Topic 20: Retail banking products Flashcards
What is cross-selling?
Selling related or complementary products to an existing customer
What is revolving credit?
Refers to arrangements where the customer can continue to borrow further amounts while still repaying existing debt.
E.g.:
- Overdrafts
- Credit cards
- Charge cards
What is a variable-rate mortgage?
The rate payable is the lender’s standard variable rate (SVR), which is set at the discretion of the lender.
What is a fixed-rate mortgage?
The rate payable remains fixed for an agreed period – typically two to five years, although some lenders offer longer fixed periods.
What is a capped-rate mortgage?
This arrangement offers the certainty of fixed-rate loans but with a degree of flexibility. The lender sets an upper limit, or cap, to the interest that can be charged for an agreed term. If the SVR is below the cap, the borrower will pay the SVR; if the SVR is above the cap, the borrower will pay the cap rate. This enables the borrower to benefit from rate decreases while at the same time being able to budget for a given period.
What is a discounted-rate mortgage?
A discounted- rate compared to the lender’s SVR is provided for a stated period. The discount is a genuine reduction, so lenders usually impose a penalty if the loan is repaid within a specified timeframe; the penalty could be as much as the discount gained.
What is a base rate tracker mortgage?
This is a variable-rate arrangement. The rate is usually set at a fixed percentage above the base rate and will increase or decrease as the base rate changes, known as tracking.
What is a bridging loan?
A bridging loan may be used when a property owner needs to finance a new purchase before they have sold their existing property.
What are the 2 types of bridging finance?
1) Closed bridging - the borrower has a confirmed ‘exit strategy’ for repaying the loan within an agreed timescale. Typically this is through the sale of the existing property and requires the borrower to have a firm buyer, e.g. when contracts have already been exchanged.
2) Open bridging – the borrower needs finance to buy the new property but does not have a firm buyer for their existing property.
What is an individual savings account (ISA)?
A tax‑free type of deposit account available in the UK. The ISA is a government attempt to encourage saving, by allowing people to save tax free subject to an annual deposit limit.
What is the personal savings allowance (PSA)?
It means that basic‑rate taxpayers can receive up to the first £1,000 of their savings interest tax free.
What are the 4 life insurance protection categories?
1) Family protection: the death or long-term sickness of the main earner can leave a family with large debts and no income to support their standard of living
2) Debt protection: when a mortgage or other loan is being repaid largely from the income of one individual or the joint income of a couple, the death of an individual can result in a failure to make the repayments, possibly leading to the loss of any property used as security for the loan
3) Business protection: the death of a business partner can be problematic if cash is needed to pay the value of the deceased partner’s business share to beneficiaries of their estate but the remaining partners want to avoid having to realise partnership assets
4) Tax mitigation: when an individual leaves a substantial estate to someone after their death, the recipient may find that they have to pay inheritance tax out of the value of the estate
What are the main 2 types of life assurance?
1) Whole-of-life assurance: The sum assured (or guaranteed) is payable on the death of the life assured whenever that death occurs.
2) Term assurance: The sum assured is payable only if the life assured dies before the end of a specified term. If the life assured survives the term, the cover ceases and no payment or refund of premiums is made.
What is an income protection insurance (IPI) policy?
IPI is designed to provide replacement income for people who are working (both employed and self-employed) and need continuing income if they are unable to work through long-term disability or illness.
The term of an IPI policy cannot extend beyond the person’s intended (or actual) retirement date.
What is critical illness cover (CIC)?
CIC benefit is payable in one tax-free lump sum, on the diagnosis of one of a specified range of illnesses and conditions. The benefit is paid irrespective of whether the claimant subsequently recovers.
