Coronavirus: investors should avoid knee-jerk reactions

Coronavirus is the number one threat to financial markets currently – but most investors should avoid knee-jerk reactions, affirms the CEO of one of the world’s largest independent financial advisory organizations.

Nigel Green, deVere Group chief executive and founder, is speaking out as global stock markets are rattled on fears of the potentially deadly Sars-like virus triggering major sell-offs.

The death toll has now risen to 81 and almost 3,000 people have been confirmed as infected, with 44 cases having been detected outside China, where it originated.

On Monday, the composite European Stoxx 600 fell 1.7% at the open, London’s FTSE 100 dropped 1.6%, while Germany’s Dax was 1.7% lower.  The slump followed a similarly dramatic decline in Asia overnight. The Shanghai Composite fell 2.7%, the Hong Kong Hang Seng lost 1.1%, and Japan’s Nikkei dropped 2%.

Mr Green says: “The Coronavirus is the number one threat to financial markets currently as global investors are becoming jittery on the uncertainty.

“But whilst this health crisis will inevitably hit some sectors, such as travel and retail, most investors who have a properly diversified portfolio should avoid knee-jerk reactions.  History teaches us that most issues of this kind have a short-term impact on stock markets.”

He continues: “Most investors should monitor the situation with their financial adviser and sit tight at present. But if it is still escalating next week, with much higher casualty rates, a more defensive approach might be necessary. 

“However, the cost and effort of making such a switch means you do not do it lightly, and more evidence is needed that the virus does pose a medium to long term risk to China and the global economy.”

Mr Green goes on to say: “But that said, this should serve as a wake-up call to all investors to ensure their portfolio is well-diversified across asset classes, regions, sectors, even currencies. 

“This is the best way to mitigate risks and the best way to be well-placed to take advantage of the opportunities when they occur.”

The deVere CEO concludes: “Stock markets tend to bottom with the peak in new cases during a public health issue of this kind, before rebounding.

Coronavirus is the number one threat to financial markets currently – but most investors should avoid knee-jerk reactions, affirms the CEO of one of the world’s largest independent financial advisory organizations.

Nigel Green, deVere Group chief executive and founder, is speaking out as global stock markets are rattled on fears of the potentially deadly Sars-like virus triggering major sell-offs.

The death toll has now risen to 81 and almost 3,000 people have been confirmed as infected, with 44 cases having been detected outside China, where it originated.

On Monday, the composite European Stoxx 600 fell 1.7% at the open, London’s FTSE 100 dropped 1.6%, while Germany’s Dax was 1.7% lower.  The slump followed a similarly dramatic decline in Asia overnight. The Shanghai Composite fell 2.7%, the Hong Kong Hang Seng lost 1.1%, and Japan’s Nikkei dropped 2%.

Mr Green says: “The Coronavirus is the number one threat to financial markets currently as global investors are becoming jittery on the uncertainty.

“But whilst this health crisis will inevitably hit some sectors, such as travel and retail, most investors who have a properly diversified portfolio should avoid knee-jerk reactions.  History teaches us that most issues of this kind have a short-term impact on stock markets.”

He continues: “Most investors should monitor the situation with their financial adviser and sit tight at present. But if it is still escalating next week, with much higher casualty rates, a more defensive approach might be necessary. 

“However, the cost and effort of making such a switch means you do not do it lightly, and more evidence is needed that the virus does pose a medium to long term risk to China and the global economy.”

Mr Green goes on to say: “But that said, this should serve as a wake-up call to all investors to ensure their portfolio is well-diversified across asset classes, regions, sectors, even currencies. 

“This is the best way to mitigate risks and the best way to be well-placed to take advantage of the opportunities when they occur.”

The deVere CEO concludes: “Stock markets tend to bottom with the peak in new cases during a public health issue of this kind, before rebounding.

“This is a worrying and serious situation and investors must be vigilant. They should remain properly diversified and remain in the market.”

“This is a worrying and serious situation and investors must be vigilant. They should remain properly diversified and remain in the market.”

Markets DISMISS Trump impeachment – but monitor China trade relations and Coronavirus

The bullish financial markets are indifferent to the Trump impeachment trial – more concerning is the U.S.-China trade deal and the Coronavirus, says the CEO of one of the world’s largest independent financial services and advisory organisations.

The comments from deVere Group chief executive, Nigel Green, come as U.S. President Donald Trump’s historic impeachment trial got underway on Tuesday in the Senate, with Democrats calling for his removal from office and Republicans determined to have him acquitted.

Mr Green says: “A major geopolitical event such as the impeachment trial of a U.S. President would, typically, send shock waves through financial markets.

“This has not been the case here. The seemingly relentlessly bullish markets have largely shown indifference to the impeachment process. 

