Personal Finance: B1-B4 Flashcards
B1- Bank of England
Features:
- The central bank of the UK
- in control of all other banks in the UK
- monitor high street banks
Advantages:
- Regulates prices in our economy by increasing/ decreasing interest rates
- To stop us borrowing, they will increase interest rates
Disadvantages:
- If BoE increase interest rates, our current borrowing will become more expensive
- if they lower interest rates, our savings will lose value/ won’t earn as much
Building Societies
Advantages:
- Offer a wide range of services, similar to a bank
- account holders are members and as such part owners of the building society. They therefore, receive a voting right
- costs can be kept down due to less pressure to make a profit
Disadvantages:
- There are no shareholders
- not as secure as a bank
Banks
An organisation that handles financial transactions and stores money on behalf of its customers
Features:
- Cheques
- Direct debits
- Advice
- Mortgages
- Secure storage
- BACs
- Standing orders
- Loans
- Overdrafts
- Cash withdrawal
Credit Unions
Features:
- Provides loans to members
- Funded by members who save
- Small
- Non-profit making
- Often local
Advantages:
- Anyone can join - helps people who are unable to get a loan from a bank
- better terms than payday loans
Disadvantages:
- saving rates are often less than banks
- only a few have an online presence
- loans are usually small
National Savings and investments
Features:
- government owned
- sells premium bonds
- attracts individual savers to reduce the governments need to borrow
Advantages:
- 100% safe guarantee from the treasury
- some products have tax free elements
- May win big with premium bonds
Disadvantages:
- Often low rates
- bank savings are now tax free
- May win nothing with premium bonds
Insurance companies
Features:
Protects precious things for a small monthly premium e.g house, car, loved ones
Advantages:
- A small premium may result in a big pay-out
- Peace of mind
Disadvantages:
- could pay for something that you never use
- policy excesses may reduce the benefit
Pension companies
Features:
- long term saving plan to fund retirement
- individual scheme/ schemes run by employers
Advantages:
- pension savings are tax free
- employers often contribute to their in-house scheme
Disadvantages:
- May die before retirement
- pension benefits are subject to tax
Pawnbrokers
Features:
Short term loan subject to interest secured by an asset
Advantages:
- easier to be accepted than a bank loan
- flexible terms
- if you default, it doesn’t affect your credit rating
Disadvantages:
- if loan is not repaid, asset will be sold
- rates higher than from banks
Payday loans
Features:
Short term loan secured by a post dated cheque
Advantages:
- available quickly, often for unexpected costs
- can be just for a few days
Disadvantages:
- very high interest rates
- usually for less than £1000
- the full cost of the loan isn’t always obvious to the borrower
B2 - Branch
Advantages:
- opportunity to build a relationship developing trust and brand loyalty
- gives the customer a high level of confidence
- additional services such as advice can be offered
Disadvantages:
- restricted to bank opening hours
- May have long queues plus travel time, making the process time consuming
Online banking
Advantages:
- available 24/7
- high degree of privacy
- convenient
Disadvantages:
- takes time at the beginning to set up/apply for
- increased risk due to cybercrime
Telephone banking
Advantages:
- convenient- access to basic functions such as checking a balance
- no additional charges
Disadvantages:
- call centres and automated telephone systems can frustrate customers
- higher risk of fraud/ identity theft
Mobile banking
Advantages:
- convenient
- available 24/7
- no additional charges
Disadvantages:
- higher security risk due to increased risk of loss/ theft of mobile devices
- can be prone to hackers sending texts asking for bank details
Postal banking
Advantages:
- Traditional method that many customers will feel comfortable with
- does not require any additional technology/ devices
Disadvantages:
- can be slow due to the postal system
- post can get lost
B3 - Financial Conduct Authority (FCA)
- Regulates the actions of financial service providers
- Can oversee the design of financial products, ban products or have them withdrawn from the market
- Ensure firms cannot exploit difficulties consumers have with complex misleading products and change misleading promotions.
funded by membership fees charged to financial service providers
Focus on 3 key areas: - Authorisation- permit financial service providers to trade
- Supervision- ensure procedures, practices and products are in the interest of the consumer
- Enforcement- use powers to ensure standards are maintained
Advantages: - Makes sure consumers get a fair deal and are not exploited
- Makes sure that products/ services offered are good quality
- Ensures there is healthy and fair competition
