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RB-123/ > Week 2 > Flashcards

Week 2 Flashcards

1
Q

APR

A

APR - annual percentage rate; defined under the Consumer Credit Act 1974 to illustrate the “true cost” of borrowing money. Takes into account the falling balance of repayment based advances

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2
Q

EAR

A

equivalent annual rate; used for calculating the true rate of interest when comparing overdrafts and takes into account that the account can also be in credit

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3
Q

Flat Rate

A

– the rate with no adjustments for falling capital etc. For example £1,000 at 10%pa would cost you £400pa

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4
Q

Savings- AER

A

annual equivalent rate; similar to APR but on savings products; takes into account frequency of payment

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5
Q

Savings- Nominal Rate

A

the “flat rate” rate as above

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6
Q

Saving Account features

A

Interest rates – introductory rates, stepped rates
Notice period – the longer the notice, the better the rate
Minimum deposits
Restricted access – such as internet based accounts
Interest period – monthly, annually
Covered by the Financial Services Compensation Scheme (see later)

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7
Q

Deposit Accounts

A

Access – branch or internet? If access is restricted customer expect a higher rate;
Minimum deposit – from £1 to £10,000. Higher the minimum deposit, higher the rate;
Tiered interest rates – more you deposit, higher the rate;
Notice period – longer the higher;
Interest receiving account – deposit or current?
Regularity of interest payments – see Santander

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8
Q

Saving Account Benefits

A

Can build up small or large lump sums for use as:-
Contingency fund (rainy day money),
Purchase a desire/want,
Deposit for an even larger purchase (house?)
Repayment of debt,
Peace of mind

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9
Q

FSCS Deposits

A

£85,000 per person per firm (for claims against firms declared in default from 31 December 2010).100% of £85,000. This figure is due to change in December 2015 to £75,000 (100,000 Euro)

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10
Q

FSCS Investments

A

£50,000 per person per firm (for claims against firms declared in default from 1 January 2010).100% of the first £50,000.

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11
Q

FSCS Home Finance

A

(e.g. mortgage advice and arranging): £50,000 per person per firm (for claims against firms declared in default from 1 January 2010).100% of the first £50,000.

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12
Q

FSCS Insurance Business; Unlimited

A

90% of the claim with no upper limit. Compulsory insurance is protected in full

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13
Q

FSCS: General insurance advice and arranging: unlimited

A

(for business conducted on or after 14 January 2005). 90% of the claim with no upper limit. Compulsory insurance is protected in full.

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14
Q

ISA General

A

Completely tax free from all forms of tax including Capital Gains, Inheritance and Income tax
Since April 2016 all ISAs are flexible, meanings funds drawn can be replaced with no impact on the ISA limit

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15
Q

ISA

A

Annual allowance £20,000 from April 17

Can be any combination of savings/stocks and shares ISAs

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16
Q

ISA- Help to Buy

A

Funds used towards purchase of first residential property
Maximum £1,000 initial deposit and £200pm afterwards
Bonus of 25% of funds maximum £3,000 on property purchase

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17
Q

Lifetime ISA

A

Ages 18-40, can be used to purchase first home or pension

Bonus of 25% of total pot on purchase of first home or if drawn when >60 yoa.

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18
Q

Current Account Features

A 
Deposit interest
Direct credits
Easy access – debit card, ATM, internet, direct debit, standing order (what is the difference?)
Debit interest
Overdrafts
Excess charges
Return item charges
Added Value Accounts.
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19
Q

Traditional Money Transmission Services; Standing Order

A

A push transaction
Payer in control
Informal, easy to set up

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20
Q

Traditional Money Transmission Services; Direct Debit

A

Pull transaction
Beneficiary in control
Beneficiary must be licenced – can be withdrawn
Must notify payer if payment changes, if not a variable mandate

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21
Q

Traditional Money Transmission Services: Cheques

A

Expensive to run
Cheque books issued
Cheque guarantee cards withdrawn 2010
Banks tried to withdraw cheques, but over ruled by government

22
Q

Traditional Money transmission services: Direct Credit

A

Useful for wages etc

Bulk payments

23
Q

Payment Systems

A
  1. Cheque and credit clearing (BACS)
    Run by and owned by UK banks
    Number of cheques in circulation falling dramatically
    Banks have abolished the cheque guarantee card system
    Also, uses bank giro credits for credit transaction
    Amounts for each bank netted at end of each day and settled via the Bank of England.
24
Q

Payment Systems: Standing Orders, Direct Debit & Direct Credit

A

Standing orders are known as push transactions, the power is with the payer to amend amount, date etc.
Direct debits are pull transactions, the originator is the beneficiary. All originators must issue an indemnity (UDDIS) protecting users from fraud and misuse. Any amendments to payments, dates etc. must be notified to payer in advance of amendment
Direct Credits – used for payment of wages, salaries, pensions, benefits etc.