“This is because investors see the likelihood of Trump being removed from the White House following a Senate trial as almost zero.”

He continues: “However, what is far more likely to cause market jitters in the coming weeks are vulnerable trade relations between the U.S. and China, the world’s two largest economies.

“U.S.-China phase one deal has stopped additional tariffs being imposed on each other’s goods.  However, it does not address serious structural issues of trade between two vastly different economies, one which has enormous state capacity. In addition, the sheer number of goods – amounting to $200bn –that China will need to buy from the U.S. could, ultimately, make the deal unworkable.

“The hard part is negotiations yet to come.”

Mr Green goes on to add: “Markets will also be weighing concerns regarding the spread of the Coronavirus that has afflicted hundreds in China so far – as hundreds of millions prepare to travel during the Lunar New Year period. It’s the largest annual human migration on Earth.

“The World Health Organisation is meeting on Wednesday to discuss the situation.  An upscaling of the threat could depress markets and hit consumer sentiment and spending.”

The deVere CEO concludes: “This bull market isn’t bothered about Trump’s impeachment trial. It will be closely monitoring other major issues, including the U.S.-China trade dispute – the far-reaching impact of which is likely to outlive Trump’s presidency.”

How to Get Ahead Financially: 7 Tips for Success

If you’re living paycheck to paycheck and can’t get ahead, you’re in the company of 78% of workers.

It’s frustrating to constantly feel like you’re playing financial catch-up. The stress of being short on money or not being able to reach your financial goals can make you want to give up.

But taking small financial steps in the right direction gets the ball rolling. Those actions eventually help you gain traction and improve your financial standing.

Instead of ignoring your financial situation or accepting your money problems, put these seven tips into action.

1. Start With a Budget

Taking charge of your financial situation requires a plan. That comes in the form of a budget.

You need to know your exact income, expenses, and spending habits to make better use of your money.

Budgeting apps can help you, but you can also create your own simple budget on paper or using a spreadsheet program. 

Start by adding up all the money that comes in each month. That could include wages from your job, child support, interest, and other investments. 

Next, write down each individual bill or recurring expense you have. This includes things such as utilities, insurance, car payments, loans, and credit card payments.

Subtract those expenses from your income to see what you have left. This is the amount you can divide up between the rest of your expenses, such as groceries, clothing, and dining out.

Once you have your budget set, you need to follow up and make sure you stick to your spending limits. If you spend twice as much as you allocate for eating out, it’ll throw off the rest of the budget. 

Monitoring your spending compared to your budget can help you spot the trouble areas. You might notice you go overboard on clothing every month. Look at those areas to see how you can control your spending better.

You may need to adjust some categories while you figure out your budget. You might spend less in some areas than the amount you allocated, so you can lower those limits while raising others.

2. Set Up Multiple Bank Accounts

Do you use a single account for everything? Having multiple bank accounts can help you better manage your money.

If you have trouble sticking to your budget, consider creating different bank accounts for individual areas of your budget. You might have one for your mortgage and other loans, another for other recurring expenses, and a third for your discretionary spending.

When you pay your bills, you know you’ll have the necessary money in those accounts. Pulling from one account for your discretionary spending gives you a hard limit on those expenses. 

If you have all of your money lumped into one account, it’s easier to overspend on extras. You convince yourself that you can splurge on that leather jacket, but you end up using money that should go to the mortgage or your credit card payments. That can cause you to fall behind financially.

3. Create Financial Goals

Why do you want to get your finances under control? Setting specific goals can keep you motivated to handle your money better. You know cutting back on spending or increasing your savings is for something you really want.

Think in terms of short-term and long-term financial goals.

Short-term goals can keep you motivated because you can reach them quickly. They’re also building blocks for your larger goals and can help you gradually improve your finances. This could be things such as building an emergency cash fund, cutting your expenses by a set amount or paying off one credit card.

The long-term goals help you improve your financial standing over time. They’re the bigger goals that keep you going and get you to the place you want to be. Examples include paying off all debt, saving for a house, or reaching a larger number in your savings account.

If you’re not sure where to focus your attention, a financial planner can help. A financial pro can look at your current situation and make recommendations for short-term and long-term financial goals.

4. Pay Off Debt

In the UK, the average debt is £15,385. Deciding whether or not to go into debt is a personal decision, but carrying high levels of debt makes it difficult to get ahead financially. The interest and fees you pay eat up money that could go toward your financial goals.

Plan to pay off your debt as quickly as possible, especially if it’s holding you back financially. Put extra money toward your debt to get rid of it faster.

5. Create a Savings Plan

No matter how financially behind you feel, setting aside money in your savings account is a smart decision. Set up your bank account to transfer money to savings automatically on your paydays. That way you ensure you set aside the money before you spend it on other things.

Include retirement savings in your plan. Starting now helps you build your retirement savings faster, so you’re financially stable when you reach retirement age.

