LOB Flashcards
financial institution
- a company engaged in the business dealing with financial and monetary transactions for example deposits, loans, investments and currency exchange .
- they also may offer advice about business and personal financial matters.
- there is a variety of different financial institutions offer different services.
types of financial institutions.
bank of England
banks
building societies
credit unions
nationals savings and investments
insurance companies
pension companies
pawnbrokers
payday loans
bank of England
UK central bank that ensures the financial stability of the UK. sets interest rates fort the country
Advantages
Protects financial stability of uk
Lends to banks
Sets interest rates fort
Disadvantages
Do not lend to general punvlic
Can raise interest rates making borrowing harder such as mortgages more expensive
banks
Handles financial transactions and stores money on behalf of the general public. Allow individuals and businesses to make payments, access credit and save.
Advantages
Secure place to save money
Pays interest on saving
Offers variety of services
Disadvantages
Savings only protect £85,000 if the bank goes bankrupt
Owned by shareholders so it is designed to make a profit.
building societies
Similar to banks
Provide financial services to the public such as day to day banking
Mortgages and credit
Key difference is that building societies are opened entirely by their members meaning they can set rates that benefit their members and shareholders
Advantages
Owned by its members
Offers a variety of services Disadvantages Savings
Pays interest on savings
Safe place to save money
Disadvantages
May lack drive of business. As vonercial banks are are profit driven
Savings only protect £85,000
credit unions
Member owned financial cooperative, controlled by its own members operated on the principle of people helping people.
It provides its members credit at competitive rates as well as financial services.
Advantages
Variety of services
Owned by members
Offer additional benefits to the community and charities.
Disadvantages
Protects on £85,000
Lack buisness drive of commercial banks as banks are profit driven.
national savings and investments
Government backed organisation that offer secure saving option.
Offers a range of options including ISA Premimum bonds and gilts
Advantages
Savings are 100% secure as it is government backed
Various ways to say for example premium bonds
Disadvantages
usually need to give notice for withdrawals
Variable rates
insurance companies
For profit businesses that protect people from loss in return for a monthly premium.
Advantages
Protects against unexpected losses and events
Pay monthly so easier to budget
Disadvantages
owned by shareholders so designed to make profit
Assessed on risk. Higher the risk higher the premium
pension companies
Sell policies to individuals or companies that enable themselves or employees to save for future retirement. Pension companies invest the money deposited in hopes of growing it for future use.
Advantages
Structured way to plan for retirement
Tax benefits
Disadvantages
Poor investment decisions may mean a poor return on investment
pawnbrokers
Loan money to individuals and secure loan this loan against an asset.
E.g of a well known asset being pawned is jewlerry . If loan is not returned pawbrokwer will sell the item.
Advantage
A quick way of acquiring short term cash
Interest not charged
Buy back pawned asset
Disadvantages
Asset will be sold on if loan is not returned
amount given fir the asset is lower then actual worth
payday loan
Short term loans. Intended to bridge the gap between one payday to another in case of an emergency.
Interest rates are high payday loans should be avoided due to this.
Advantages
Quivkbwah or acquiring cash in a short period of time
Disadvantage
Interest charged is high which results in the amount being paid back being substantially higher.
Methods of communicating with customers
Increase in technology the way which banking is carried out has changed.
Online banking has increased however the increase in this method has meant that the service given to customers has become less personable.
Branch
Online banking
Telephone banking
Mobile banking
Postal banking
Branch
A bench is a physical place where transactions are carried out face to face.
Customers visit the bank to carry out their banking needs. This could be using self service machines or seeking advice from an employee at the bank.
Banking is restricted to the hours that branch is open.
Online
This allows custienr the opportunity to manage their banking needs over the internet.
Telephone
Customer carry out banking transactions over the phone. This service is available 24 hours a day is usually automated services like checking balances and paying bills
So,e accounts let you speak to advisors.
Consumer protections
If left to without no red tape or regulation it would be possible for banks and financial services to take advantage of consumers.
In order to stop financial institutions from taking advantage there are numerous organisations and laws in place to protect the rights of consumers and ebsyrrevtgat they are not treated unfair or exploited.
Financial conduct authority FCA
is an independent organisation that is the conduct regulator for 59000 financial services and financial markets in the uk
It is funded via fees charged to the financial service providers and their work focuses on 3 key areas
- authorisation
- enforcement
-supervision
Financial ombudsmen service
Appointed by the government to protect and represent consumer s who are in disputes financial service providers. They inky get involved if these disputes cannot be settled between the financial provider and the consumer .
Funded. By compulsory fees charged to all regulated financial institutions.
Financial services compensation scheme FSCS
An organisation that pays compensation to consumer when the financial provider is unable Tom
Protects savers up to £85,000 if the institution goes bust and the saver will be compensated by the FSCS
Legislation- Consumer credit
Laws that have been passed to regulate any business offering credit to consumers.
Laws are passed by the UK government to ensure consumers are protected and that financial providers do not take advantage.
Infomation guide and advice
Personal finance is extremely complicated and therefore it is imperative that all individuals have the opportunity to get clear advice and guidance on matters relating to personal finance
There are a number of organisations and government agencies that can help with financial advice and guidance
Information guidance and advice
Citizens advice
Independent financial advisor
Price comparison website
Debt counsellors
Individual voluntary arrangement
Bankruptcy
Citizen advice
A charity run organisation that provides advice on a range of financial and non financial issues. This can be done via a face to face appointment, over the phone or online.
Financial advice covers areas including
debt, benefits , banking , pensions and insurance.
Advantages
Fees
Covers a wide range of areas
Face to face, online and telephone
Disadvantages
Trained volunteers not professional
Knoledge in finance may be limited
Independent financial advisors IFA
Professional individuals who provide independent advice and guidance on a range of financial products such as mortgages pensions insurance and investing
Must be qualified regulated by the UK government
Advantages
Advice is offered by professionals
Regulated
No commission
Disadvantages
Charge fees
Dependant on the quality of the advisor
Price comparison websites
Advantages
Access 24/7
Free
Easy to compare
Disadvantages
Could be bias
Does not always cover all providers
Price comparison websites for exactly what their name is, they compare the prices of goods and services from a range of companies.
Also allows you to make sure your get a deal that’s tailored to you at the best price
Derby counsouller
Advantages
Professionals who specialise in debt
Regulated by the FCA and FOS
disadvantages
It isn’t free
Just focuses on the debt
Debt counselling is a professional service that offers independent advice. It is a common process that is used to help individuals with debt settlement through education, budget ting and the use of a variety of tools, with the goal to reduce and ultimately elimate debt.
Individual voluntary arrangements IVAS
Advantages
Helps mange debts via regular payments
Unbiased as advice is independent
Disadvantages
Fees are charged for their service
Impact on credit rating
An individual volunatary arrangement IVA
It’s an agreement with your creditors to pay all or part of your debts
You agree to make regular payments to an insolvency practitioner who will divide this money between your creditors
Can give you more control, of your assets than bankruptcy
Bankruptcy
A legal process through people or entities who cannot repay debts to creditor may seek reflief from some or all or their debtsn in most jurisdictions bankruptcy is imposed by a court order.
Advantages
Suspends any debt collections
Debts are usually written off
Disadvantages
May get all assets reposed
Stays on your credit report for 7-10 years
Difficult to. Or row in the future
