Unit 3 finance revision

Advantages:

- 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

Disadvantages

- Not a bank for members of the general public

- Can raise interest rates making borrowing more expensive

Advantages

- 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

Disadvantages

- Savings are only protected up to the value of £75,000, 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

Advantages

- 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

Disadvantages

- Savings are only protected up to the value of £75,000, so if a building society goes bankrupt savings above this would be lost

- May lack the business drive of a commercial bank

Advantages

- 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

Disadvantages

- Savings are only protected up to the value of £75,000, so if a credit union goes bankrupt savings above this would be lost

- May lack the business drive of a commercial bank

Advantages

- Government-backed, therefore offering security on 100% of savings with no upper limit

- Offers additional services/methods of savings, e.g. premium bonds

Disadvantages

- Rates are variable

- Not as easy to access due to lack of a high street presence

- Often required to give notice on withdrawals

Advantages

- 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

Disadvantages

- 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

- 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

Disadvantages

- 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

- 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

Disadvantages

- 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

Advantages

- A quick way of acquiring cash needed for a short period of time

Disadvantages

- Interest charges are likely to be very high

- Often results in paying back a final sum substantially higher than the initial amount borrowed

Advantages

- No charges on credit balances

- Offers the holder a wide range of facilities including a cheque book, debit/cash card and possibly an overdraft facility

- Convenient for receiving regular payments, e.g. wages and making regular withdrawals

Disadvantages

- Potentially high charges on the use of an overdraft facility

- Standard features only, i.e. no additional perks

Advantages

- No charges on credit balances

- Offers the holder a wide range of facilities including a cheque book, debit/cash card and possibly an overdraft facility Convenient for receiving regular payments, e.g. wages and making regular withdrawals

- Offers the holder additional perks at a packaged price cheaper than acquiring them individually (standard additional features include things such as holiday/travel insurance, break down cover and phone protection)

Disadvantages

- Additional monthly charge is frequently applied

- The package offered may not offer value for money or meet the needs of the individual account holder

Advantages

- Available to customers with a low credit rating

- Offers an easy first step for individuals to gain access to basic banking facilities, i.e. the ability to pay in and withdraw cash

Disadvantages

- Limited facilities, e.g. no debit card or overdraft facility

Advantages

- Course fees and student loans can be easily handled

- Bonuses offered are designed to meet the needs of learners, e.g. discounts on travel or small lump sum cash payment

Disadvantages

- Overdraft facilities could encourage overspending

- Charges for overspending are high

- Limited facilities

Advantages

- Interest is charged only on the amount outstanding

- Can be paid off without penalties

- An overdraft facility can be prearranged and only used if needed Provides a short term solution to cash flow problems

Disadvantages

- When used, interest charges are often high

- Additional penalty charges for going over a pre-arranged limit are often very high Not the cheapest form of borrowing

- The ease with which these can be obtained could encourage overspending

Advantages

- Regular, pre-agreed payments make planning and budgeting easy

- As a general rule these would only be issued to individuals who can prove their ability to make the repayments

- Useful when looking to purchase a specific item of medium to high value, e.g. a car or home improvement

Disadvantages

- May have to be secured against an asset which means if payments are missed the asset may be taken to cover the outstanding debt

- Not really suitable for short term loans

Advantages

- Spreads the cost of an expensive item over a period of time

- Credit is secured against a specific item

- Often allows a customer to afford something now that they could not otherwise afford, e.g. four years’ interest free on furniture

Disadvantages

- Interest charges may be higher than other traditional loans

- Ownership of the asset may legally be kept by the seller until the final payment is made

- Agreements can be manipulated to make a purchase seem deceptively appealing

Advantages

- Allows the customer to spread the cost of expensive items over a long period of time, e.g. the purchase of a house is often spread over 25 years

- Interest rates, depending upon the mortgage deal, can sometimes be fixed or tracked against a standard rate of interest reducing the risk of fluctuations

Disadvantages

- Interest payments, although sometimes fixed for a short period of time, can vary – this seriously affects the borrower’s ability to repay or meet other expenses

- Failure to meet repayments may lead to a loss of a home and seriously affect an individual’s future credit rating

- Penalties may be applied to early repayment

Advantages

- The credit card holder can pay above the minimum rate if they wish and hence speed up the rate of repayment and reduce interest incurred

- Can be used for items of multiple sizes and value, to a limit, without the need to secure against an asset

- Provides some protection on purchases

Disadvantages

- Can encourage overspending, sometimes on unnecessary purchases, and can lead to debt problems