6. Increase Your Income

Having more money in your bank account gives you more financial stability and helps you reach your goals. You can either make more money or cut your spending to increase your usable income.

Asking for a raise at your current job or looking for a new job can help you increase your income. Another option is a temporary part-time job or side gig for extra money. Think of it as a temporary sacrifice of your time to accelerate your financial goals.

7. Change Your Mindset

Many people think of cutting back on spending or saving more as a negative thing. It feels restrictive, so you don’t want to do it.

Flip how you think about financial changes. Focus on what you get from the changes instead of what you’re losing.

When you’re tempted to make an impulse buy, as yourself if the item will get you closer to your financial goals. Having meaningful goals and keeping them in your mind can help you change your thinking.

How to Get Ahead Financially

When you’re struggling with money, it can be difficult to figure out how to get ahead financially. Confronting your situation directly and tackling it a little at a time helps you improve your finances. Visit our archives for more financial information.

UNCTAD’s Global Investment Trends Monitor

It is my pleasure to share with you the latest issue of UNCTAD’s Global Investment Trends Monitor with the first full-year estimates for 2019.

Global foreign direct investment (FDI) remained flat in 2019, at $1.39 trillion, a 1% decline from a revised $1.41 trillion in 2018. This is against the backdrop of weaker macroeconomic performance and policy uncertainty for investors, including trade tensions.

FDI flows to developed countries remained at a historically low level, decreasing by a further 6% to an estimated $643 billion. Flows to developing economies were unchanged at $695 billion. Flows to transition economies rose by two thirds to $57 billion.

Trends in selected economies:

– FDI in the United Kingdom down 6% as Brexit unfolds.

– Hong Kong, China divestments cause a 48% FDI decline in turbulent times.

– Singapore up 42% in a buoyant ASEAN region.

– Zero-growth of flows to both the United States and China.

– Brazil up 26% at the start of a privatization programme.

– German inflows triple as MNEs extend loans to foreign affiliates in a year of slow growth.

Looking ahead, UNCTAD expects FDI flows to rise marginally in 2020 on the back of further modest growth of the world economy.

For the latest issue of the Global Investment Trends Monitor and the UNCTAD Investment Policy Monitor, please click here. An in-depth analysis of FDI trends will feature in the forthcoming World Investment Report 2020, to be published in June 2020.

By James X Zhan

Director, Investment and Enterprise
Lead, World Investment Report
United Nations Conference on Trade & Development
Palais des Nations, Geneva
http://www.unctad.org/wir
http://www.worldinvestmentforum.org
http://investmentpolicyhub.unctad.org

Stock Market 101: Investment Advice for Beginners

For most that do not invest in stocks, the idea of the stock market seems very risky and scary. For them, the risk appears to outweigh any potential upside. However, this is not the case!

Investment in stocks can seem intimidating, but it doesn’t have to be. This investment advice will help you start improving your investing skills today.

Stock Market 101: Investment Advice for Beginners

You may be wondering if investing is a good idea for you. Of course, it is! Every person needs to invest in order to grow their financial accounts.

Having your money tied up in traditional savings accounts alone will not do it. Not only will it provide it a low rate of return, but it probably will not even keep up with inflation.

Investment Platforms

Before we talk about the stock market in more detail, let’s talk about how you can purchase them. There are three main outlets in managing stock investments- online brokers, investment advisors, and robo-advisors.

While they are all different, one will be perfect for your personal situation and needs.

Online Brokers 

It is no surprise that many people turn to online brokers when looking to invest in the stock market. The most significant upside to online brokers is that you can handle everything entirely online. Also, you can invest in a wide variety of items.

However, online brokers are not always beginner-friendly. While they offer some investment advice, most online brokers are geared towards those with more experience and comfortable in managing their own investment portfolios.

Investment Advisors

Investment advisors are dedicated professionals that can give you personalized investment advice. These advisors work with people one-on-one and can give you direct investment advice based on your goals, timeline, and how much risk you want to take.

After discussing this with a potential investor, the investment advisor will create a diverse portfolio that is appropriate for their needs and wants. The portfolio is filled with a wide range of products.

For most beginners, it can be challenging to find an investment advisor to work with. Many advisors only work with those with an extensive portfolio or significant amount of money (starting around $250,000) available to invest.

Robo-Advisors

Robo-advisors are recent additions to the scene but have quickly become a popular way to invest in the stock market. Offering similar services as investment advisors, they do not require a high investment, making them within reach for all investors.

Just like traditional investment advisors, robo-advisors will evaluate your goals, needs, and tolerance to risk. They will create a personalized portfolio that will be filled with lower-cost products. This helps you save money as the fees will not be as high as other avenues.

