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How best to help your grandchildren financially

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How best to help your grandchildren financially

Wednesday, July 25th, 2018

Being a grandparent is an exciting time of life. You get all the enjoyment of doing fun activities with your grandchildren but can hand them back at the end of the day. Part of that pleasure is knowing that you can help them financially. Often you’re at a stage of your life where you’re comfortably off and in a position where you want to give a helping hand to the next generation.

The plus side of this is that you get the opportunity to make a real difference to your grandchildren’s lives. The downside is that the regulations around inheritance tax (IHT) can be confusing and the red tape overwhelming at times. By taking steps to find out what the rules are though, you can make life easier for family members and still be confident that you have enough money for your own retirement dreams.

One important consideration is the timing of your gift. If there’s a new arrival in the family, the financial needs will be very different than if it is to help older children. For example, the priority may be to help the newborn’s family move to a more spacious home or to help with private school fees for a primary school-aged child. Later on, it may be to help with driving lessons, pay for school or university fees or enable them to get on the housing ladder. You may decide you want to leave your money to your grandchildren in your will, in which case it is vital to plan your giving in advance in a tax efficient way.

IHT will be levied on your estate at 40% when you die, so if you’re giving money away now that will have an impact later. The nil-rate band is a threshold of £325,000 for the value of your estate. Anything above that will be taxed. Making monetary gifts can take the money out of the ‘IHT net‘ but remember this only applies for the seven years after you made the gift. It’s worth exploring some extra allowances such as being able to give £3,000 of gifts per tax year (your annual exemption) as well as an allowance for small gifts and wedding/birthday gifts.

There are a number of alternatives to make your gift. If the money is needed before age 18, a trust structure is a tax-efficient way to give money, while still giving you some control on how it is used. A Junior ISA can also be a good option as it grows tax-free, building up a fund for driving lessons or university fees. You can’t open the JISA on your grandchild’s behalf but you can pay into it up to their annual limit, currently £4,260. If they’re older, you might want to consider a lifetime ISA for a housing deposit. Again, you can’t open it for them as a Lifetime ISA can only be opened by someone between the ages of 18-39 but if your grandchild opens one, it’s a way for them to save up to £4,000 a year and get a 25 per cent government bonus on top.

Whatever you opt for, you’ll have the feel-good factor of helping the next generation in a way that is right for both you and them.

July market commentary

Wednesday, July 18th, 2018

Introduction
Let us invite you to travel back in time to June 2016, to the day after the Brexit referendum. Meanwhile, across the Atlantic, campaigning in the US Presidential election is in full swing.

You are offered two glimpses into the future. The first is that two years on, the UK has apparently made no real progress in the Brexit negotiations. The second is that Donald Trump has been elected President and has had a successful meeting with Kim Jong-un. You would have dismissed both of them as ridiculous and yet that is exactly what June brought us, as Theresa May called yet another Brexit crisis meeting and President Trump met the leader of North Korea in Singapore.

…And then the President went on to announce a raft of tariffs on imported goods – from both China and Europe – which may well see the threatened global trade war develop. Both China and the EU were swift to announce retaliatory tariffs, and (unsurprisingly) June was a month in which none of the major stock markets we cover managed to gain any ground.

June was also another bad month for the virtual currency Bitcoin. The price has been in steady decline over the last two months and, over the weekend, stood at $6,369 (£4,822). There were two main reasons for the fall as the South Korean cryptocurrency exchange Bithumb revealed that it had lost 35bn won (£24m) in a cyber-attack, and governments and regulators around the world – the US Securities and Exchange Commission is the latest – made ominous noises about cutting down on Bitcoin fraud.

In what is surely a sign of things to come, the Canadian province of Quebec halted approvals for Bitcoin mining as it worried about being able to supply electricity to the province.

UK
Sadly, the big story in the UK in June is one which has been written about often in recent times – the continuing decline of retail and the national high street. On the morning of Monday July 2nd, both the Mirror and the Daily Mail led with ‘the battle to save Britain’s high streets’.

Can anything be done? June brought us almost uninterrupted sunshine, and it may well be that the retail figures – like those for May – will show a rebound from the depressing figures disclosed in the Spring. The Mail is reporting that 50,000 retail jobs were lost over the last six months and is calling for an urgent review of ‘crippling business rates’.

