Like any good business a bank has a range of products to cater for the needs of a variety of customers. The same is true of building societies and other providers of financial services. It is important for individuals to research a variety of different banks and account types to ensure they get an account which suits their needs.

Most bank account owners will need to borrow money at some point in their life. Whether it be for a holiday, a house or a weekend away. This is known as borrowing and one of the key services provided by banks. There are a variety of ways we can borrow money including:

Overdraft

This allows you to borrow money you don't have from a current account. It can be useful to meet short term needs for example a shortage of cash just before payday.

Advantages

Interest only charged on balance overdrawn

Can be paid off without charge

Can be pre arranged and only used when needed

Short term solution to cash flow issues

Overdraft is cleared when funds are deposited

Disadvantages

Can have high interest charges

Penalty charges for going over limit

Can encourage overspending

Personal Loan

This gives you the chance to borrow a set amount of money to be repaid in regular installments with interest. These are often used for high costs such as new cars or home improvements.

Advantages

Regular repayments help budgeting 

Only offered to those who meet certain criteria

Useful for paying for higher priced items and spreading the cost

Disadvantages

Often secured against an asset which is put at risk if repayments are not made

Not suitable for short term loans

Hire Purchase

This allows you to have use of an item immediately and pay for it through regular installments. The item remains the property of the seller until it is fully repaid. It is often used for one-off purchases such as TVs or Fridge/Freezers.

Advantages

No need to save up for large value items

Cost spread over a period of time

Credit is secured against item

Allows a customer to buy something now they could not otherwise afford

Payments fixed making budgeting easier

Can often borrow more than through regular loans

Disadvantages

Interest rates can be high

Seller owns asset until final payment is made

Agreements can be deceiving (balloon payments)

Mortgages

This is a long term loan to fund the purchase of assets, normally paid back over a long time for example over 25 years. It is often secured against an item such as a house. It is suitable for items which hold value and cannot normally be bought outright.

Advantages

Cost of high value items can be spread over a long period of time

Interest rate can be fixed or variable reducing fluctuations 

Disadvantages

Variable interest rates can fluctuate making budgeting difficult

Failure to make repayments may lead to loss of home and negatively affect credit rating

Penalties may be applied to early repayment

Credit card

Goods are paid for by card and can be paid for either at the end of a set period which is normally a month, when a statement is issued or over time with the card provider stating a minimum payment each month which is usually a percentage of the balance on the credit card. It is often used to but items of a higher price which as holidays and spreading the cost out over a longer period of time. They can also be useful when expenses are higher than usual. They are seen as very convenient and often safer than cash payments.

Advantages

Repayments can be altered above the minimum rate allowing quicker repayment and less interest charges.

Can be used for a wide variety of items depending on limit.

Provides some protection on purchases.

Disadvantages

Can encourage overspending on unnecessary purchases leading to debt problems

Often higher interest rates than loans

Payday Loan

This is a short term source of finance used to bridge the gap between now and next receiving a wage. It is normally only available for very small amounts will very large interest, typically it should only be used in an emergency to meet cash shortages.

Advantages

Easy to secure

Solve immediate short term cash flow issues

Disadvantages

Very high interest rates 

May cause unmanageable debt

Short repayment time

Impacts credit score

Charges added if payments are missed.

It is beneficial for us to set financial targets and goals as it will...

Allow us to look carefully at our expenditure.

Give us a clear plan on how much we can spend each month.

Give us an incentive towards our saving and spending attitude.

When you earn more money than you need to cover your expenditure it can be wise to take advantage of opportunities to save or invest to increase future wealth. Just like borrowing there are a variety of  saving/investment methods.

Individual Savings Accout (ISA)

There is a savings account where the holder is not charged income tax on the earnings received.

Advantages

Tax is not charged on interest earned

Can have higher interest rates

Everyone in the UK aged 16+ gets an ISA allowance at the start of the year.

Low risk investment

Disadvantages

Limit set on the annual amount that can be paid in currently £20000.

Notice required to withdraw money.

Withdrawals can lead to penalties.

Deposit and savings Account

These are accounts where interest is paid on the balance and normally the holder needs to give notice before withdrawing funds.

Advantages

Interest is earned on positive balances

Regular deposits of a set amount required

Disadvantages

Interest earned is taxed

Saving interest likely to be lower than borrowing interest

Premium Bonds

A government scheme that allows individuals to save up to a set amount by buying bonds. The bond holder does not receive interest on their savings but each bond is placed into a regular draw for cash prizes.

Advantages

Chance of winning substantially more than could be made from interest

Spreads risk across a range of markets

Disadvantages

Some or all of investment can be lost

Government reviews maximum investment amount yearly

Can lose money due to inflation

Bonds and Gilts

These are fixed term securities where the lender (the individual) lends money to companies and governments in return for interest payments. The money is invested for a specified period of time.

Advantages

Regular fixed interest returns

Regular income

Spreads risk across a range of markets

Know when you get investment back

Can be sold at any time

Disadvantages

Risk of losing value if the investment fails

Interest payments may not be received if the issuer cannot make payments.