Robo-advisors are available to investors, both new and established. No matter your income available for investing, a robo-advisor can create a portfolio for you!

Stocks

Stocks are a popular product to use when investing in the stock market. Usually, stocks highly outperform other investments and outpace inflation.

Many investors make stocks the primary investment in their portfolio. While they tend to diversify for lower risk tolerance, investors keep coming back to stocks for their high return.

So, how much of your portfolio should be stocks? For a conservative portfolio, a common rule is that the percentage of a portfolio that should be stocks is 120 minus your age. For example, if you are 40, 80% of your portfolio should be stocks. Then, when you turn 50, that number lowers to 70%.

Stocks to Invest In 

So what stocks should you invest in? As a new investor, you should focus on categories, not individual stocks. We will go over some of the standard and best stock categories to invest in as a beginning investor.

Value Stocks 

Value stocks trade at lower prices. These are usually companies that are recovering from some difficulty or had faced some legal issues. Because of this, their prices are lower than other stocks.

However, the benefit can be yours once the company recovers. Your investment in value stocks will likely outperform the stock market in general over the long term.

High Dividend Stocks 

High dividend stocks are just what their name suggests, a stock that pays out a higher dividend than the average. Since around half of the return on stocks comes from dividends, it just makes sense to invest in high dividend stocks.

These are also a great way to give a bit of protection to your portfolio. Having high dividend stocks can provide some level of protection during a downturn in the stock market.

Growth Stocks

Growth stocks are from those businesses that are growing faster than their competitors and other companies that are listed on the general stock market. Even though they traditionally do not pay dividends, the return comes from the rising stock price when help on to long-term.

Just a piece of investment advice on growth stocks: these are considered high risk. While the potential is strong for growth, they may also take significant hits when there is a downturn in the market. Just remember that these are a long-term return stock, and you should be OK.

Start Investing in Stocks 

Now that you know a little more about stocks and investing, you may wonder if you should get started. There are some steps you should take beforehand to ensure that you are ready!

First, you need to get a solid financial base. Some basics to follow includes having sufficient and stable income, an emergency fund that covers three to six months of expenses, and a track record of saving. This will help set you up for a solid beginning to your investment portfolio.

Second, you should further educate yourself about the different types of investments and products available in the stock market. Just remember to never invest in something you don’t understand. When purchasing a stock, you are actually investing in a specific business.

When investing in a business, you should educate yourself on that business and its industry as must as you possibly can.

Investment Advice

While all of this may seem overwhelming, there are many advisors and sites ready to help you with any investment advice that you need. Don’t let the fear of the stock market stop you from realizing your financial goals.

Check out our blog for more information on how to guide your investment and enhance your ROI.

Combating Insurance Fraud With Machine Learning

By Georgios Kapetanvasileiou, Analytical Consultant at SAS

Most insurance companies depend on human expertise and business rules-based software to protect themselves from fraud. However, people move on. And the drive for digital transformation and process automation means data and scenarios change faster than you can update the rules.

Machine learning has the potential to allow insurers to move from the current state of “detect and react” to “predict and prevent.” It excels at automating the process of taking large volumes of data, analysing multiple fraud indicators in parallel – which taken individually may often be quite normal – and finding potential fraud. Generally, there are two ways to teach or train a machine learning algorithm, which depend on the available data: supervised and unsupervised learning.

Predictive modelling

In predictive modelling or supervised learning, algorithms make predictions based on a set of examples from historical data. You can present an algorithm with historical claims information and associated outcomes often called labelled data. It will attempt to identify the underlying patterns in fraudulent cases. Once the algorithm has been trained on past examples, you can use it to infer the probability of a new claim being fraudulent. AKSigorta Insurance is using advanced predictive modelling as part of its investigation process. The company has managed to increase its fraud detection rate by 66% and prevent fraud in real time.

There is a wide variety of predictive modelling algorithms to choose from, so users should take into account issues such as accuracy, interpretability, training time and ease of use. There is no single approach that works universally. Even experienced data scientists have to try different methods to find the right algorithm for a specific problem. It is, therefore, best to start simple and explore more advanced machine learning methodologies later. Decision trees, for example, are an excellent way to start exploring complex relationships within data. They are relatively easy to implement and fast to train on large volumes of data. More importantly, they are very easy to understand or interpret, and can be a good starting point for new business rules.

Other options for more accuracy

Decision trees can, however, become unstable over time. When accuracy becomes a priority, practitioners should look at other options. Support vector machines (SVMs) and neural networks are capable of learning complex class boundaries and generalise well to unseen cases. They have been extensively used for fraud detection. Tree-based algorithms, such as gradient boosting and random forests, have also become more popular in recent years. Ideally, analysts should try multiple approaches in parallel before deciding what works best.