Even that may not be enough: the simple fact is that it is easier, quicker, more convenient and cheaper to shop online. Even Costa is starting to struggle, reporting a 2% fall in like-for-like sales in the first three months of the year, which it blamed squarely on a lack of shoppers.

The long term trend was neatly captured by the problems of House of Fraser. On June 4th, it ‘rejected talk of a collapse’: three days later it was announcing that 31 of its stores would close. With M&S also planning a programme of store closures, Debenhams issuing constant profit warnings and 60 bank branches closing every month, the UK high street increasingly looks like it could be an idea whose time has passed.

But let us try and find some good news…

June was a good month for the economic numbers in the UK. Unemployment was down, falling by 38,000 between February and April, and the number of people in work rose to a record 32.4m – up 440,000 on the previous 12 months. That said, wage growth slowed again, so it is to be hoped that inflation does not also start to rise, otherwise we will be back in the realm of falling real wages.

The UK also earned the unofficial title of tech ‘unicorn’ capital of Europe. For those of you that don’t know the term, a ‘unicorn’ is a tech start-up valued at more than $1bn (£757m). The UK is home to 37% of the continent’s ‘unicorns’ and, according to a report for London Tech Week, is the number 1 destination for Europe’s top tech talent.

Rather more mundanely, the Bank of England voted to hold interest rates at their current level, but it is looking increasingly likely that base rates will rise to 0.75%, possibly as early as August.

The month ended with MPs voting overwhelmingly for the expansion of Heathrow airport – but do not expect the diggers to move in for a few years. The move will be widely challenged in the courts by local and environmental campaigners.

Finally, what of the UK stock market? The FTSE 100 index of leading shares had a quiet month. It started June at 7,678 and fell by just 41 points to end the month at 7,637. And it is down just 51 points for the year as a whole, having started 2018 at 7,688.

The pound was also down slightly against the dollar, falling from $1.3299 to $1.3211.

Brexit
As noted in the introduction, June brought us the second anniversary of the vote to leave the EU but we remain no closer to knowing what the final shape of Brexit will be. Airbus and BMW made veiled warnings about the consequences of ‘no deal’ but with Theresa May’s cabinet still squabbling about the shape of the eventual customs partnership, that exact outcome appears to be looking ever more possible.

At the time of writing, the newspaper headlines are telling us that this month’s meetings will be ‘make or break for May’, although it would not be a surprise to see that, once again, a last minute compromise will be cobbled together and that this time next month we will still be no further forward.

Europe
The Italian coalition government has survived its first month in office, even giving an impression of normality as new finance minister Giovanni Tria said that the government was “clear and unanimous” in its decision to remain in the Eurozone.

The main news in Europe was the decision of the ECB to end its huge programme of bond-buying which was introduced in a bid to stimulate the economy of the Eurozone. In a statement, the ECB said that it would halve the current scheme – worth €30bn (£26.6bn) a month – after September “as long as the data remained favourable” and end it completely in December. ECB President, Mario Draghi, acknowledged that Eurozone growth had stuttered recently, but was adamant that the underlying growth “remained strong”.

There was big news for jobs in the steel industry as German industrial group Thyssenkrupp signed a deal with Tata Steel to combine the two companies’ European businesses. The new company will be headquartered in Amsterdam and will have a total workforce of 48,000 – but there are fears of up to 4,000 redundancies.

There could be one more redundancy as well… It is hard to escape the feeling that we are approaching the end of Angela Merkel’s time as German Chancellor as key ally Horst Seehofer, the interior minister, threatened to resign over her immigration policy. In Turkey, Recep Erdogan won a new five year term as president, with some commentators arguing that it effectively spelled the end of the country as a democracy.

On the stock markets, the German DAX index ended June down 2% at 12,306, while the French index was down just 1% at 5,324. At the halfway point in 2018, the German index is down by 5% for the year as a whole, while the French index has risen by just 11 points.

US
Threatened trade war or not, the US announced better than expected data on jobs as unemployment fell to an 18 year low. Forecasters had been expecting 190,000 jobs to be added in May, but that figure was comprehensively beaten as the economy added 223,000 jobs in the month.

