Unit 3: Aim B Explore Personal Finance Sector Flashcards
What is financial institutions?
Financial institutions are organisations that offer financial services to individuals and or businesses. These services include the ability to deposit or withdraw money, obtain credit and make investments, as well as offering advice on matters of personal and business finance.
What are the 9 financial institutions?
- Bank Of England
- Banks
- Building Societies
- Credit Unions
- National Saving and investment
- Insurance Companies
- Pension Companies
- Pawnbrokers
- Payday Loans
What is Bank of England ?
This is the UK’s central bank that keeps the financial system stable. Its main jobs are to issue money, set interest rates, and manage national debt.
What is a Bank?
A bank is an organization that manages money and financial transactions for its customers. It offers services like holding deposits, making payments, and providing loans.
What is a Building Societies?
Building societies are organizations that manage money and transactions for their members. Members are part owners, have voting rights, and receive updates on operations. Unlike banks, they don’t have shareholders, which helps keep costs lower.
What are Credit Unions?
Credit unions are not-for-profit organizations that manage money and transactions for their members. They often aim to support their community, and members are owners with voting rights.
What are national savings and investments?
This is a government-backed organisation that offers a secure saving options and it offers a range of options including ISAs, premium bonds and gilts and bonds
What are Insurance companies?
Insurance companies are businesses that provide financial protection against risks, such as accidents, health issues, or property loss. Customers pay premiums in exchange for coverage, helping them manage potential losses.
What are pension companies?
Pension companies sell policies to individuals, helping them save for retirement through personal or employer plans. They invest contributions to grow the savings, but this comes with some risk.
What are Pawnbrokers?
Pawnbrokers are businesses or individuals that lend money based on personal assets, like jewellery or electronics, as collateral. If the loan isn’t repaid within a set time, the pawnbroker can sell the item.
What are payday loans?
Payday loan companies provide short-term loans to help cover expenses until the next pay check. These loans are usually for small amounts and come with high interest rates, making them suitable for emergencies.
What are the advantages and disadvantages of Bank of England
- Economic Stability: Helps maintain overall financial stability, which supports growth and investor confidence.
2.Controlled Inflation: Manages interest rates to control inflation, promoting purchasing power for consumers. - Support for Banks: Provides liquidity to banks during crises, ensuring they can continue to operate and lend.
- Interest Rate Sensitivity: Raising rates can burden borrowers, potentially slowing down economic growth.
- Limited Public Access: Not a bank for everyday consumers, which can limit personal financial support options.
- Potential for Delayed Effects: Changes in policy may take time to impact the economy, making it challenging to respond quickly to economic shifts.
What are the advantages and disadvantages of Banks
- Range of Services: Banks offer various services and account types to meet different financial needs.
- Secure Storage: They provide a secure place to store money, ensuring safety from theft or loss.
- Interest on Balances: Most accounts pay interest on credit balances, helping savings grow.
- Limited Protection: Savings are protected only up to £85,000, so any amount above this could be lost if a bank fails.
- Profit Motive: As profit-making organizations owned by shareholders, costs may be higher for individuals to meet shareholder goals.
What are the advantages and disadvantages of Building societies
Advantages:
- Member-owned: Lower costs and higher interest rates for members. This structure often leads to more favourable terms for savers.
- Security: Provide a safe place to store money. Most building societies prioritize the security of member funds.
3.Range of services: Offer various accounts and financial products. They typically cater to local needs and preferences.
Disadvantages:
- Savings protection limit: Only cover up to £85,000. This can be a risk for those with large deposits.
- Limited growth focus: May lack the business drive of commercial banks. This can result in fewer innovative financial products.
- Fewer branches: Accessibility can be an issue compared to larger banks. This may affect customer service and convenience.
What are the advantages and disadvantages of National Saving and investment
Advantages:
Government-backed: Offers security on 100% of savings with no upper limit.
Variety of savings methods: Includes products like premium bonds.
Disadvantages:
Variable rates: Interest rates may change over time.
Limited access: Lack of high street presence can make access difficult.
Withdrawal notice: Often requires prior notice for withdrawals.
What are the advantages and disadvantages of credit unions
Advantages:
1. Member-owned: Keep costs down, allowing for higher interest payments.
2. Community focus: Often provide additional benefits to the community or good causes.
Disadvantages:
1. Savings protection limit: Like building societies, they only protect up to £85,000.
2. Limited business drive: May not offer the same range of products as commercial banks.
What are the advantages and disadvantages of Insurance Companies
Advantages:
- Risk protection: Guard against unexpected losses or financial expenses.
- Flexible payments: Easy and regular monthly payments facilitate planning.
Disadvantages:
1. Risk assessment: Premiums may penalize certain members or groups too harshly.
2. Profit focus: Being profit-driven means premiums are set to meet shareholder needs
What are the advantages and disadvantages of Pensions Companies
Advantages:
1.Retirement planning: Helps plan for financial security after retirement.
2. Employer contributions: Deductions from pay can be matched by employer contributions.
Disadvantages:
1.Investment risks: Poor investment decisions can lead to disappointing returns.
2. Withdrawal restrictions: Money invested cannot be accessed before agreed dates.
What are the advantages and disadvantages of Pawnbrokers
Advantages:
1. Quick cash access: Provides immediate cash for assets.
2.Asset return: The option to retrieve the asset within a set period without interest charges.
Disadvantages:
1. Lower valuations: Often provide significantly less than the asset’s actual worth.
2. Risk of asset loss: If the loan isn’t repaid on time, the asset will be sold.
What are the advantages and disadvantages of Payday loans
Advantages:
1. Fast cash: Offers quick access to funds when needed urgently.
Disadvantages:
1. High interest: Interest charges are typically very high.
2. Debt cycle risk: Often leads to paying back much more than the initial amount borrowed.