Supervised learning is effective in identifying familiar cases of fraudulent activity but cannot uncover new patterns. Another challenge is the limited numbers of fraud examples with which to train the algorithm. Fraud is a relatively rare event, after all. The ratio between fraud and nonfraud cases can sometimes be as much as 1 to 10,000. This means that predictive algorithms tend to be overwhelmed by the sheer volume of nonfraud cases, and may miss the fraudulent ones. Labelling new data for training a model can also be time consuming and expensive.

Unsupervised learning

Unsupervised learning algorithms are trained against data with no historical labels. In other words, the algorithm is not given the answer or outcome beforehand. It is merely asked to explore the data and uncover any “interesting” structures within them. For example, given certain behavioural information, unsupervised learning algorithms can identify groups (or clusters) of customer transactions that appear similar. Anything that appears different or rare could be flagged as an anomaly (or an outlier) for further investigation.

Unsupervised learning methods can, therefore, identify both existing and new types of fraud. They are not restricted to predefined labels, so can quickly adapt to new and emerging patterns of dishonest behaviour. For example, a New Zealand health insurer used unsupervised learning methods to identify cases where practitioners were deliberately overcharging patients for a particular procedure or providing unnecessary treatment for certain diagnoses.

Unsupervised anomaly detection methods include univariate outlier analysis or clustering-based methods such as k-means. However, the recent move towards digitalisation means more data, at higher volumes, from a wider range of data sources. New algorithms, such as Support Vector Data Description, Isolation Forest or Autoencoders, have been introduced to address this. These may be a more efficient way of detecting anomalies and allow for faster reaction to new fraud.

Social network analysis

These methods are useful for identifying opportunistic fraud. However, many fraudsters today operate as part of professional, organised rings. Activity may include staged motor accidents to collect on premiums, ghost brokering, or collusion between patients and health practitioners to inflate claim amounts. These career fraudsters can repeatedly disguise their identities and evolve their way of operating over time.

Social network analysis is a tool for analysing and visually representing relationships between known entities. Examples of shared entities could be different applicants using the same telephone number or IP address, or a motor accident involving multiple people. Social network methods can automate the process of drawing connections from disparate data sources and visually representing them as a network. This significantly reduces the investigation time – in one case, from 10 days to just two hours. In the UK, a large P&C insurer made £7 million savings per annum by uncovering groups of collaborating fraudsters using network analytics.

A hybrid approach

No single technique, however, is capable of systematically identifying all complex fraud schemes. Instead, insurers need to combine sophisticated business rules and advanced machine learning approaches. This will allow them to cast the net wide, but improve accuracy and reduce false positives, making fraud detection more efficient.

Opening a Savings Account for Kids: Is It Necessary?

It’s never too early to plant the seeds of educational and occupational success. Children with personal savings accounts are far more likely to attend and graduate college when compared to their peers without.

Even with that in mind, opening a savings account for kids can seem like an intimidating proposition. Is it really a good idea to introduce them to the world of banking and finances at such a young age? According to a variety of studies, the answer is an unequivocal yes.

No matter the age of your child, it’s time to start thinking about opening a savings account. Here’s everything you need to know about savings accounts for kids.

What Is a Savings Account for Kids?

A child savings account is an official offering by banking institutions large and small. They differ from traditional savings accounts with special perks such as financial education programs, zero fees, and dual account access. You can typically open a savings account for kids at any age, but it will always convert to an adult account once they become 18 years old.

You should note that a savings account is primarily used to teach kids about money. While a child savings account does come with a high-interest rate, it is not a replacement for a college savings fund. For college, take advantage of a 529 plan in addition to a savings account for kids.

Opening a Savings Account for a Minor

If you live near a physical bank institution, you can arrive in person to open up the account. Minors cannot sign legally-binding documents, so you’ll have to do the work for them. Make sure you bring their social security number with you as you’ll need one to create the account.

However, you can also create child savings accounts from the comfort of your own home. It’s as simple as providing personal contact information, adding money to the account, and paying any opening fees.

Once you’ve opened the account, you should take some time to personalize it to your needs. This may include setting up automatic transfers in lieu of physical allowance payments. It’s also important to determine the extent of the child’s account access at this time.

Deciding on a Banking Institution

Banks everywhere will offer unique features for a child savings account, and it’s up to you to choose the best option. What kind of features should you prioritize?

Although savings accounts don’t have interest rates like they used to, it’s still important to snag a modest APY. Remember that this savings account will continue to bear interest across a potential span of 18 years. Across almost two decades, even fractional interest rate adjustments can have a significant impact on your child’s savings.

Most child savings accounts don’t come with monthly fees. You should make sure yours doesn’t, either. However, don’t be surprised if you’re expected to pay a hundred dollars or more as a deposit to first open the account.