- Interest rates are often higher than on a personal loan

Advantages

- Help solve immediate short term cash flow problems

- Relatively easy to secure

Disadvantages

Interest rates are very high and the cumulative amount to be repaid can quickly spiral out of control

Advantages

- Tax is not charged on interest earned allowing the saver to keep all of the rewards for saving

- Interest rates are sometimes slightly higher than in alternative savings accounts

Disadvantages

- Notice is often required to make withdrawals and according to the agreement there may be a limit set on the number of withdrawals made

- If the saver makes more withdrawals than set out in the agreement then the penalty may cancel out the tax savings

- There is a limit set on the annual amount that can be placed in an ISA

Advantages

- Interest is earned on positive balances

- Accounts sometimes require regular deposits of a set amount forcing the saver to follow a savings plan

Disadvantages

- Interest earned is taxed

- The percentage rate of interest paid on savings is likely to be lower than interest to be paid on borrowing, therefore the benefits of savings are lost if the customer is borrowing at the same time

Advantages

- Chance of winning substantially more than could be earned in interest

- Can be easily withdrawn with no loss or penalty

Disadvantages

- No guaranteed return on investment

- Maximum amount reviewed annually by the government

- The amount invested, assuming zero or low returns, loses value due to inflation

Advantages

- Regular fixed returns

- Spreads risk across a range of markets

Disadvantages

- Risk of losing some or all of the value of the investment if the bond or guilt value falls

- Interest payments may not be received if the issuer is unable to make payments

Advantages

- Share prices fluctuate offering a potential high reward

- Shareholders’ returns can include dividend payments and an 

increase in share value

- As part owners in a business there may be additional benefits 

including discounts and special offers

- For some investors share ownership is more than just a way of 

saving – it is a pastime and creates interest 

Disadvantages - Share prices fluctuate offering a potential high risk - There is no guarantee of any reward or return as all of an investment can be lost

Advantages

- Encourages individuals to save throughout their working life for retirement

- Depending upon the policy, an individual’s savings may be boosted by an employer’s contributions increasing the final value of the saving

- Regular payments are deducted, sometimes at source, meaning the individual is tied into making the regular contributions

Disadvantages

- Movement between jobs may mean that one policy stops and another starts, thus reducing the overall cumulative value of the savings

- Final outcome is difficult to predict

- If compulsory payments are deducted this may affect short-term living standards

Risks

• Low or zero risk as money saved is guaranteed to be available in the future

• Inflation can reduce the spending power of money saved

Rewards

• Interest payments

• Financial security/peace of mind

Risks

• Investments can go wrong and all or some of the value may be lost

• No guarantee of a return

Rewards

• If successful, there is potential for a high financial return (significantly higher than could be earned in interest)

• Can be exciting! Some people will invest in shares, antiques, art or foreign currencies, for example, in the hope of high returns 

Legal requirement

Degree of cover depending on policy is third party or fully comprehensive

Advantages

- Meets legal requirements

- Protects self against theft or damage

- Protects against damage caused to a third party

Disadvantages

- Premiums can be high depending upon assessed level of risk, e.g. expensive for young drivers

- Normally there is an excess that must be paid, e.g. first £500 of all damages is still the responsibility of the car owner

Home insurance covers physical building e.g. against fire damage

Contents insurance covers physical items in house

Advantages

- Protects against damage which may otherwise be too expensive to repair resulting in the loss of a home

- Contents are protected both when inside the house and outside

Disadvantages

- Premiums are an additional expense to home ownership

- Some items cannot be replaced due to a value beyond the financial worth, e.g. a painting or inherited piece of jewellery

Life assurance is an ongoing policy to pay a lump sum upon death.

Life insurance is a policy for a set period of time to pay a lump sum if you die within that time period.

Advantages

- Provides peace of mind to family following the bereavement of a homeowner

Disadvantages

- If the policy holder does not die within the period of life insurance no payment is made (could be seen as an advantage!)

Advantages

- Provides protection for personal belongings when away from home

- Covers medical costs when on holiday

- Protects against cancellation and sometimes delays

Disadvantages

- The person suffering the loss is likely to have to pay upfront to replace items or cover medical costs and then reclaim later

- An additional cost when travelling abroad

This protects the owners of pets against some or all of the expenses associated with treating ill or injured pets, i.e. vets’ fees.