25
Q

Payment Systems: Debit Cards

A

Now the primary source of payment of consumer/personal transactions;
Card issued at discretion of the bank and cards can be withdrawn if abused;
Each transaction is authorised by the bank and can be declined;
Move from signature based claim process system to chip and pin, electronic system.
Trader/beneficiary credited automatically, on line. System known as EFTPoS – Electronic Funds Transfer at Point of Sale
Contactless, Apple Pay etc.

26
Q

Payment Systems Chaps

A 
Clearing House Automated Payment System
Used for large amounts
Based in UK (but can be in Euros)
Guaranteed payment
Same day
Practical uses include transfer of house payments by solicitors.
27
Q

Payment Systems: SWIFT

A

Society for Worldwide Interbank Financial Telecommunication
Equivalent of CHAPS but for international transactions
Used by brokers, dealers security exchanges.

28
Q

Faster Payments

A

Individual to individual
Typically small amounts
Beneficiary must disclose banking details

29
Q

Life insurance or Death Insurance? Products available: Term Assurance

A 
Level term
Decreasing term
Family income
Increasable term
Convertible (to endowment)
Renewable (without further medical evidence)
30
Q

Life insurance or Death Insurance? Products available: Endowment Policies

A

With profits NB reversionary bonus

Unit linked

31
Q

Life insurance or Death Insurance? Products available: Whole of Life

A

Non profit
With profit
Flexible (unit linked)

32
Q

Sickness (health) insurance: Income Protection (PHI)

A

Deferred periods
Paid until return to work
Predetermined % of income (typically 50% - 60%).

33
Q

Sickness (health) insurance: Personal accident and sickness policy

A

Similar to income protection, except:-
Lump sum if loss of limb/eye
Shorter deferred period
Defined term

34
Q

Sickness (health) insurance: Private Medical Insurance/ Critical Illness Cover

A

Private Medical Insurance
Access to private health facilities, appointment on demand, shorter waiting times, etc
NB does not cover per-existing conditions.

Critical Illness Cover
Lump sum payable on diagnosis of specified diseases
Such as?
Heart attack
Stroke
cancer.
35
Q

Payment Protection Insurance

A

Offer cover for one or more of:-
Accident
Sickness
Unemployment

Known as ASU policies.
Connected to debts such as loans, credit cards or mortgages.
Deferred periods
Maximum payout term
Self employed and fixed term employees offered limited cover.

36
Q

Morbidity

A

The likeliehood of contracting a serious illness during the term of the policy.
Statistically women are more likely to contract such diseases so the cost of such policies are more expensive to women.

37
Q

Mortality

A

The likeliehood of dying during the term of the policy.

Statistically men die younger than women so life insurance is more expensive for men than women.

38
Q

Insurance Bonds

A

Insurance companies can look to reduce their potential exposure by taking out morbidity or mortality bonds.

39
Q

Contract Uberrimae Fidei

A

Means of the utmost good faith
If one party to a contract does not disclose ALL material facts at the outset the contract is voidable at the option of the injured party

40
Q

Unsecured Lending Products

A

Overdraft
Credit card
Term loan

41
Q

Secured lending

A

Basically, when impact of default is high (NB not when risk is high as these loans should be declined)– such as:
loan is large
used to buy a specific asset – such as a house
repayment is from a specific asset
Typically a secured loan will be offered at a lower rate than unsecured lending (as the risk is seen as low), but there may be additional costs involved, which could be added to the loan.

42
Q

Secured facilities

A

Loans
Overdrafts
Mortgages- Buy to let/self build

43
Q

Sundry Lending Services

A

Probate loans
Bridging loans
student overdrafts

44
Q

Investment services- Gilts

A

Gilts – government securities, loans to the government. ’Perceived as having no risk of default’

45
Q

Investment services- Bonds

A

loans to companies, paid annual interest and return of capital. Often secured against company’s assets

46
Q

Other factors in investment decision

A 
Payment (lump sum/monthly)
Access to money
Cost and charges
Tax efficiency
Reputation of provider.
47
Q

Types of bank fraud

A

Internal fraud
Staff Fraud (outside of this unit).
Customer Fraud

External fraud
Non- customer fraud

48
Q

Customer Fraud

A

Largely around the application process – application to open an account (identity theft) or application for facilities, typically lending facilities
Historically have been largely dominated by card fraud, cloning, unauthorised usage etc.
Bank protected by robust procedures, some automated, some manual. See risk unit, three lines of defence etc.

49
Q

Non-customer originated fraud- APPS

A

Where the customer actually withdraws/transfers the funds completely within the mandate conditions. Increased by 71% in H1 2021.

50
Q

Banks attempts to prevent APPS

A

Staff training to recognise possible APPs in branch or over the phone;
On-line automated warnings when new beneficiaries created by customer;
Delayed processing of unusual, initial or large transactions until customer confirmation received.

51
Q

Ending the Banker/customer relationship - Reason for account closure

A 
Death
Mental Incapacity
Bank discretion (credit account)
Default
Bankruptcy

RB-123/ (5 decks)

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