Since these savings accounts are supposed to contribute to your child’s financial literacy, it’s important to find a program that takes this into account. While rare, some institutions offer monetary rewards for good grades. It’s usually a minor incentive, such as $5 for an A-average report card, but that’s a good deal of money for a young child.

Lastly, ask these banking institutions about the educational components involved with the bank account. Some banks only send informational dockets through the mail. But others are slowly adopting high-tech trends through the use of their official apps.

The Benefits of a Savings Account for Kids

Some parents may think a savings account isn’t necessary for their young children. After all, what are they going to do with it?

As it stands, the practical uses of a savings account suggest that every child can benefit from owning one. Let’s take a look at some of the benefits.

1. Improved Financial Literacy

We’ve already stated that owning a child savings account is supposed to prepare them for the real world. The research proves this isn’t just hearsay. In general, teenagers who own a savings account perform better on financial literacy tests.

They’ve already learned some of the fundamentals of banking and saving while others, who create their accounts at the age of 18, are just getting started.

2. Convenient Deposit Options

It’s common for relatives to send checks on your child’s birthday or special holidays. If they own their own savings account, they’ll be able to make the deposit without your being the middle-man.

It may seem like a small thing, but this convenient option can save you countless trips to the nearest bank, especially as more institutions continue to go digital.

3. Valuable Nest Egg

With the help of interest and automated allowance payments, even a modest savings account can swell into something substantial two decades later. This can give your children the financial jumpstart they need to eke out their early adult lives, whether it means paying for community college, the first month’s rent, or buying their own vehicle.

4. Educational Incentives

If your child savings account features monetary rewards for good grades, you’ll encourage them to focus on their schoolwork. This can lead to great habits down the road. Of course, you can always create your own financial incentive system should your banking institution not offer one.

It’s Never Too Early to Save

While savings accounts may seem like something reserved for adults, that’s all the more reason to start educating children early. Opening a savings account for kids can give them the financial literacy and confidence they’ll need in adulthood. And best of all, it shouldn’t cost you more than the opening deposit fee.

That’s a small price to pay for a lifetime of financial well-being. But learning about finances isn’t something reserved for small children. Educate yourself with the help of our banking blog.

5 Benefits of Opening a Business Bank Account

Opening a business bank account may not seem necessary when you first start your business, but having a separate account from the beginning comes with many benefits.

Once you reach a certain size or incorporate your business, you’ll need a business bank account anyway. It’s easier to start a separate account when you establish your business to keep everything separate from the beginning.

Starting a business bank account is a simple process, but you’ll want to compare the account fees to find the best option for your situation. You might have fees for not meeting a minimum balance, transactions, cash deposits, ATM use, and monthly service fees. 

If you’re on the fence about starting a business banking account, check out these five benefits.

1. Separation of Personal and Business Finances

Once you deposit business funds into your personal bank account, there’s no way to separate those finances. You can keep records showing which deposits belong to your business, but the money goes into one pool.

This can blur the lines when you’re spending money. Is the money you’re using to buy groceries your personal money or the business funds? There’s no separation.

It makes your bookkeeping more complicated because your personal and business transactions go on the same statement. The transactions are mixed together, so you have to go through line by line to sort them. 

This not only creates more work, but it also makes it difficult to get a quick snapshot of how your business is doing. You can’t just glance at the balance or the transactions. It takes more work to figure out which transactions have processed and which ones are still pending.

If you use an accountant to handle your business finances, having a separate bank account makes your accountant’s work easier. The saved time working on your account can save you money if your accountant charges by the hour.

The mingling of finances also makes your taxes more difficult to do. You may miss some of your business income or expenses when you put everything into one account. A mistake on your taxes can result in penalties. 

If you ever get audited, you’ll have clear separate documentation. Having multiple bank accounts can make the audit go more smoothly.

2. Personal Liability Protection

Running a business comes with financial risks. If your business performs poorly or gets sued, you want as much personal protection as possible.

Separating your business finances can give you some protection. When you combine personal and business finances, your personal assets are at risk if someone comes after your business.

Your business account has the business name and address on it instead of your personal information. This helps protect your identity.

It can also reduce fraudulent activity on your personal account. Each time you write a check for a business transaction from your personal account, you put your personal information out there. If it falls into the wrong hands, you could have your identity stolen or your bank account compromised.

A business account can also be compromised, but you won’t have to worry about your personal bank account being affected. 

If you decide to run your business as a corporation, incorporated sole proprietorship, or partnership, you’ll need a business bank account anyway. Those types of business structures provide greater personal liability protection than a sole proprietorship. 

3. Professional Appearance

Your customers won’t know what type of bank account you have unless you ask them to write the check to you personally. But the bank, vendors, and other people you pay will know.

When you pay your vendors for goods, are you writing a personal check? That can make your company look more like a hobby than a legitimate business.

