Learning Aim B Flashcards
(19 cards)
Bank of England
Banks
• A bank is an organisation that handles financial transactions and stores money on
behalf of its customers.
• Services offered will include holding deposits, making payments when instructed
to do so and supplying credit.
Building societies
• These are organisations that handle financial transactions and store money on behalf of their members.
• The members, or account holders, are part owners of the building society and have a right to vote and receive information on the running of the society.
• Unlike banks they do not have shareholders on a stock exchange which allows costs to be kept down.
Credit union
• These are not-for-profit organisations that handle financial transactions and store money on behalf of their members.
• Often there is a responsibility or desire to support a community made up of its members.
• Members are the owners and have a voting right.
National savings and investments
• This is a government-backed organisation that offers a secure saving option.
• It offers a range of options including ISAs, premium bonds and gilts and bonds.
Insurance companies
• These are businesses that protect against the risk of loss in return for a premium.
• They are profit-making organisations.
Pension companies
• These are businesses that sell policies to individuals, either privately or through employers, to allow them to save now to fund retirement in the future.
• Pension companies normally invest the money paid to them in contributions in order to increase its value. However this is not risk free.
Prawbrokers
• These are businesses or individuals who loan money against the security of a
personal asset, for example an item of jewellery or piece of electronic equipment.
• If the item is not bought back from the pawnbroker within a specified period of time then it will be sold on.
Pay day loan
• These are organisations that offer a short-term source of finance used to bridge the gap between now and next receiving a wage; they are normally only available for relatively small amounts at very high rates.
• They may be suitable in an emergency to meet cash shortages.
Advantages and disadvantages of the Bank of England
Responsible for protecting the financial stability of the economy as a whole
Sets interest rates at a level designed to help achieve a stable economy
Lends to banks
Not a bank for members of the general public
Can raise interest rates making borrowing more expensive
Advantages and disadvantages of banks
Offer a range of services and account types Provide a secure place to store money
Pay interest on credit balances on most types of accounts
Savings are only protected up to the value of £85,000, so if a bank goes bankrupt savings above this would be lost
Profit-making organisations owned by shareholders, therefore costs to individuals may be higher than necessary in order to fulfil shareholder objectives
Building societies
Offer a range of services and account types Provide a secure place to store money
Pay interest on credit balances on most types of accounts
Owned by members and therefore costs can be kept down allowing for higher interest payments
Savings are only protected up to the value of £85,000, so if a building society goes bankrupt savings above this would be lost
May lack the business drive of a commercial bank
Advantages and disadvantages Credit unions
Offer a range of services and account types Provide a secure place to store money
Owned by members and therefore costs can be kept down allowing for higher interest payments
Often offer additional benefits to the community or a good cause
Savings are only protected up to the value of £85,000, so if a credit union goes bankrupt savings above this would be lost
May lack the business drive of a commercial bank
Advantages and disadvantages of national savings and investments
Government-backed, therefore offering security on 100% of savings with no upper limit
Offers additional services/methods of savings, e.g. premium bonds
Rates are variable
Not as easy to access due to lack of a high street presence
Often required to give notice on withdrawals
Advantages and disadvantages of insurance companies
Protect against unexpected losses or financial expenses
Easy and regular monthly payments make planning easy
Wide range of services and levels of cover to suit the needs of individuals
Premiums are assessed on the estimated degree of risk which may be seen to penalise some members or groups of society too harshly
Profit-making organisations, therefore premiums will be charged to ensure shareholder needs are met
Advantages and disadvantages of pension companies
Provides a structure to help plan for financial security after retirement
Deductions can be taken directly from pay and be fully or partially matched by an employer’s contribution
Experts are employed to make investment decisions
Poor investment decisions by the pension company may result in a disappointing return
Money already invested in a pension cannot be released prior to the dates agreed in the policy
Advantages and disadvantages of prawnbrokers
A quick way of acquiring cash needed for a short period of time
The asset can be brought back within a set period of time
Interest is not charged
The amount given for the asset is often substantially lower than its actual worth
If the money is not repaid within the agreed period, the asset will be sold on
Payday loans
A quick way of acquiring cash needed for a short period of time
Interest charges are likely to be very high Often results in paying back a final sum
substantially higher than the initial amount borrowed