As had been expected, the US Federal Reserve announced a rise in interest rates, moving the target rate up from 1.75% to 2%, and going so far as to forecast a further two rate rises this year, reflecting the strength of the US economy. It is the seventh time that rates have been increased since 2015 and takes them to their highest level since 2008.

In company news, there was more gloom for Facebook as it wrestled with yet another ‘privacy bug’ – this time affecting the data of 14m people. And there was bad news for Google as the EU announced that it would fine the company up to $11bn (£8.33bn) over the dominance of its Android system.

Tesla, Elon Musk’s car making company, announced that it would cut 9% of its workforce – mostly ‘salaried employees’ – as it bids to finally make a profit. The company employs 37,000 people and has never made a profit in the 15 years it has existed.

“Profit is not what motivates us,” Musk posted on Twitter. Wall Street does occasionally like to see companies making a profit, but it was a quiet month for the Dow Jones index, which drifted down 1% to close the month at 24,271. Looking at the year as a whole, it is down 2% from its opening level of 24,719.

Far East
China seems well on course to become the world’s most influential economy as the One Belt, One Road infrastructure project continues to extend its influence through Africa and towards Europe, with Chinese leader Xi Jinping committed to creating ‘a paradigm of globalisation that favours China’. The country is now the world’s second largest consumer of crude oil, with 25% of the imports coming from Sudan and the Gulf of Guinea.

For this month though, it was a disappointing performance from China’s Shanghai Composite Index which fell 8% to close at 2,847. Hong Kong followed Shanghai’s example, falling 5% to 28,955 and the South Korean market was down by 4% to 2,326. The Japanese market was more or less unchanged in the month, moving up very slightly to 22,304.

Unsurprisingly, given the threat of a trade war, all four markets are down over the first six months of the year. The Chinese market leads the way with a fall of 14%: South Korea is down 6% and the Hong Kong and Japanese stock markets are down by 3% and 2% respectively.

Emerging Markets
Could North Korea one day feature in this section of our report? It seems that these days the only way to predict the future is to think the previously unthinkable. Kim Jong-un is 34 (or 36, depending on which ‘official’ source you believe) and it is not hard to see him one day taking North Korea down a similar road to China while maintaining rigid state control of the economy.

For now, though, we will look at only the usual suspects – India, Russia and Brazil. The first two saw their stock markets largely unchanged in June, closing at 35,423 and 2,296 respectively. The Brazilian market was down 5% at 72,763. For the first six months of the year, Russia – with future tourism surely buoyed by a successful World Cup – has seen its market rise by 9%, the Indian stock market is up 4% but the Brazilian index is down by the 5% it fell in June.

And finally…
Sadly, the high street seems to be taking a further thumping from consumers as newspapers report that supermarket groups are ‘losing millions’ as ‘cunning shoppers’ buy expensive items such as avocados and put them through the self-service tills as cheaper items like carrots.

It sounds like there is a gap in the market for an app which tells you how many 60p per kg. carrots weigh the same as a £1.50 ready-to-eat avocado…

New shopping techniques aside, a shortage of CO2 (carbon dioxide) was also making the news. It turns out that CO2 is not just something you vaguely remember from school, but a vital component in the food and drink industry.

It is used to add the ‘fizz’ in beer and fizzy drinks, and to extend the shelf life of meat and other food products. Scotland’s biggest abattoir has closed and Asda rationed the supply of fizzy drinks to online customers.

There are also real fears that there could be a beer shortage this summer as Europe continues to struggle with the CO2 shortage and “beer crazy football fans” threaten to drink Russia dry during the World Cup.

But things can always get worse – and back in the UK we could now be facing a shortage of… lettuce. The heatwave has apparently boosted demand for lettuce but – according to the brilliantly-named British Leafy Salad Growers Association – the soaring temperatures have stopped the crop growing. Broccoli and cauliflower crops have also been affected and the shortage could hit the supermarket shelves as early as this week.

Expect the Iceberg Lettuce to replace Bitcoin as the new default currency of the internet. Maybe it’s time to get out there and plant lettuce in the back garden… or perhaps instead you should be considering a crop of avocados…

June market commentary

Wednesday, June 6th, 2018

Harold Wilson famously said that, ‘a week is a long time in politics.’ A month is a very long time when we come to write this commentary.