Having a separate business bank account gives your company a more professional appearance. It looks like you’re taking your company seriously from the beginning.

It can also make people feel like you’re more of a legitimate business. Vendors want to know you’re going to be able to pay them regularly. Banks want to know you’re serious about your business before they lend you money for your company.

4. Business Credit Score

Even if you’re not seeking funding for your business now, you may in the near future. To get that funding, you’ll need to convince a bank or investors that you’re a legitimate business and have the means to pay the money back.

When you set up a business account, you establish your company’s financial history. If you manage your money well, it shows a history of timely payments without overdrafts or other financial difficulties. This builds confidence with potential lenders.

A separate account can also make it easier to get a business credit card account. Having those relationships with the bank as a business owner with a business account helps. 

All of the financial transactions that happen under your business name go into your business credit score. It’s similar to a personal credit score with several factors going into the calculation.

Credit bureaus may use information from your business bank accounts, vendors, business credit cards, and other sources. Your business credit score goes into lending decisions.

By separating your finances early, you slowly build a strong business credit score. When you decide to look for financing, you have that established history as proof of your creditworthiness.

5. Easier Payment Acceptance

Offering your customers as many payment options as possible helps keep them happy and may even encourage people to do business with you.

Processing those various payment types is much easier with a business account.

If you accept personal checks, your customers will likely write them out to your business. To deposit the checks, the name needs to match the account. A separate account listed under your business name lets you easily deposit those checks without issue.

If you plan to accept credit card payments, you’ll need a merchant account. That’s a special bank account that lets you receive credit card payments. It lets you have access to the credit card payment amount less the fees, so you don’t have to wait for the normal processing period.

Opening a Business Bank Account

The benefits of opening a business bank account are worth it to protect your personal assets and simplify your business accounting. Explore our business section for more useful information to help your company grow.

Reed Smith appoints former Deutsche Bank Managing Director in London

LONDON, 7 January UK – Reed Smith today announced that Joe Kohler has joined the firm’s Financial Industry Group, marking another significant addition to its banking advisory and derivatives practice.  Kohler joins Reed Smith from Deutsche Bank, where he served as Managing Director, Legal, Corporate & Investment Banking.  In that role, he co-led the bank’s sales and trading legal function globally, with deep transactional experience across the entirety of the fixed income, currencies and commodities businesses.

Reed Smith appoints former Deutsche Bank Managing Director in London

Over the course of his 18-year career at Deutsche Bank, Kohler led the legal work on many of the largest and most important transactions the bank conducted. He managed Deutsche Bank’s legal department’s response to counterparty defaults, downgrades and worked on enforcement and asset recovery efforts during the credit crisis of 2008. He also worked on the building of the first OTC derivative clearing offerings, on the development of the related market infrastructure and contributed to trade association efforts to standardise the related documents. He then helped shape the bank’s response to new regulatory developments such as EMIR, MiFID II, the collateralisation of uncleared derivatives, Brexit and IBOR reform.  Furthermore, he also has extensive experience of merger and acquisition activity in the financial sector, having led on the acquisition and disposal of many businesses and portfolios.

Kohler has led large teams on strategically critical projects within Deutsche Bank and brings to Reed Smith a deep understanding of the inner workings of the legal department within a global investment bank.  Given his sophisticated knowledge of structured finance and products, expertise across industry asset classes, and litigation and regulatory enforcement experience, and in-house familiarity, Kohler is well placed to add to Reed Smith’s bench strength providing strategic advice to banking clients on these transactions.

“Joe’s arrival adds to the bench strength of the firm’s highly regarded banking advisory and derivatives practice,” said Ed Estrada, global chair of Reed Smith’s Financial Industry Group.  “Joe is immensely respected and regarded within Deutsche Bank and throughout the investment bank community, and his reputation for providing steady and sound leadership on complex transaction and litigation matters as in-house counsel is an invaluable asset that our clients will certainly benefit from.  We are excited to have him join our team.” 

Kohler said, “As an in-house counsel, I wanted the law firms my team instructed to add something to secure a better solution than we could deliver on our own – perhaps insight, experience or capability. I was always reassured when we selected Reed Smith, because they always delivered what we had been looking for, and did so efficiently and with a profound understanding of the commercial context.  I am really excited to be joining Reed Smith’s highly impressive team.”

About Reed Smith

Reed Smith is a dynamic international law firm dedicated to helping clients move their businesses forward. Our belief is that by delivering smarter and more creative legal services, we will not only enrich our clients’ experiences with us, but also support them in achieving their business goals.

Our long-standing relationships, international outlook, and collaborative structure make us the go-to partner for the speedy resolution of complex disputes, transactions, and regulatory matters.

For further information, please visit reedsmith.com.

