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IFC Finance Course > Topic 4: Understand different types of bank account > Flashcards

Topic 4: Understand different types of bank account Flashcards

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1
Q

What is a current account?

A

A current account is the most common type of bank account and it is suitable for everyday needs. It is the account which your income will be paid, usually by direct transfer and out of which your monthly bills will be paid.

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2
Q

Why isn’t a current account really used for savings?

A

Banks rarely pay interest on this type of account so they are not meant for savings, they are meant for everyday use.

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3
Q

What 2 numbers does a current account have?

A
  • a sort code

- the account number

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4
Q

What is a sort code?

A

A sort code is a 6 digit number which identifies the bank and the branch office at which the account is held.

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5
Q

What is the account number?

A

The account number is a 8 digit number that is unique to the account holder.

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6
Q

What 5 facilities does a current account have?

A
  • bank statements
  • standing orders
  • direct debits
  • a cheque book and a debit card
  • an overdraft
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7
Q

What is a bank statement?

A

A bank statement is the list of recent transactions that the bank send to you.

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8
Q

What are standing orders?

A

Standing orders are payments that you can set up to be made from your account to another account n a regular basis and for the same amount each time.

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9
Q

What are direct debits?

A

Direct debits are instructions given to your bank to allow certain companies to take money from your account to pay bills. They are usually monthly and the amount taken each month is different depending upon the amount of the bill.

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10
Q

What is an overdraft?

A

An overdraft is where the bank temporarily allows you to spend more than you have in your account.

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11
Q

What is an arrange/authorised overdraft?

A

An arranged or authorised overdraft is an overdraft for which you have asked the bank first.

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12
Q

What is an unauthorised overdraft?

A

An unauthorised overdraft is an overdraft for which you have no asked its permission first, for which the bank will charge you.

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13
Q

What are current accounts that offer extra benefit in return for a monthly free called?

A

Current accounts that offer extra benefits in return for a monthly free known as packaged accounts.

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14
Q

What are the 7 benefits of a packaged bank account?

A
  • a range of insurance products
  • protection against the consequences of identity theft
  • preferential savings and loan rates
  • access to the VIP lounges at various airports
  • return lost keys schemes
  • will-writing
  • music downloads
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15
Q

Are saving accounts safe?

A

Saving accounts are a safe place to put spare cash that you do not require for everyday expenditure; as well as being safe, your money earns interest so it grows.

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16
Q

What are the 3 ways you can put money into saving accounts?

A
  • by transfer from your current account
  • by paying straight into the account over the counter at the bank or building society
  • by making regular payments using a standing order
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17
Q

What does an instant-access accounts allow you to do?

A

Instant-access accounts allow you to take your money out whenever you want. Money can be taken from this type of savings account at a branch, or by transfer to a current account.

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18
Q

How can transfers to instant-access accounts be organised?

A

Transfers can be organised at a branch office, by letter, by telephone call or online.

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19
Q

What do you have to do if you want to take money out of a notice account?

A

You must tell the bank or building society before you want to take the money out of a notice account.

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20
Q

What happens if you do not give the required notice before making a withdrawal?

A

If you don’t give the required notice before making a withdrawal, you will be charged a penalty.

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21
Q

What do regular savers accounts try to do?

A

Regular savers accounts try to encourage you to put some money into the savings account on a regular basis.

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22
Q

What is a disadvantage to regular savers accounts?

A

You can withdraw your money if you need it, but there might be restrictions as to how many times and how much you can withdraw.

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23
Q

What does ISA stand for?

A

“individual savings accounts”

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24
Q

What is an ISA?

A

An ISA is a tax-free savings scheme offered by most banks and building societies, and some other organisations too.

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25
Q

What does tax-free mean?

A

Tax-free means that when you receive your interest, there will not be any tax deducted from it.

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26
Q

Why are there limits on the amount that you can save in an ISA and what is the maximum cash you can save?

A

There are limits on the amount that you can save in an ISA because of the tax advantages. The maximum cash that can be saved in an ISA in the year 2013-2014 is £5,760.

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27
Q

What does CTF stand for?

