Financial services are economic services tied to finance provided by the finance industry, which encompasses a wide range of institutions. They include the commercial banks, credit unions, and other financial institutions that accept savings deposits and make loans, as well as investment firms and insurance companies. The financial services sector is important to the economy because it allows individuals with money to save and invest it, and also provides a means for those with little to borrow and purchase goods and services.
The financial services industry is heavily regulated to protect consumers. This includes rules on clear documents, fair treatment of customers, and procedures for handling complaints. These regulations help prevent crimes like money laundering, insider trading, and fraud. Many of these services are offered by large, multinational corporations with global operations. Others are offered by smaller, independent financial institutions, such as private equity firms and angel investors who provide venture capital to small startups and young companies in exchange for ownership stakes and profit participation.
Another popular category of financial service is insurance, which provides protection against risk. This is typically done through a monthly or annual payment called a premium. This payment gives the buyer peace of mind in the case of unforeseen or unavoidable events that could cause significant financial loss. Common types of insurance are health, car, life, and home insurance. Other kinds of insurance are reinsurance, which provides coverage to the original insurer in case of a loss, and derivatives, which provide options for investors to take on more risk or diversify their portfolios.