Looking back to the first few days of May, the Royal Bank of Scotland was announcing plans to close 162 high street branches in the UK, Facebook said it was going to launch a dating service and, in Europe, there were rumours of a final, final (and this time they really meant it) deal on Greek debt.

But that was all simply froth and noise. The real news came right at the end of May with political crises in Spain and Italy – with the Italian one threatening to become an economic crisis at any moment – and Donald Trump’s sudden announcement of steel tariffs on virtually any country you care to name. May ended with Europe swiftly announcing retaliatory measures and the world once again looking at a damaging trade war.

Unsurprisingly, this had a negative effect on world stock markets, although with the news coming at the very end of the month much of the uncertainty may be reflected in June. Only two of the major stock markets we cover managed a gain during May, with the UK leading the way – albeit only rising by 2%. Most of the other markets were slightly down although, as you will see below, there were two markets which fell significantly.

UK
May was another month with the usual mix of good and bad news in the UK. As we have just noted, RBS kicked off the month by announcing the closure of 162 bank branches. As online banking and mobile apps continue to bite into retail banking you do wonder just how many high street branches there will be in ten years’ time.

The gloom for high streets up and down the country as April proved to be another bad month for the retail sector, with footfall down by 3.3% following the 6% fall in March. Add in the store closures announced by M&S and warnings of thousands of betting shop closures as the Government reduced the maximum stake on fixed odds betting terminals and you question whether town centres as we know them will survive.

There was more bad news for RBS as it agreed to a $4.9bn (£3.65bn) fine from the US authorities for mis-selling and BT announced plans to cut 13,000 jobs – around 12% of its workforce – in an attempt to cut costs.

…But there was plenty to report on the ‘good news’ page. Consumer confidence rose in April, reaching its highest level since January 2017 as wages rose by 2.9% in the first quarter of the year, finally starting to pull ahead of inflation. Unemployment was also down, falling by another 46,000 in the first three months of the year and still at its lowest level since 1975.

There was also positive news in the corporate sector as the Share Centre released data showing that UK corporate profits rose to a record high in 2017 as a buoyant world economy boosted UK multinationals. The profits recorded by the survey – £153bn – were 0.2% ahead of the previous record, set in 2011.

Will those successful companies be paying more for any borrowing in the future? Almost certainly, as the Bank of England hinted at a series of interest rate rises over the next three years. However, inflation fell to 2.4% in April – the lowest since March 2017 – meaning that threats of a rate rise have receded in the short term.

The UK stock market decided this was all good news, and the FTSE 100 index of leading shares was up 2% in May, the best rise recorded by any of the markets we monitor. It closed the month at 7,678 having ended April at 7,509. However, the pound went in the opposite direction, falling 3% in the month to $1.3299.

Brexit
Looking back over my Brexit notes for May they seem to cancel each other out. ‘Tory backbenchers deliver ultimatum over customs partnership’ ran one headline. ‘Jobs at risk without a customs partnership’ ran another. The month ended with suggestions of a ten mile wide trade buffer zone in a bid to break the deadlock over the soft/hard Irish border question.

We are now ten months away from the date when the UK is supposed to leave the EU and still virtually nothing has been agreed. That agreement may be even harder to find after the Republic voted to legalise abortion, leaving Northern Ireland as the only place in the British Isles where abortion is illegal. The DUP remains fiercely opposed to any legalisation – and Theresa May remains fiercely dependent on DUP support, presumably meaning that the DUP now hold a much larger bargaining chip in any discussions on the border.

What a mess. It almost makes Italy look like a model of considered government.

Europe
…Except of course, that Italy is anything but considered. Or stable…

Wishing for a stable government in Italy is probably akin to wishing for an end to the Greek debt crisis, but that is what might happen in June. Later this month a team of EU debt inspectors will arrive in Athens and begin poring over the Greek government’s books. If they like what they see, then apparently Europe’s leaders will settle on a long term plan for Greece to repay the billions of euros it owes.

Were it not for Italy that sort of news might make the headline writers turn to drink, but Italy seems to be a more than adequate stand-in.