A

The Child Trust Fund

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28
Q

What is the Child Trust Fund?

A

The CTF is a long-term, tax-free savings account for children but only children born between 1st September 2002 and 2nd January 2011 qualify for this type of account.

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29
Q

How much can be added to a CTF?

A

Up to £3,720 per year can be added to such an account, but the money cannot be accessed until the child reaches the age of 18.

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30
Q

What are the Junior ISAs?

A

Junior ISAs are tax-free savings accounts for children under the age of 18 who do not qualify for the CTF. Anyone with parental responsibility for an eligible child can open a junior ISA.

31
Q

What does AER stand for?

A

“annual equivalent rate”

32
Q

What does all providers quoting the interest rate as an annual equivalent rate do?

A

This means that the interest rate on all accounts, even those that pay monthly is quoted as if interest were paid once a year, making it much easier to compare one account with another.

33
Q

What are loan accounts?

A

Loan accounts are an arrangement with the bank. The bank lends money for a period of time and the customer makes regular payments to reduce the amount borrowed.

34
Q

What are the two types of loans?

A
  • personal loans

- mortgages

35
Q

What is a personal loan?

A

A personal loan is a way of borrowing a sum of money for a period of time.

36
Q

What are mortgages and where are they available from?

A

Mortgages are secured on the home that they are used to buy. This means that if the borrower does not repay the mortgage, the lender can take the borrower#s home and sell it to get its money back. Mortgages are available from banks, building societies and specialist mortgage companies.

37
Q

What is the most usual repayment period for a mortgage?

A

The most usual repayment period for a mortgage is 25 years.

38
Q

What is a repayment mortgage?

A

With a repayment mortgage, you make monthly repayments for an agreed period until you have paid back the loan, including the interest.

39
Q

What is an interest-only mortgage?

A

With an interest-only mortgage, you make monthly payments to the lender for an agreed period, but these will cover only the interest on your loan. The payments to the lender are therefore lower than those of a repayment mortgage.

40
Q

What happens at the end of the term of an interest only mortgage?

A

At the end of the term, you will still owe the lender the same amount as you borrowed, so in order to pay it back, you will need to save into some sort of savings plan or investment over the term of the mortgage.

41
Q

What is the loan to value rate?

A

So that the property will always be worth enough to sell and get the loan money back, the lender will lend only a certain percentage of the property’s value to begin with. This is the loan to value rate.

42
Q

What is an offset mortgage?

A

An offset mortgage is a way of reducing the interest payable on a mortgage. By offsetting the savings against the mortgage to reduce the amount of interest charged, this can result in either lower mortgage repayments or, if you continue to make the full mortgage repayment, it can result in the mortgage being repaid more quickly instead.

43
Q

How does a current-account mortgage work?

A

Current-account mortgages work by combining your savings accounts and current accounts with your mortgage account with the aim of paying less interest. It looks like one very large bank overdraft on your current account.

44
Q

What is AER?

A

AER is a method of comparing interest rates on savings.

45
Q

What 3 things does the complicated formula to work out APR include?

A
  • the interest rate
  • for how long you want the loan (its term)
  • any fees
46
Q

What are the two types of APR and what do they depend upon?

A

There are two types of APR depending upon whether your loan has a fixed interest rate or whether it is variable. So therefore the two types are:

  • fixed APR
  • variable APR
47
Q

What is fixed APR?

A

The APR on a personal loan is fixed, meaning that it does not change over the life of the loan.

48
Q

What is variable APR?

A

If the interest rate on your borrowings can change, the APR is said to be “variable”. Variable APR means that your interest paymentds can go up or down each month.

49
Q

What are the 5 ways in which money can be put into a bank account?

A
  • direct credit of wages
  • standing order
  • bank transfer
  • bank card
  • paying-in slip
50
Q

What are paying-in slips?

A

Paying-in slips are paper forms that account holders fill in with details about their bank account and the amount being paid in.

51
Q

What can paying-in slips be used to do and how is this done?

A

Paying-in slips can be used to pay money into any account. An account holder hands this slip of paper to the bank cashier, along with the money that they want to pay in. This cashier types the account details into the counter terminal and checks the amount of money against the quantity written on the slip.