Advantages

- Avoids expensive vet fees

- If vet fees are too high, there may be no alternative to having the pet put down – insurance can avoid this

Disadvantages

- An additional monthly expense to protect against the unexpected

Advantages

- Some compensation is provided when ill which can reduce the financial burden and stress allowing the patient to concentrate on recovery rather than financial worries

- If used to fund private care, this often results in quicker treatment and better facilities

Disadvantages

- Paying for something that you hope you will not use

- Premiums can be expensive depending upon the degree of cover required

- Will not cover pre-known conditions

Branch - Physical places customer visits for counter transactions, using computerised facilities e.g. ATM, Offers additional facilities such as advice

Advantages

- Opportunity to build a relationship developing trust and brand loyalty

- Transactions can be conducted there and then

- Additional services such as advice can be offered

- Gives the customer a high level of confidence

Disadvantages

- Need to travel to a branch which is likely to incur travel costs, e.g. parking or fares for public transport - Restricted to bank opening hours - May be long queues plus travel time, making the process time consuming

The use of the internet to carry out banking transactions

Advantages

- Available 24/7

- High degree of privacy

- Convenient

Disadvantages

- Takes time at the beginning to set up or apply for

- Not suitable for cash withdrawals

- Increased risk due to cyber crime

- If just an online account, the facilities may be limited 

When transactions are carried out over the telephone

Advantages

- Convenient, especially to access basic functions such as checking a balance

- No additional charges

Disadvantages

- Full access may be limited to set hours

- Call centres and automated telephone systems can frustrate customers

- Higher risk of fraud and identity theft

The use of mobile devices such as mobile phones and tablets to conduct financial transactions

Advantages

- Convenient

- Available 24/7

- No additional charges

Disadvantages

- May need to download specific apps to access mobile banking for a particular bank

- Higher security risk due to increased risk of loss or theft of mobile devices

- Can be prone to hackers sending texts asking for bank details

The use of the postal service to carry out paper-based financial transactions

Advantages

- Traditional method that many customers will feel comfortable with

- Does not require any additional technology or devices

Disadvantages

- Can be slow due to the postal system

- Post can get lost

• The FCA is an independent organisation with a remit to regulate the actions of 

providers of financial services.

• It is funded by membership fees charged to financial service providers.

• The organisation’s work focuses on three key areas:

      • authorisation – permitting financial service providers to trade

      • supervision – ensuring procedures and practices are in the interest of the consumer

      • enforcement – using powers to ensure standards are maintained.

• The FOS is an organisation appointed by the government to represent the 

interests of the consumer in disputes with financial service providers.

• It is funded by compulsory fees charged to all regulated financial institutions plus 

additional fees when actions are taken against an institution.

• The FOS becomes involved in disputes only if they cannot be satisfactorily sorted 

between the consumer and the financial institution prior to involving the FOS.

• The FSCS is the organisation in the UK that will pay compensation to a consumer 

of financial services if the service provider is unable to.

• The FSCS, for example, protects all savers in banks and building societies up to 

£5,000, i.e. if the financial institution goes bankrupt the savings will be refunded 

by the FSCS.

• The OFT is a government organisation that was established to regulate all 

markets, including financial markets.

• The OFT’s aim was to encourage fair practices and healthy competition between 

financial institutions.

• Since 2014 responsibility for financial institutions has been passed to the FCA.

• These are laws passed by the UK government to enforce the regulation of any 

firm offering credit to consumers.

• Any firm offering credit, for example leasing, hire purchase agreements or credit 

cards, must be registered with the FCA.

• This is an organisation, run by charities, that offers advice on a wide range of issues both financial and non-financial. • Advice is offered at physical centres as well as online and via email and telephones. • Financial advice covers areas including, debt, benefits, banking, pensions and insurance.

Advantages

- Free service

- Offers face to face as well as online and telephone advice

- Wide range of areas covered

Disadvantages

- Trained volunteers are not necessarily professionals in financial issues and therefore knowledge may be limited

• IFAs are professionals who offer independent advice to their clients on financial matters including savings, investments, mortgages and pensions.

Advantages

- Advice is offered by professionals in the field

- Services offered are regulated by the FCA and FOS

- Advisers will take time to understand an individual’s full financial situation

Disadvantages

- Services will be charged for

- Advice offered is not guaranteed to be 100% up to date or unbiased

• These websites collate prices for similar goods and services within an industry allowing consumers to make comparisons easily and find the best deals.