More Than One Basket. Why Every Person Needs Multiple Bank Accounts

Despite growing mistrust in the banking industry since the 2008 financial crash, we remain steadfastly loyal to our personal banks. So loyal that the Competition and Markets Authority (CMA) found that, in 2016, only 3% of UK residents switched banks. While that doesn’t reveal how many people have multiple bank accounts, it may well suggest that we’re not looking at our banking activities strategically. Having a single bank account makes things simple on the face of it. But is it sensible?

With the financial crash, which included the failure of Northern Rock, and the increase in cybercrime, we know that putting all our eggs in one basket is a bad idea. But there are a variety of reasons why it’s sensible to have multiple bank accounts. 

In the UK and across Europe, many bank accounts are free, making opening a new one easy. No matter where you’re located though, having over one bank account could have huge benefits for your finances. 

Want to know why? Keep reading and we’ll break it down. 

Protect Your Money

Spreading the risk is one of the most sensible things you can do with investing and the same goes for storing your hard-earned money. If you have just one bank account, you leave yourself open to serious problems. 

If your financial institution fails, you may lose access to the money you’ve stored with them. While it seems unlikely, the banking industry is changing at a rapid rate and instability can happen, even as stricter regulations are in the works. 

Bank Failure

In the UK, the Financial Services Compensation Scheme (FSCS) protects your money if a British bank fails. However, they will only protect your finances up to £85,000 in each financial institution. 

A financial institution is an entire corporation rather than individual banks. For example, if you have £100,000 in Natwest and the Royal Bank of Scotland (RBS) fails, you’ll only be protected for £85,000 as Natwest is owned by RBS. 

If you have split your £100,000 between two accounts, one with Natwest and one with RBS, you will still only get protection on £85,000. This is one reason you do not only need more than one bank account, but you should spread accounts across different parent financial institutions. 

Cybercrime

Cybercrime is becoming more prevalent around the world, putting banks and your money at risk. In 2017, a major cyber-attack caused havoc with multiple banking systems across the UK. There’s a continued risk of this happening again which means you’re at risk of not being able to access your money when you need it. 

If a cyber-attack affects the operating of your bank, when you have a second account with a separate bank, you’ll still have access to some of your money. 

Going Abroad

Have you ever had your card blocked by your bank when you’re away? Fraud teams prefer to be safe than sorry and you may well find yourself without access to your account at some point. 

By having more than one bank account, you can use your second account if your first is blocked by a fraud team. 

Manage a Budget

The average household debt in the UK is over £15,000 and the figures are worse in the US, where the average individual’s debt is $38,000 (£29,000). One thing is clear, we need to be budgeting more effectively. 

With one bank account, all of your income and outgoings are lumped in together. This makes it difficult to manage money for different outgoings and to save proactively. 

When you have multiple bank accounts, you can use one for day-to-day spending and others for separate purposes. This includes savings, mortgage or rent payments, self-employed tax, and whichever purposes suit your life. 

It’s easy to move money from one bank to another, allowing you to move money into savings the moment you get paid. 

Savings Accounts and ISAs

Savings accounts and ISAs often have far better interest rates than current accounts, allowing you to make money and benefit from tax-free interest. It’s wise to have designated savings accounts that you move money into and don’t use as day-to-day spending money. 

Even saving small amounts has a compound effect as you’ll earn interest on the full balance, including previous interest payments. Keeping this savings money separate from your usual current accounts stops you from seeing it easily and being tempted to spend it. 

Multiple Currencies

It’s increasingly easier to open bank accounts in other currencies. Having a Euro bank account, for instance, means you avoid foreign transaction fees and variable exchange rates. 

It also means you can withdraw money easily in Euro countries from ATMs without facing charges. 

Separating Personal and Business Accounts

If you run a business, even as a sole proprietor, keeping your personal and business finances separate will make your life easier. You’ll get a better picture of how well your business is doing and can keep track of payments and outgoings more easily. 

Some business accounts also come with added benefits such as free business advice or discounted business products. 

Joint Accounts

If you share outgoings with a partner, having a joint account can help you manage your shared responsibilities. If you jointly pay a mortgage or rent, utilities, and subscriptions, you can store this money each month in your joint account and create direct debits to pay out. 

This is a useful way of separating joint expenditure from your personal finances. This can also offer a small amount of financial protection in the event of the death of an unmarried partner. On the death of one joint account holder, the account will automatically belong to the surviving account holder regardless of marital status. 

Stay Safe with Multiple Bank Accounts

There are many benefits of having multiple bank accounts and having only one puts your money at risk. Having more than one account helps protect your money from bank instability and cyber attacks, enabling you to access part of your wealth. 

It’s also helpful for travelling abroad and saving for your future. You can take advantage of better interest rates, separate savings from everyday spending, and see business finances clearly. 

To learn more about the global financial world and keep on top of news, check out our Editor’s Picks