52
Q

Name the 13 main parts of a paying-in slip:

A
  • stub (also known as counterfoil)
  • date
  • bank and branch name
  • account
  • paid in by
  • number of cheques
  • sort code
  • account number
  • cash denominations
  • total cash
  • cheques, POs, etc
  • box at bottom of table
  • “please do not write or mark below this line or fold this voucher”
53
Q

What is a debit?

A

Banks call money taken out of a bank account, a debit.

54
Q

Name 7 ways in which money can be taken out of a bank account:

A
  • over the counter
  • standing order or bank transfer
  • automated teller machine (ATM)
  • online or telephone banking
  • writing cheques
  • cash or debit cards
  • direct debit
55
Q

What is a cheque?

A

A cheque is a written instruction to a bank or building society to pay a specific sum of money to a person or organisation.

56
Q

What is the clearing cycle?

A

The clearing cycle is the name given to the process by which the money is transferred from the account to the payer to the account of the payee. The payee will take the cheque to their bank and pay it into their account.

57
Q

What is “clearing the cheque”?

A

Through the clearing cycle, the payee’s bank will “claim” that money from the payer’s account, even though the cheque might be drawn on a totally different bank or branch.

58
Q

What happens on day 1 of the clearing cycle?

A

The cheque is paid into the bank account.

59
Q

What happens on day 2 of the clearing cycle?

A

A cheque is cleared for interest payments. From day 2 you will now start to earn interest on the money paid in by cheque.

60
Q

What happens on day 4 of the clearing cycle?

A

Your bank will allow you to withdraw money.

61
Q

What happens on day 6 of the clearing cycle?

A

You can be certain that the cheque has been paid and you can now withdraw from savings accounts.

62
Q

Why is a debit card more flexible than a credit card?

A

A debit card is much more flexible because as well as being able to use it in an ATM, it can be used to buy things in shops or online.

63
Q

What are the 4 main methods of checking bank balances?

A
  • bank statements
  • ATM balance enquiries
  • online banking
  • telephone banking
64
Q

What do bank statements do?

A

Bank statements list all of the transactions that put money into and take money out of a bank account. The types of transactions that appear on a statement depend on the type of bank account to which it refers.

65
Q

What is the easiest way of looking at your balance?

A

Online banking.

66
Q

What happens with telephone banking?

A

If you phone your telephone bank, you will be asked to give some security information, you will then hear your balance and the last 5 entries on your account.

67
Q

In way 3 cases can joint accounts be useful?

A
  • if people are married, have a civil partnership or are partners living together
  • if people are running a flat and sharing bills
  • if relatives or friends have shared financial inrestest
68
Q

What are the people who are part of a joint account called?

A

“parties”

69
Q

What is the most convenient way in which to operate a joint account?

A

The most convenient way in which to operate a joint account is to require only one signature. This means that both parties can have a debit card and use this for payments and ATM withdrawals.

70
Q

What 3 benefits do “either to sign” join accounts have?

A
  • have full access to funds
  • can set up an arranged or unarranged overdraft without the other party’s consent
  • are responsible for the whole debt, even if they did not agree to it.
71
Q

What is a joint account mandate?

A

A mandate is an instruction given to a bank. To open a join account, all of the parties must sign a mandate which gives the bank clear instructions about the number of people who can sign.

72
Q

What is a joint and several liability?

A

“Joint and several liability” is a legal way of saying that all parties are liable for the whole debt on a joint account even if they did not agree to it.

73
Q

What is an attorney?

A

Sometimes, a person may not be able to look after their own affairs themselves and will appoint an “attorney” to have control over their finances. An attorney can be appointed only by someone who has full mental capacity at the time that the forms are signed.

74
Q

What are the two types of power of attorney?

A
  • An attorney is appointed for a fixed period of time.
  • An attorney is appointed who will look after a person’s finances at some time in the future should that person become sick or mentally incapacitated. Known as a “lasting power or attorney”, this type has to be registered before it takes effect.

IFC Finance Course (8 decks)

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