Advantages

- Easy to access 24/7

- Free service

Disadvantages

- Not guaranteed to be 100% up to date, accurate or unbiased

- Do not always cover all of the available options

- Potential for bias

• This is a government organisation set up to offer free and impartial financial advice in the UK.

Advantages

- Government-funded therefore advice is free and impartial

- Covers a wide range of financial matters

Disadvantages

- Advice is only available online or over the telephone – no physical presence

- Can take time to find and understand the exact advice that is being searched for

- Advice can be generic rather than personal

• This is a professional who offers independent advice on how best to manage debt.

Advantages

- Advice is offered by a professional who specialises in debt management

- Services offered are regulated by the FCA and FOS

Disadvantages

- Services will be charged for

- Advice will focus just on debt management rather than the whole package of financial concerns

• This is a government organisation that allows an individual to declare themselves bankrupt while agreeing to pay all or part of the money they owe to creditors through an insolvency practitioner.

• Regular payments are made to the insolvency practitioner who then spreads this across the creditors deciding how much to pay each one.

Advantages

- Helps manage debt repayment with regular payments making budgeting easier

- Independent advice, without bias

Disadvantages

- Set up and handling fees are charged for the service

- Will affect future credit ratings

Money used to set up a business. Long-term investment. Examples of capital income:

Loan – money lent to a business by an investor such as a bank. The business will pay back the loan with interest, usually in monthly instalments over a few years. 

Mortgage – loan usually used to buy property, such as a business premises. The mortgage will be secured against the property purchased. The business will pay back the mortgage with interest usually over 25 years.

Debentures – a type of bond issued by large companies to raise money. Investors receive interest on their loan which is repaid in full by the company on an agreed date.

Owner’s capital – the owner invests their personal savings in the business. The owner may be a sole trader or a partnership.

Shares – issued by the company to shareholders who own the business. As investors in the business, shareholders may receive a dividend.

Income received by the business on the sale of its goods and services. Examples include:

Cash sales – through over the counter transactions

Credit sales – through sales using a method of credit

Rent received – when a business rents out a property it owns

Commission received – when a business acts as an agent for another business and receives a percentage of every sale

Interest received – money earned on savings or lending

Discount received – when a business pays a reduced price for goods or services

Capital expenditure are assets - capital items - that the business plans to use over a long period of time. Two types of assets: non-current (tangible) and intangible. Examples include:

Non-current assets:

Land, Buildings and premises, Machinery and equipment, Vehicles, Fixtures and fittings

Intangible assets: Non-physical items and may be difficult to value and sell

Goodwill, Patents, Trademarks, Brand names

Depreciation - Some assets such as machinery and office furniture lose their value over time. Depreciation is used to show the fall in value in the business’s accounts.

•Straight-line depreciation reduces the value of an asset by the same amount each year over its life.

•Reducing-balance depreciation shows the loss of value as being higher during the early years.

Day-to-day costs incurred in running a business. Examples include:

Rent – only paid by businesses that do not own their own premises, Rates – business tax on non-domestic property used to fund local council services,

Heating and lighting – payment for services such as gas and electricity, Water – payment for supply of water to premises, Insurance – businesses are legally required to take out buildings, contents, public liability and employer’s liability insurance,

Administration – paperwork required to run a business, Telephone – administrative cost, Postage – administrative cost, Stationery and printing – administrative cost, Salaries – annual sum of money, divided into equal monthly payments, paid to an employee, Wages – hourly rate paid to an employee, Marketing – costs related to promoting and selling goods and services, Bank charges – bank account fees payable on every transaction, Interest paid – on mortgages and loans, Straight-line depreciation, Reducing-balance depreciation, Discount allowed – customers receive money off goods either as an incentive to purchase or buying in bulk 

Inventory – raw materials, finished products, supplies required to run a service business

Retained profit - Some of the profits are kept in the business and not distributed to the owners or shareholders. The money is retained for reinvestment in the business.Does not have to be repaid and no interest payable. Not available to new businesses and many companies may not make sufficient profits.

Net current assets - This is money that is immediately available to the business, e.g. cash, which can be used to cover day-to-day expenditure. It also includes assets that can quickly be turned into cash, such as invoices that are due for payment.A quick way of raising money. Selling off inventory reduces the costs related to holding it. May have to accept a lower price for its inventory.

Sale of assets - Vehicles, buildings, machinery or equipment can be sold to give the business cash. It may take time to sell assets and sometimes the amount received may be lower than their actual value.A good way of raising funds from assets that are not needed any longer. Not all businesses have surplus assets that they can sell. May be a slow method of raising funds as some assets may take time to sell. 