Shares

Shares involve investment in a business in return for equity, i.e. the shareholder becomes a part owner of the business. The shareholder will receive dividends from the company's profits and will also want the value of the shares to increase.

Advantages

Fluctuation in prices can lead to a high reward

Dividend payments can be received alongside increase in share value

May have additional benefits including discounts and special offers

Can be a pastime for some investors

May return more than a savings account

May receive bonuses

May receive discounts on companies products/services.

Disadvantages

Market fluctuation leads to high risk

There is no guarantee of any reward of return on investment

Pensions

These are long-term savings plans where individuals make regular contributions called premium payments, throughout their working life. This is then repaid as either a lump sum, regular payments or a combination of the two upon retirement. Pensions can be state, company or private.

Advantages

Encourages individuals to save throughout their working life for retirement

Employer contributions can boost individual payments in certain jobs

Regular payments are deducted directly from wages

Disadvantages

Can be difficulty when switching jobs/schemes

Final outcome can be difficult to predict

Can't be easily altered

To save or invest we must be disciplined in the use of our current wealth in order to gain greater wealth in the future. 

Saving

When saving money we want to put any extra money we have into a safe place where it grows as it gains interest. If you are saving your money it is often with a view of buying a good. Many parents will begin saving when a child is born to help pay for university fees etc... of children in the future, or to support children in other ways as they grow up.

Risks

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

Inflation can affect the future value of money saved

Rewards

Interest Payments

Financial Security/Peace of mind

Investment

When investing money we make a commitment to a project or business in the hope that it is successful and a healthy return is made on the investment. This often involves buying shares in a company.

There are risks and rewards involved with both saving and investment.

Risks

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

No guarantee of a return

Rewards

Potential for extremely high return on investment

Can be an exciting activity to be involved in

Insurance is a form of protection. Speciific items as well as individuals and pets can be insured. Insurance policies cover the cost of loss, damage or illness up to prearranged levels in return for regular payments called premiums. The list below shows some of the types of insurance which are available.

• Car

• House

• Home and Contents

• Life assurance and insurance

• Travel

• Pet

• Health

• Mobile Phone

If an item is deemed to have a worth or where there is a risk of financial loss insurance can be taken out. The premium paid will vary depending upon the amountr of cover provided and the amount of risk as assessed by the insurance provider. Types of insurance are outlined below:

Car

It is a legal requiremnt to insure any car that is on the road, this covers theft as well as accidents. The degree of cover will vary depending upon whether the policy is third party or fully comprehensive. It protects the driver, passengers and other road users.

Advantages:

Meets legal requirments, protects against theft or damage, protects against damages caused to a third party.

Disadvantages:

Premiums can be high, Excess charges must be paid

Home and Contents

Home insurance covers the physical building, for example against fire. Contents insurance covers the physical items in the house including electrical equipment, furniture and personal items. If there are individual items of high value, they must be specified on the poilicy. Items can be insured when a person is using them away from home.

Advantages

Protects against damage which could be otherwise too expensive to pay, Contents can be protected inside and outside the house.

Disadvantages

Premium payments, Some items cannot be replaced due to a value beyond the monetary value.

Life Assurance and Insurance

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 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. Mortgage lenders often insist upon life insurance for the same period as the mortgage to secure repayment of the mortgage if the holder dies while monies are still owed.

Advantages

Provides peace of mind to families following bereavements

Disadvantages

No payment is made if the policy holder lives through the contract

Travel Insurance

This protects individuals or groups while abroad. Policies can be purchased to cover a specific trip, multiple trips or for all trips within a year. Cover generall includes loss or theft of property, illness, cancellation and emergencies up to predetermined limits. Specific types of holiday or activities may require additional cover due to the level of risk associated.

Advantages

Provides cover for belongings whilst travelling, covers medical costs whilst abroad, protects against delays/cancellations.

Disadvantages

Individual may have to pay upfront for replacement and then claim back

Pet

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 fees, can allow pets to receive treatments rather than get put down.

Disadvantages

Additional expense

Health

This covers individuals, families or employees against medical expenses including assessments, treatments and loss of earnings. In the UK the National Health Service provides free medical care but individuals may wish to take out insurance to receive payments if, for example, time is spent in hospital, or to receive treatment. Routine visits to the dentist or optician can also be fully or partially covered.

Advantages

Some compensation is provided if ill which can reduce stress, treatment can be received quicker and often in better facilities when used to fund private care.

Disadvantages

Does not cover pre-known conditions,Premiums can be expensive.

When looking for bank accounts, loans or car/health insurance it is a good idea to make use of Price comparison websites. These are websites which allow you to enter information about your finances and requirements and return a series of results for you to analyse. 

Advantages

Helps the consumer see a wide range of accounts.

Can save time rather than researching each offer individually

Accessible 24/7 from anywhere in the world

Results can be ranked or easily compared

Provides up-to-date information

Disadvantages

Requires internet/technology

Can be biased towards certain businesses

Can be difficult to read through all results as so many returned

Can't ask individual questions