Banking Basics: Accounts and Payment Methods

Current Accounts

• Basic Account: For individuals with limited or no credit history, offering basic transaction management, no overdraft.
• Standard Account: Most common type, includes overdraft, direct debit, and debit card access.
• Packaged Premium Account: Offers extra benefits (e.g., travel insurance, discounts), often with a monthly fee.
• Student Account: Tailored for students, frequently includes interest-free overdrafts.

Payment Methods

• Cash: Physical money, simple and widely accepted.
• Debit Card: Linked to bank account, secure and traceable, allows direct payments.
• Credit Card: Borrowed money, interest if not repaid in full.
• Cheque: Written instructions for transferring funds, less common now.
• Electronic Transfer: Quick, secure online/app transfer of funds.
• Standing Order: Fixed regular payments (e.g., rent, subscriptions).
• Direct Debit: Variable payments initiated by the payee (e.g., utility bills).
• Pre-paid Card: Loaded with a set amount, controlled spending.
• Mobile Banking: Banking via smartphone apps, convenient on-the-go transactions.
• Contactless Payment: Tap-and-go payments, limited to small amounts.

Borrowing Types

• Overdraft: Short-term borrowing from your account, fees/interest may apply.
• Personal Loan: Fixed amount for personal use (e.g., car, wedding), repaid with interest over time.
• Hire Purchase: Buying an item through monthly installments, ownership transfers upon final payment.
• Mortgage: Long-term loan for property, repaid over decades.
• Credit Card: Flexible borrowing up to a limit, interest applies if balance is unpaid.
• Payday Loan: Small, short-term loan with high-interest rates, risky if not repaid promptly.

Insurance Types

• Car Insurance: Covers theft, accidents, and damage, legally required.
• Home and Contents Insurance: Covers property and belongings.
• Life Insurance: Provides financial support to family after death.
• Travel Insurance: Covers medical expenses, lost baggage, and trip cancellations.
• Health Insurance: Covers private medical treatments.
• Pet Insurance: Covers vet bills for pets.

Financial Institutions

• Bank of England: UK's central bank, regulates monetary policy.
• Banks: For-profit institutions offering loans, savings, and mortgages.
• Building Societies: Member-owned, offer mortgages and savings.
• Credit Unions: Non-profit, provide loans and savings.
• Insurance Companies: Provide various types of insurance.
• Pension Companies: Manage retirement savings.
• Payday Loan Companies: Offer short-term, high-interest loans.

Savings and Investments

• Individual Savings Accounts (ISAs): Tax-free savings options.
• Deposits and Savings Accounts: Earn interest, accessible funds.
• Premium Bonds: No interest, chance to win tax-free prizes.
• Shares: Investment in companies, varying risk.
• Pensions: Long-term savings for retirement.
• Bonds and Gilts: Fixed interest investments, generally safer than shares,
• Property: Long-term investment in real estate.

Additional Financial Concepts (From the Provided Supplement)

• Current Liabilities: Debts due within 12 months (e.g., overdrafts, trade payables)
• Depreciation: Asset value loss over time.
• Trade Payables: Amount owed to suppliers.
• Inventory Turnover: Frequency of inventory sale and replacement.
• Ratio Analysis: Methods for analyzing financial data.
  • Gross Profit Margin: Profitability before expenses (Gross Profit / Revenue * 100)
  • Net Profit Margin: Overall profitability (Net Profit / Revenue * 100)
  • Current Ratio: Measures liquidity (Current Assets / Current Liabilities)
  • Liquid Capital Ratio: Similar to Current Ratio, but excludes inventory (Current Assets - Inventory) / Current Liabilities)
  • Inventory Turnover: Efficiency of inventory management (Average Inventory / Cost of Sales * 365)
• Break-Even Point: Revenue equals expenses, no profit or loss (Fixed Costs / (Selling Price per unit - Variable Cost per unit))
• Cash Flow Forecasts: Predict future cash inflows and outflows.
• Statements:
  • Statement of Comprehensive Income: Profit or loss over a period, showing revenue, expenses, gross/net profit.
  • Statement of Financial Position: Snapshot of assets, liabilities, and equity.
• Key Components of Statement of Financial Position:
  • Assets: Tangible (like property, equipment) and current (cash, inventory, receivables).
  • Liabilities: Debts & obligations.
  • Equity: Owner's investment, retained profits.