Level 3 Business - Learning Aim B (UNIT 3)

Financial institutions

Provide individuals with the ability to deposit or withdraw money, obtain credit and make investments, offering advice on different finances

Types of financial organisations

Bank of England - responsible for maintaining the UK's financial stability, issuing legal tender, setting interest rates and controlling debt.

Advantages

- Protects the stability of the economy

- Lends to banks

Disadvantages

- Interest rates rise, making borrowing expensive

Banks - owned by shareholders, handles transactions and stores money on behalf of customers, supplies credit and makes payments when directed

Advantages

- Secure place to store money

- Range of services offered

Disadvantages

- Saving above £75,000 are lost if the bank goes bankrupt

- Higher charges to fulfil shareholder objectives

Building societies - owned by account holders, with a right to vote and receive information on its running

Advantages

- Low costs

- Better interest rates

Disadvantages

- Saving above £75,000 are lost if the society goes bankrupt

- Fewer branches leads to poorer access

Credit Unions - not for profit organisation, responsible to support its owners

Advantages

- Offer additional benefits

- Owned by members = low costs and higher interest payments

Disadvantages

- Savings above £75,000 are lost if the union goes bankrupt

National Savings and Investments - government backed organisation for savings and investments

Advantages

- Secure

- Additional methods of saving e.g. premium bonds and gilts

Disadvantages

- Poor interest rates

- Notice before withdrawals

Insurance companies - protection against the risk of loss in return for a premium, to make a profit

Advantages

- Protect against unexpected losses/expenses

- Makes planning easy with regular payments

Disadvantages

- Premium are charged to meet shareholder needs

Pension companies - selling policies to allow individuals to save to fund retirement

Advantages

- Financial security during retirement

- Employ experts to make decisions

Disadvantages

- Funds are locked with penalties

- Poor decisions result in bad return

Pawnbrokers - loan money against the value of an asset e.g. jewellery

Advantages

- Quick

- No interest charged

Disadvantages

- Asset sold on if not bought back within agreed period

- Low amount provided than its actual value

Payday loan - short term loan in an emergency to meet shortages between paydays

Advantages

- Quick

Disadvantages

- High interest rates

- Expensive way of borrowing, easy to get into debt

Communicating with customers

Bank branch - carry out face-to-face transactions, using automated self-service machines

Advantages

- Build rapport with customers, develop trust

- Offer additional services

- High level of confidence for the consumer

Disadvantages

- Incur travel costs

- Time consuming

Online banking - using the internet

Advantages

- 24/7 access

- High degree of privacy

Disadvantages

- Unable to make withdrawals

- Risk of cyber crime

Telephone banking - over the telephone

Advantages

- No additional charges

- Convenient

Disadvantages

- Can be frustrating with automated telephone systems

- Risk of fraud and identify theft

Mobile banking - use of mobile phones and tablets

Advantages

- Convenient

- 24/7 availability

Disadvantages

- Prone to hackers asking for details

- Download specific applications

Postal banking - using the postal service to carry out paper-based transactions

Advantages

- No additional technology

- Traditional

Disadvantages

- Slow process

- Can get lost in transit

Consumer protection in relation to personal finance

Organisations to help protect consumer rights from being treated unfairly

Financial Conduct Authority - funded by membership fees to regulate the conduct of financial service providers

Roles

- Authorise businesses to trade

- Supervise its procedures/practices

- Use enforcement to ensure standards are maintained

Responsibility

- Ensure customers have a wide range of services

Financial Ombudsman Service - appointed by the government, set up by law, funded by fees charged to financial institutions

Purpose

- To solve complaints about services received

- Give advice and make decisions based on the facts

Financial Service Compensation Scheme

Roles

- Pays compensation if the service provider is unable to

- Protects savers up to £5,000

- Refunds savers if the institution goes bankrupt

Office of Fair Trading - responsible for by the FCA

Purpose

- Regulate all markets to encourage fairness between financial institutions

Legislation: Consumer Credit

Roles

- Regulates any firm registered with the FCA

- Offers credit to consumers e.g. credit card or leasing

Information guidance and advice

Organisations that provide personal financial advice

Citizens Advice - run by charities, offer advice about debt, benefits, pensions and insurance

Advantages

- Free

- Covers a wide range of areas

- Convenient as made in person, online and telephone

Disadvantages

- Limited knowledge from volunteers

Independent Financial Adviser - advice on savings, mortgages, investments and pensions

Advantages

- Offered by professionals

- Regulated by the FCA and FOS

Disadvantages

- Not free

- May not be 100% up to date or unbiased

Price comparison websites - to compare prices for similar products/services and find the best deal

Advantages

- Free

- 24/7 access

Disadvantages

- May not be 100% accurate

- Potential for bias

Money Advice Service - help people manage their finances and avoid bankruptcy

Advantages

- Free as government funded

- Covers a wide range of issues

Disadvantages

- Available only online

- Generic

- Hard to understand advice

Debt counsellors - offer advice on how to manage debt best

Advantages

- Offered by professionals

- Regulated by FCA and FOS

Disadvantages

- Not free

- Focus on only debt

Individual Voluntary Arrangements - allows individuals to work with insolvency partners to manage debts

Advantages

- Makes budgeting easier with regular payments

- Advice without bias using Citizens Advice

Disadvantages

- Handling fees

- Affects credit rating

Bankruptcy - individuals declare themselves bankrupt, as a last resort when they're unable to pay their debts

Advantages

- Wipes out all debt

- No legal action against them

Disadvantages

- Affects credit rating

- Long-lasting consequence