Owner’s capital - Existing investors put more money into the business. This is a long-term option, with few additional costs. Limited by the funds available to the owners. If the business is owned by shareholders, then they will expect bigger dividends in the future.

Loans - This is money borrowed at an agreed rate of interest. It tends to be a medium- to long-term source of finance. Repayments are spread over a period of time allowing the business to budget. Interest payments can be high and lenders might want security on the loan. There are two types of loans: fixed-interest loans, and variable-interest loans where the rate of interest changes over the term of the loan. Loans increase the volume of cash outflows, and they impact on working capital.#

Crowd-funding - This involves raising funds online by asking people to invest a small amount of money each. Rewards are offered, or the investment is in effect an advance order for the product or service at a discounted price. This tends to be a short-term source of finance.The funds may be promised but are not always committed.

Debt factoring - This involves selling the business’s invoices to a third party. The debtor now owes money to the factor agency and they will pursue payment. This is a short-term funding option. It impacts negatively on profit margins.

Mortgages - This is a loan that is secured on a property. The business will own the property after the last payment has been made. It is a long-term source of finance. The business has immediate use of the property with the payments spread over time. It is expensive compared to cash and if repayments are missed the property can be repossessed. The business needs to budget for the continuing maintenance of the property.

Venture capital - This is funds from a professional investor in return for a share of the ownership of the business. The investor can offer business guidance and support, and may have good contacts within the business community. However, they will want to be involved in the decision making, which may result in loss of management control. They may expect quick returns on their investment. Venture capital tends to be a long-term investment.

Hire purchase - This allows the business to obtain assets by paying a deposit then making regular payments. Unlike leasing, the asset is owned by the businesses once all of the payments have been made. This is a medium-term source of finance. It is relatively expensive compared to buying in cash. It increases the volume of cash outflows, and impacts on working capital.

Leasing - Leasing allows the business to obtain assets (like renting) without paying a large lump sum. It is arranged through a finance company. Set repayments are made. It is a medium-term source of finance. The business can have modern equipment and the payments are spread out. Leasing can be expensive and the asset never belongs to the business unless an ‘option to buy’ is included in the agreement. Leasing increases the volume of cash outflows and impacts on working capital.

Trade credit - The business has use of goods immediately and pays the supplier 30–90 days later. It is a short-term source of finance. The business is able to sell on the goods before they pay for them. It is good for cash flow and no interest is paid. The business will not receive cash discounts for prompt payment and it will need to pay on time. It requires robust financial records to keep track of outstanding debts.

Grants - Grants are government payments to businesses which are given with conditions (e.g. creating jobs or locating somewhere). They do not have to be paid back, but only certain businesses may be able to access the grants. Grants may not be available in the future, and there are additional audit requirements.

Donations - Donations are important for non-profit organisations such as charities, community groups or sports and social clubs. They can be difficult to plan and budget for. They may be affected by the state of the economy and also by negative publicity.

Peer-to-peer lending - Small investors use an organisation to help them find businesses to invest in and that organisation takes a fee for matching the investor to the business. This is a long-term funding option. It is useful for businesses that cannot secure finance from traditional financial institutions. Interest payments may be higher than those charged by financial institutions.

Invoice discounting - The business borrows against the value of its outstanding invoices for a fee. This is a short-term option with the advantage that the business is still managing the relationship with the customer. The biggest disadvantage is the loss of some profit. This differs from debt factoring where the business 'sells' its outstanding invoices to a third party.

Cash sales - Goods and services paid for at the time of sale usingcash or debit card

Credit sales - Goods and services paid for following purchase,e.g. by credit card

Loans - Money borrowed by the business from an externalsource

Capital introduced - Funds invested in the business by the owner or shareholders

Sale of assets - Money received from sellingan asset, e.g. machinery

Bank interest received - The business may store money in a savings account on which the bank will pay interest

Cash purchases

Credit purchases

Rent

Rates

Salaries

Wages

Utilities

Purchase of assets

Value Added Tax (VAT)

Bank interest paid

Unit of account - Money can be used to place a value on goods and services. You exchange money for an equivalent value in goods and services – this is the price. In the UK, the unit of account is shown in pounds and pence.

Means of exchange - Money is used to sell, buy or trade goods and services. Money makes it simple to do this; otherwise you would have to swap products or services in order to trade (more commonly known as bartering).

Store of value - Money has a value. It can be stored, for example in a bank, and then used in the future to buy goods and services.

