Features of Financial Institutions

UK Central Bank

"to promote the good of the people of the United Kingdom, this by maintaining monetary and financial stability"

- Prints banknotes

- Controls inflation

- Supervises banks and insurers

- Ensures stability in financial system

Advantages:

- Independent from the Government & Financial Institutions.

- Focus on managing the flow of money in the economy.

- Considers regional, national and global factors when making decisions.

- Helps to create financial stability and confidence.

Disadvantages:

- Decisions can damage financial institutions.

- How independent from the Government is the Bank of England's decisions?

- Direction comes from one person (Governor of Bank of England).

- Decisions not always representative of the whole UK needs.

A bank is a place where money will change hands.

Banks offer a range of service, most common ones tend to be lending and saving based. They also now are increasingly payment agents.

Banks offer a safe and secure place to keep items of value and are the main financial focal point for most people in the UK.

Banks tend to be privately owned, so aim to make a profit for their shareholders.

Advantages:

- Wide range of financial packages that the customer has access to.

- Tend to have physical presence in the High Street as well as online.

- Offers convenient access to money in accounts.

- Keeps money safe and secure.

Disadvantages:

- Focus on profits means low interest rates or high bank charges.

- Poor levels of customer service (due to customer resistance in switching).

- Access to branches is declining in local areas.

Building Societies are also places where money will change hands.

Also offer financial services mainly based around lending and saving.

Mutual form of ownership. This means that customers are members and will have voting rights to elect who runs the organisation and also gets a share of any profits.

Building Societies tend to be more locally based, however even these have started to grow over time. 

Advantages:

- Mutual and have members interest at heart.

- Share of the profits back to members and invest in better service for all.

- Tends to be localised and personal.

- Offers range of financial services.

Disadvantages:

- Lacks the level of coverage that larger banks tend to have.

- Lacks the economies of scale to compete with larger financial organisations. 

- Lacks the level of range of products and services by larger financial organisations.

A credit union is a community financial organisation serving personal and small business needs. Tends to offer many of the features in a bank.

Focus on service and not profits, so this means they offer better rates on interest/ fees.

All decisions are democratically made by members and all of profits are invested back into the organisation to provide better rates.

Regulated by the Financial Conduct Authority.

Advantages:

- Customer is part owner of the organisarion, so have voting rights and receive dividends.

- Interest rates tend to be better than those offered by the banks.

- Community interest are the main focus, above and beyond profit.

Disadvantages:

- Reduced access to branches and cash machines (ATM's).

- Reduced levels of services that they can offer customers.

- Difficult to find a credit union in many areas these days.

Stated owned savings bank.

Purpose is to attract funds from savers that can be used to fund Government projects.

Offers a range of savings products that are tax free (in some cases) and are 100% guaranteed.

Interest repayments however tend to be low as a result of this and not as competitive as you would expect from other lenders.

Advantages:

- Backed by the Government so the investments are 100% safe.

- Returns are tax free in most cases.

- Quick and easy way to invest money with the chance of winning prizes (Premium Bonds).

Disadvantages:

- Caps on the level that can be invested in many of their financial packages.

- Interest rates tend to be fairly low on average.

- Money tends to be locked into fixed periods of time before it can be withdrawn.

- Limited range of services and accounts on offer.

An organisation that provides protection in the form of compensation should the policyholder suffer loss, damage, injury or hardship.

Insurance companies are large Public Limited Companies who aim to make a profit.

Many insurance companies will assess the risk that they are covering against. As well charging the customer increased premiums, they will also "off load" any high risk policies to other large insurance brokers.

Advantages:

- Regulated via Government legislation

- Provide a range of services and packages

- Offers reassurance and protection from risk

Disadvantages:

- Aims to make a profit that is reflected in the price charged

- Tends to be faceless and not offering a face to face other service

- Can be complex and requires a good level of reading and understanding of paperwork

An organisation that provides a financial service in the form of a pension that customers can save towards their retirement. 

Pension companies tend to be large Public Limited Companies who are linked in to other financial institutions and aims to make a profit.

Pension companies are made via working an estimation on how the basis is shown to be made available towards the customer retirement, this relating if there is a set figure. This money is shown to be made invested to the stock market and this relating to the aim done to the increase of the value.

Advantages:

- Regulated by Government to ensure protection

- Offers a controlled and managed form of future investments

- Can be a form of tax relief

- Aims to make a profit to maximise and be able to make returns

Disadvantages:

- Private organisations that aims to make a profit

- Tends to lack the face to face personal approach

- Range of packages that can be shown as confusing

- Returns are shown to be made dependant on the performance of the stock market

An organisation that provides loans against items that have been "offered up" in the form of security.

A pawnbroker is a private organisation who will have the aim of making a profit. Typically the interest rate charged is between 5% - 12% per month, which is quite expensive.

The customer will give the pawnbroker an asset that they own. They will aks them to value this and will then be given a loan based on this. If/ When they repay the loan in full they will get the asset back, however if they fail to do this, then the pawnbroker has the right to sell this asset amd recover the money.

Advantages:

- No credit checks so if you have a poor credit rating you can borrow

- Its quick, so money is usually paid the same day

- Assets can be redeemed at any time and interest only charged on period money lent from

- The pawnbroker has the responsiblity to value to the item correctly

Disadvantages:

- It's a fairly expensive form of borrowing

- Borrowing tends to be restricted to a percentage of the value of the item pawned

An organisation that provides loans that are for a short period of time to cover unexpected purchases before the customer's next payday.

Payday loan companies tend to be private organisations who have the aim to makea profit. They typically charge high rates of interests, which means they become expensive if you don't pay them off as expected.

The customer will typically apply online to take out payday loan. They could have to complete some form of basic credit check, however the loan is typically transferred within hours to the account of the customer once approved.

Advantages:

- Its quick, so money is usually paid the same day

- Fairly easy to set up with low operating overheads

- Increased choice and competition for the customer to choose from

- Useful finance if used in the short term and repaid in full

Disadvantages:

- It is shown as a fairly expensive form of borrowing, especially if you default

- Allows lending to people who are vulnerable/ poor financial management

- Charges high fees for peopel who are default on repaying debt

- No face to face interaction with the customer.