For now, the country has a government. Giuseppe Conte, an academic and relative political novice, is the Prime Minister, heading a coalition of the anti-establishment Five Star Movement (M5S) and the far-right League party. It has been dismissed as ‘populist’ – which to this writer at least simply means it won the most votes in the election. It is, though, undeniably sceptical of the EU and how long a coalition between a party that believes in a universal basic income and another that believes in cuts to government expenditure can last is anyone’s guess.

Meanwhile, Spain was losing its Prime Minister after Mariano Rajoy lost a vote of no confidence following allegations of corruption. Plenty of drivers also expressed ‘no confidence’ in their BMW cars, which stalled while they were being driven, forcing the company to recall 300,000 vehicles. And there wasn’t much confidence behind Air France either, as another wave of strikes forced the country’s economy minister to warn that the airline could go out of business.

What of the main European stock markets? Like many markets in this month’s Bulletin, the German DAX index was virtually unchanged, falling just seven points in May to close the month at 12,605. The French market was down 2% at 5,398 but the Greek market tumbled dramatically, down 11% to 756. Does that suggest those debt inspectors may not like what they find?

US
The beginning of the month was ‘business as normal’ in the US. Apple showered its investors with cash as it announced plans for a $100bn (£75bn) share buyback – and said that it had sold 52.2m iPhones in the three months to March.

Legendary investor, Warren Buffet, liked what he saw and bought 75m shares in the company, sending the shares to a record high.

Over at Facebook, Mark Zuckerberg, fresh from surviving the Congressional hearings, said that Facebook would be launching a dating service, and fellow billionaire Elon Musk remained optimistic about Tesla’s future – despite the company posting a record loss of $710m (£523m) for the three months to March. The company’s target is to produce 5,000 electric cars a week – so far, it is producing just 2,270 as it continues to burn cash at an alarming rate.

The wider US economy added 164,000 jobs in April. That was slightly below expectations, but it still saw US unemployment fall to 3.9% – the first time it has dipped below 4% since 2000.

…And then, right at the end of the month, President Trump announced tariffs on imports of steel and aluminium. Among the countries and trading blocs affected were the EU, Canada and Mexico, all of whom announced retaliatory measures. The President said that the move was to secure “‘fair trade” adding, “they are our allies but they take advantage of us economically.”

The retaliation from the EU saw tariffs imposed on a raft of US imports from Harley Davidson motorbikes to bourbon. There were no tariffs on Chinese goods as trade talks continued, but it now appears that the US will impose 25% tariffs on $50bn worth of Chinese imports shortly after mid-June, with Treasury Secretary Steve Mnuchin saying that a final list of goods would be published by 15th June.

The Dow Jones index took all the news in its stride and – along with the UK – was the only other market we cover to rise during May. It was up by just 1% to close the month at 24,416.

Far East
There was bad news for the Japanese economy in May, with figures for the first quarter of 2018 showing that the economy had contracted by an annualised rate of 0.6%, worse than the expected contraction of 0.2%. This was the first time the Japanese economy had shrunk in two years, ending the longest stretch of economic growth since the 1980s.

‘Shrinking economy’ is a phrase which doesn’t appear to translate into Chinese, but the government there did finally agree to ‘significantly’ increase the number of goods it buys from the US. A joint statement between the US and China said the two countries had agreed to ‘a meaningful increase in US agriculture and energy exports.’

The White House added that the move would ‘substantially reduce’ the $335bn (£251bn) annual trade deficit the US has with China – although telling there was no mention of the $200bn (£150m) deficit reduction target that had previously been mentioned. And quite what impact June’s tariffs will have is anyone’s guess…

In company news, Chinese smartphone maker Xiaomi (it’s pronounced ‘show-me’ and it is a brand name you’ll become increasingly familiar with) announced plans for a $10bn listing on the Hong Kong stock market, while TenCent – China’s biggest social media company and now worth more than Facebook – posted a 61% year-on-year jump in profits to $3.7bn (£2.7bn).

It was a quiet month on the region’s stock markets. China’s Shanghai Composite index was up just 13 points to 3,095 while the markets in Hong Kong and Japan both drifted down by 1% to 30,469 and 22,202 respectively. There was less good news in South Korea, where the stock market fell by 4% to end the month at 2,423.

