Features of financial institutions Flashcards
Bank of England
The UK’s central bank that ensures financial stability of the UK. It sets interest rates, prints bank notes and stores over 400,000 gold bars. It is not like a commercial bank and doesn’t lend money to the general public.
Bank of England pros and cons
Pro’s - protects the financial stability of the UK economy, lends money to banks, sets interest rates to achieve a stable economy.
Con’s - does not lend to the general public, can raise interest rates making borrowing such as mortgages more expensive.
Banks
Handles financial transactions and stores money on behalf of the general public. They allow individuals and businesses to make payments, access credit and save.
Banks pros and cons
Pro’s - variety of services, pay interest on savings, provides a secure place to store money.
Con’s - savings only protected up to £75000 if bank goes bankrupts, owned by shareholders therefore are designed to make a profit.
Building societies
Owned entirely by their members which means they can set rates that benefit their members and not shareholders. Members have a right to vote and receive information on the running of the society.
Building societies pros and cons
Pro’s - range of services, secure place to store money, pay interest on savings, owned by members keeps the cost down.
Con’s - savings only protected up to £75,000, may lack the business drive of commercial banks as banks are profit driven.
Credit unions
A member owned financial cooperative, controlled by its members and operated on the principle of people helping people, providing its members credit at competitive rates as well as other financial services.
Credit unions pros and cons
Pro’s - variety of services, owned by members and costs kept down allowing for higher interest payments, often additional benefits to the community and charities.
Con’s - savings only protected up to £75,000, may lack the business drive of commercial banks.
National savings and investments
A government backed organisation that offers a secure savings option. It offers a range of options including ISA’s and premium bonds and gilts
National savings and investment pros and cons
Pro’s - savings are 100% secure as it is a government saving option, offers additional services/ methods of saving e.g. bonds.
Con’s - rates are variable, lacks a high street presence, required to give notice on withdrawals.
Insurance companies
These are profit making businesses that protect people against loss in return for a monthly premium.
Insurance companies pros and cons
Pro’s - pay monthly so easier to budget, protects against unexpected losses or financial expenses, cover available on a variety of things.
Con’s - premiums assessed on risk and a higher risk the higher the premium, owned by shareholders so need to make a profit.
Pension companies
Sell policies to individuals or companies that enable themselves or their employees to save for future retirement. Pension companies usually invest money deposited by the individuals in hopes of growing it for future use.
Pension companies pros and cons
Pro’s - structured way to plan for retirement, matched contributions by employer, tax benefits.
Con’s - poor investment decisions may mean a poor return on investment, cant access money until the agreed term.
Pawnbrokers
Loan money to individuals and secure this loan against an asset e.g. pawned jewellery. If the item is not brought back then the pawn broker will sell the asset to recoup cost of the loan.
