post may get lost
Consumer protection (5) ?
Financial Conduct Authority (FCA)
Financial Ombudsman Service (FOS)
Financial Services Compensation Scheme (FSCS)
Office of fair trading (OFT)
Legislation: consumer credit
What is the Financial Conduct Authority (FCA) ?
Independent organisation with a remit to regulate the actions of providers of financial services
Funded my membership fees
Focus on three areas: authorisation, supervision and enforcement
What is the Financial Ombudsman Service (FOS) ?
Organisation appointed by the government to represent the interests of the consumer disputes with financial service providers
Funded by compulsory fees charged to financial institutions
FOS becomes involved in disputes if they cannot he settled between the consumer and financial service
What is the Financial Services Compensation Scheme (FSCS) ?
Organisation in the UK that pay compensation to a consumer of financial services if the service cannot pay
Protects all savers in banks and building societies up to £5000 - if the institution goes bankrupt, the savings will be refunded by FSCS
What is the Office of Fair Trading (OFT) ?
Government organisation that regulates all markers including financial
Aim to encourage health competition between financial institutions
What is the Legislation: consumer credit ?
Laws passed by the UK government to enforce regulation of any firm offering credit to consumers
Different financial information providers (6) ?
Citizens advice
Independent financial advisor (IFA)
Price comparison websites
Money advice service
Debt counsellors
Individual voluntary arrangements (IVAs) bankruptcy
Advantages of Citizens advice ?
Free service
Available face to face and online
Wide range of areas covered
Disadvantages of citizens advice ?
Trained volunteers- not professionals therefore knowledge may be limited
Advantages of independent financial advisor (IFA) ?
Offered by professionals
Regulated by the FCA and FOS
Advisors will take time to assess situation
Disadvantages of independent financial advisors (IFA) ?
Services charged for
Advice offered isn’t 100% guaranteed to be unbiased or up to date
Advantages of price comparison websites?
Easy to access 24/7
Free service
Disadvantages of price comparison websites?
Not guaranteed to be 100% up to date or unbiased
Doesn’t always cover all available options- limited
Advantages of money advice service ?
Government funded therefore advice is free
Covers wide range of financial matters
Disadvantages of money advice service ?
Only available online or over the telephone
Can take time to find and understand exact advice
Advice can be generic rather than personal
Advantages of debt counsellors ?
Advice offered is by a professional who specialises in debt management
Regulated by FCA and FOS
Disadvantages of debt counsellors ?
Services charged for
Only focuses on debt management rather than all financial concerns
Advantages of individual voluntary arrangements (IVAs) bankruptcy?
Helps manage debt repayment, with regular payments making budgeting easier
Independent advice without bias
Disadvantages of individual voluntary arrangements (IVAs) bankruptcy?
Set up and handling fees are charged
Will affect future credit ratings
