Chapter 8: Financial Services for Individuals and Households
Financial Institution
A Financial Institution provides financial services for its customers, including storing their money, managing payments, and providing loans.
Types of Financial Institutions in Ireland
Commercial banks, Credit Unions, Building societies, The Post Office (An Post)
Commercial Banks
A commercial bank is a bank that offers financial services to the general public and to businesses
Services that Financial Institutions offer
- Current accounts
- Deposit accounts
- Bill payments and money transmission services
- Internet and telephone banking
- Credit cards
- Foreign exchange services
- Loans
Types of Bank Accounts
Current Accounts - are offered by the commercial banks and building societies. They are used for day-to-day banking needs
Current Accounts are a convenient way to
- Receive your Income
- Store money safely
- Pay for Goods and Services
- Pay bills and transfer money to other people
How Current Accounts are used
Current account holders receive regular statements detailing all transactions. Amounts paid into the account are known as lodgements. Amounts paid out of the account are called withdrawals
Opening a current account
The following are required to open a current or deposit account
Photographic proof of identity - Passport, driving licence or EU National Identity Card.
Proof of address - a (recent) utility bill such as an electricity, gas or telephone bill
A PPSN (personal public service number) - this is provided to all citizens by the government
Deposit/savings accounts - are offered by the commercial banks, building societies, An Post and the credit unions. They are used to save money
Lodging money into an account
Withdrawing money from an account
Money is lodged to an account in various ways, i.e.:
Money can be withdrawn from your account in a number of ways:
- By the account holder lodging money over the counter or using a self-service machine in the bank branch. A lodgement slip may be used
- By an employer transferring wages or salary directly into the account (via a system called Paypath)
- Pensions or benefits paid directly into a current account
- By a third party transferring money electronically from their account to the account holder's
- Using an ATM to withdraw cash with an ATM card or a debit card
- Paying for items using a debit card
- Withdrawing cash at a bank using a withdrawal slip; you will sometimes need photo ID for this
- Direct Debit
- Standing Order
- Credit Transfer
- Cheque (a personal cheque or a bank cheque, known as a bank draft)
- Fees and charges
ATMs
ATM stands for automated teller machine. Current account holders are given an ATM card with a PIN and they can use this for withdrawing cash and for other banking services
PINs
Personal identification number. This is a four-digit number associated with your ATM card, debit card or credit card that you will need to type into the ATM to prove that the card is yours.
Debit Cards
Debit cards allow consumers to pay for goods and services without using cash. They provide electronic access to the money in your bank account
Most debit cards conatin a small electronic chip amd you enteryour 4-digit PIN into the card machine to authorise its use. This is known as a 'chip and PIN system'.
Contactless payments are an even faster way to use debit cards to pay for items that cost €30 or less without having to key in your pin
Standing Order
A standing order is an instruction to a financial institution to pay a fixed amount to a person or organisation on a regular date
Credit Transfer
A credit transfer is a once-off instruction from a current account holder to their bank to transfer an amount of money to another account.
Cheques
Current account holders may request a chequebook. A cheque is a written imstruction from an account holder to their bank to pay a specific amount of money to a named person or business
Bank Draft
A banker's draft, also known as a banker's cheque, is like asking a bank to write a cheque for you. You give them your money and they give you a cheque for that amount to give to the person you're paying
Direct Debit (DD)
A current account holder gives permission to another person or business to request the withdrawal of variable amounts from a current account
Bank Statements
A current account holder will receive a bank statement from their bank on a regular (monthly or quarterly) basis. This might be on paper through the post or electronically. The statement shows all transactions made during the designated time period
Internet and Telephone Banking
Internet and telephone banking are useful and convenient ways for customers to pay bills, check their account balance, order statements and transfer money to to other accounts
Advantages of Internet and telephone banking
- Convenience - banking when it suits the customer, 24 hours a day and 365 days a year
Disadvantages of Internet and telephone banking
- Higher interest rates - Because online banks have fewer expenses, such as wage bills and costs associated with premises, they can afford to offer higher interest rates to people saving money
- The closure of small branches, particularly in rural areas
- Reductions in the number of people employed by financial institutions
- The security risks of online banking
Be secure when using online banking
When you log in to your bank account, check that you see a little padlock to the side of the web address.
The address will change to start with *https:// - the 's' stands for secure
Criminals use fake emails and fake websites as a a way of tricking people into giveing away passwords and bank deetails. Thsi is known as Phishing
Deposit accounts offer a way of saving. Money in deposit accounts is safe and secure and will also earn interest. Opening a deposit account is similar to opening a current account
Credit Cards
Buying on credit means 'buy now pay later' and credit cards are designed to be used in this way. The benefit to the cardholder is that they do not need money available to pay for goods and services at the time of purchase
The Credit Card Statement
- The statement sets out all the items purchased during the month, as well as any balance due from previous months.
- If the bill is paid in full by its due date no interest is charged. However, if the amount due is not paid in full the bank willl charge the cardholder interest on the outstanding amount
The golden rule with credit cards is do not spend more than you can afford to repay at the end of each month
Charge cards
- A charge card is similar to a credit card since it involves buy now pay later. However, unlike a credit card, the account must be settled when the statement arrives. Since the bill must be cleared each month, no interest is charged to the customer. Instead the customer pays an annual fee to the card provider for use of the charge card
Foreign Excahnge
When you visit countries outside the euro area you need to get the currency that is legal tender for that country, e.g. for a trip to the USA you would need US dollars
An exchange rate is the price at which a currency can be exchanged
- When converting euro to foreign currency, multiply € by the 'sell' bank rate
- When converting foreign currency into €, divide by the 'buy' bank rate
Loans
Individuals and households may also receive loans from financial institutions. A number of different types of loans are available to individuals and households including:
- Short-term loans - which will be repaid within 1 year (e.g bank overdraft).
- Medium-term loans - which can ave a repayment term of 1 - 5 years
- Long-term loans - which will not be repaid for *more than 5 years** (e.g mortgage)
The amount of interest you pay on loans can vary enormously and it is worth shopping around the different institutions for the best rates and terms
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