Personal Finance: B1-B4 Flashcards
B1- Bank of England
Features:
- The central bank of the UK
- in control of all other banks in the UK
- monitor high street banks
Advantages:
- Regulates prices in our economy by increasing/ decreasing interest rates
- To stop us borrowing, they will increase interest rates
Disadvantages:
- If BoE increase interest rates, our current borrowing will become more expensive
- if they lower interest rates, our savings will lose value/ won’t earn as much
Building Societies
Advantages:
- Offer a wide range of services, similar to a bank
- account holders are members and as such part owners of the building society. They therefore, receive a voting right
- costs can be kept down due to less pressure to make a profit
Disadvantages:
- There are no shareholders
- not as secure as a bank
Banks
An organisation that handles financial transactions and stores money on behalf of its customers
Features:
- Cheques
- Direct debits
- Advice
- Mortgages
- Secure storage
- BACs
- Standing orders
- Loans
- Overdrafts
- Cash withdrawal
Credit Unions
Features:
- Provides loans to members
- Funded by members who save
- Small
- Non-profit making
- Often local
Advantages:
- Anyone can join - helps people who are unable to get a loan from a bank
- better terms than payday loans
Disadvantages:
- saving rates are often less than banks
- only a few have an online presence
- loans are usually small
National Savings and investments
Features:
- government owned
- sells premium bonds
- attracts individual savers to reduce the governments need to borrow
Advantages:
- 100% safe guarantee from the treasury
- some products have tax free elements
- May win big with premium bonds
Disadvantages:
- Often low rates
- bank savings are now tax free
- May win nothing with premium bonds
Insurance companies
Features:
Protects precious things for a small monthly premium e.g house, car, loved ones
Advantages:
- A small premium may result in a big pay-out
- Peace of mind
Disadvantages:
- could pay for something that you never use
- policy excesses may reduce the benefit
Pension companies
Features:
- long term saving plan to fund retirement
- individual scheme/ schemes run by employers
Advantages:
- pension savings are tax free
- employers often contribute to their in-house scheme
Disadvantages:
- May die before retirement
- pension benefits are subject to tax
Pawnbrokers
Features:
Short term loan subject to interest secured by an asset
Advantages:
- easier to be accepted than a bank loan
- flexible terms
- if you default, it doesn’t affect your credit rating
Disadvantages:
- if loan is not repaid, asset will be sold
- rates higher than from banks
Payday loans
Features:
Short term loan secured by a post dated cheque
Advantages:
- available quickly, often for unexpected costs
- can be just for a few days
Disadvantages:
- very high interest rates
- usually for less than £1000
- the full cost of the loan isn’t always obvious to the borrower
B2 - Branch
Advantages:
- opportunity to build a relationship developing trust and brand loyalty
- gives the customer a high level of confidence
- additional services such as advice can be offered
Disadvantages:
- restricted to bank opening hours
- May have long queues plus travel time, making the process time consuming
Online banking
Advantages:
- available 24/7
- high degree of privacy
- convenient
Disadvantages:
- takes time at the beginning to set up/apply for
- increased risk due to cybercrime
Telephone banking
Advantages:
- convenient- access to basic functions such as checking a balance
- no additional charges
Disadvantages:
- call centres and automated telephone systems can frustrate customers
- higher risk of fraud/ identity theft
Mobile banking
Advantages:
- convenient
- available 24/7
- no additional charges
Disadvantages:
- higher security risk due to increased risk of loss/ theft of mobile devices
- can be prone to hackers sending texts asking for bank details
Postal banking
Advantages:
- Traditional method that many customers will feel comfortable with
- does not require any additional technology/ devices
Disadvantages:
- can be slow due to the postal system
- post can get lost
B3 - Financial Conduct Authority (FCA)
- Regulates the actions of financial service providers
- Can oversee the design of financial products, ban products or have them withdrawn from the market
- Ensure firms cannot exploit difficulties consumers have with complex misleading products and change misleading promotions.
funded by membership fees charged to financial service providers
Focus on 3 key areas: - Authorisation- permit financial service providers to trade
- Supervision- ensure procedures, practices and products are in the interest of the consumer
- Enforcement- use powers to ensure standards are maintained
Advantages: - Makes sure consumers get a fair deal and are not exploited
- Makes sure that products/ services offered are good quality
- Ensures there is healthy and fair competition
Financial Ombudsman Service (FOS)
- Organisation appointed by the government- represents the interests of the consumer in disputes with financial service providers
Help resolve disputes between individuals and financial service providers
They:
Listen to the dispute
Understand what has happened
Offer an unbiased opinion
Identify if there is a valid cause for complaint
If there is, they will support the consumer with legal action - Funded by compulsory fees charged to all regulated financial institutions plus additional fees when actions are taken against an institution
Advantages: - Free
- Fair - help to resolve disputes by offering am unbiased opinion
- if the consumer has a valid cause for complaint, the FOS will support them with the legal action
Financial Services Compensation Scheme (FSCS)
- An organisation that will pay compensation to a consumer of financial services if the service provider is unable to
- Protects all savers in banks/ building societies up-to £85000
- Last resort
Covers: banks, building societies, credit unions, pensions, insurance, mortgages, home finance
Advantages:
Consumers can claim back lost savings
Makes savings more secure
Consumers don’t lose out if a financial provider goes bankrupt
Office of Fair Trading (OFT)
- Government organisation that was established to regulate all markets, including financial markets
- aim was to encourage fair practices and healthy competition between financial institutions
now under the regulation of the FCA
Legislation: Consumer Credit
- laws passed by the UK government to enforce the regulations of any firm offering credit to consumers
now under the regulation of the FCA
B4 - Citizens Advice
Advantages:
- Free
- Offers face to face, online and telephone advice
Disadvantages:
- Trained volunteers are not necessarily professionals in financial issues, therefore knowledge may be limited
Independent Financial Advisor (IFA)
Advantages:
- Offered by professionals in the field
- regulated by the FCA and FOS
- Advisors will take the time to understand an individuals full financial situation
Disadvantages:
- Charged to use the service- not free
- Advice offered is not guaranteed to be 100% up to date or unbiased
Price Comparison Websites
Advantages:
- Easy to access 24/7
- Free
Disadvantages:
- Do not always cover all of the available options
- Not guaranteed to be 100% up to date, accurate or unbiased
Money Advice Service
Advantages:
- Government funded, therefore advice is free and impartial
- Covers a wide range of financial matters
Disadvantages:
- Advice is only available online/ over the telephone- no physical presence
- Advice can be generic rather than personal
Debt Counsellors
Advantages:
- Regulated by the FCA and FOS
- can help support with managing psychological/ mental health related to being in debt
- advice is given to help manage current debt
- unbiased
Disadvantages:
- Counsellors receive a monthly fee
- still have to prove to court that your are making changes to help manage your money
Individual Voluntary Arrangements (IVAs)/ bankruptcy
Advantages:
- helps manage debt repayment with regular payments, making budgeting easier
- independent advice, without bias
Disadvantages:
- set up and handling fees are charged for the service
- will affect future credit ratings
* bankruptcy - no repayment plan