Legal tender - Money is the legal means you use to pay for goods and services. Legal tender is the national currency of a country. It is the official method of payment. 

Personal attitudes - •Your attitudes towards risk and reward. Will you take chances to make money, or do you prefer to play safe and save? •How you balance the way you borrow, spend and save.

Life stages - As you go through each of the five main life stages – childhood, adolescence, young adult, middle age, old age – your financial priorities and needs will change.

Culture - Your background or culture, including religious beliefs or ethical principles, may shape your view of money.

Life events - Major life events such as moving home or being made redundant can affect your view of the importance of money.

External influences - These include events outside your control, such as the state of the economy or the availability of jobs in your area.

Interest rates - Interest rates can have a big impact on whether you decide to save or borrow. Low interest rates are good for borrowers but not for savers, while high interest rates make money expensive to borrow but savers receive more interest on their deposits. 

Why plan expenditure

Avoid getting into debt

Control costs

Avoid legal action and/or repossession of goods or your home

Remain solvent

Maintain a good credit rating

Avoid bankruptcy

Manage money to fund purchases, Generate income and savings

Set financial targets and goals, Provide insurance against loss or illness, Counter the effects of inflation

Cash – notes and coins •Accepted in most places •Can be stolen or counterfeited •Cannot be used for online purchases

Debit card – issued by banks •Payment is taken directly from the cardholder’s bank account •Secure method, no need for cash •‘Contactless’ cards can be used for small amounts •Small risk of cardholder overspending •Can be used for online purchases which may encourage overspending •Risk that card details may be hacked

Credit card – issued by banks and financial companies •Goods and services are paid for directly by the card issuer •Cardholder receives short  interest-free period, usually a month, on amount borrowed •Card issuer charges interest on the balance outstanding after the interest-free period •Risk of cardholder overspending and getting into debt •Can be used for online purchases which may encourage overspending •Risk that card details may be hacked •Some retailers charge a fee for payments made by credit card

Cheque – issued to bank customers •A written order to pay a sum of money from a bank customer’s account to another person or organisation (payee)•Fairly secure method as only the payee can cash the cheque •Once the payee cashes the cheque, it takes at least three days for the amount to be available in their account •Although still widely used, some retailers no longer accept cheques

Electronic transfer – direct payment •Payment is made directly between bank accounts •Easy to set up and use •Transfer is instant •Bank details of third party must be correct; otherwise transfer will not take place

Direct debit – an instruction to pay •An instruction to a bank authorising a third party (payee) to collect varying amounts of money from the person’s bank account (payer) •Simple way to pay regular bills – the amount is deducted automatically from the payer’s bank account •Payee may vary amounts making it difficult for payer to plan expenditure •Payer must have sufficient funds in their bank account to cover the payment

Standing order – an instruction to pay •An instruction to a bank from an account holder to make regular set payments to a person or organisation •Payments do not change, allowing the payer to plan their expenditure •Payments are made automatically and continue until cancelled by the payer •Payer must have sufficient funds in their bank account to cover the payment

Prepaid cards – cash loaded onto a card which can be used to make purchases •Widely accepted by retailers •Cannot spend more than the amount of cash on card – may help with control of expenditure •If lost or stolen, the cash on the card is lost •Some cards have set-up and transaction fees

Contactless cards –  payment is made when card touches terminal •Fast, easy and secure •Usually for amounts less than £30 •Cardholder can lose track of how much they are spending

Charge cards – issued by financial companies •A short-term, interest-free loan. Cardholder can buy goods and services without paying for them immediately but balance must be paid in full at end of every month •Annual fee is payable; charge card companies require customers to have a certain level of annual income

Store cards – issued by retailers •Similar to a credit card but only accepted by store that issues it •Cardholders may benefit from discounts and loyalty schemes•Interest payable on balance unless paid off in full each month •Risk of cardholder overspending and getting into debt

Mobile banking – online banking using an app •Bank account holder manages their account through their smartphone or tablet •Allows account holder to check balances, make payments and transfers •Secure, can be used wherever the account holder has access to internet •Service limited compared with internet banking •May not be able to access the full range of banking services

BACS and Faster Payments – electronic payment from one bank account to another •BACS – takes three days to transfer payment from one account to the other•Faster Payments – transfer takes place within two hours •Usually no fee

CHAPS – electronic payment from one bank account to another •Guaranteed same-day transfer as long as bank instructed by a certain time •A fee is charged