Emerging Markets
It was a quiet month for Emerging Markets news and – for two of the three major markets this section covers – a quiet month on the stock markets too. Both the Russian and Indian markets were unchanged in percentage terms, with the Russian market down just four points to 2,303 and the Indian stock market ending the month up 162 points at 35,322.

There was, though, no such calm in Brazil with the stock market falling 11% to 76,754 and undoing all the gains made so far in 2018.

And finally…
‘Close but no cigar’ probably sums up the final section of our commentary for May. There were some interesting stories but sadly, no security engineers locking themselves in ATM machines or cutting-edge AI robots drowning themselves in swimming pools…

Still, TSB boss Paul Pester would have had an easier month if he had locked himself inside one of the bank’s ATMs. ‘Computer chaos at TSB’ screamed the headlines, in a month which almost certainly saw the bank set a record for the number of times its customers heard, “Your call is important to us, but we are experiencing heavy call volumes at the moment.”

The chaos saw TSB customers given access to pretty much anyone’s account but their own, and one couple were actually able to see their life savings removed from their account while they were kept on hold.

Speaking to a committee of MPs, Mr Pester said that the migration to a new computer system had been “a terrible decision.” He would, he said charitably, be foregoing his £2m ‘integration bonus.’

There was bad news for all of us as the Great British Summer approaches. The cost of vanilla has sky-rocketed over the last two years, meaning that the cost of your ice-cream will be going up. At $600 (£450) per kilo vanilla now costs more than silver: it may be time to invest in mint chocolate chip shares…

In the ‘good news’ column a small town in Carmarthenshire has been named as one of the best places for coffee in the world. Coaltown Coffee in Ammanford (population 5,293) was named on Lonely Planet’s list of best roasteries. So wherever you are in the world, you’ll be able to enjoy Welsh coffee – at least until you-know-who imposes a tariff on it…

May market commentary

Thursday, May 3rd, 2018

Introduction
It looked for a long time that the main headline for this commentary would be the opening salvos in a trade war between China and the USA. The International Monetary Fund published a bullish report on world trade, saying that global growth will hit a 7 year high of 3.9% this year – giving a stark warning at the same time that trade risked being ‘torn apart’ by a protracted trade war.

But then came the news of North Korean leader Kim Jong-un’s, historic visit to South Korea and his meeting with President Moon Jae-in. There followed a bromance which would have been impossible just a few months ago, and a commitment to rid the Korean peninsula of nuclear weapons. The meeting would have been unthinkable at the beginning of the year when North Korea was boasting of being able to reach the US mainland with its rockets: now Pyongyang says it will invite US observers to witness the shutdown of its nuclear site in May.

By the end of the month even the China/US threats and counter-threats seemed to have receded a little and most of the major stock markets which we cover made up losses suffered early in the month on fears of a trade war. There was, however, one significant fly in the ointment as the price of oil continued to climb: Brent crude went past $72 a barrel in light of the continuing troubles in Syria and the instability in the region.

UK
Let’s start the UK section with some really good news: 2017 was a record year for the UK wine industry, as figures showed 64% more bottles of UK-made wine reached the market than in 2016. The Wine and Spirit Association said the industry was reaping the benefits of ‘huge’ investment over the last decade.

…But if April brought good news for wine, it brought yet more bad news for retail as the wet Easter proved a washout for the UK high street, following the bad weather which kept shoppers at home in March. Carpetright announced the closure of 92 stores – and you have to think that the merger of Asda and Sainsbury’s, announced at the end of the month, will ultimately lead to store closures and job losses. There have been plenty of warm words from both sides but it is hard to see that the merger can be good for jobs or, in the long term, for consumers as the number of big supermarket groups in the UK reduces from four to three.

We have commented above on the IMF forecast for world trade: that same forecast included a prediction that UK growth this year would be 0.1% higher than originally thought at 1.6%. HSBC also predicted that UK exports would rise this year by their fastest rate since 2011.

Other numbers for the UK made mixed reading: a slowdown in construction and the effects of the ‘Beast from the East’ meant that UK growth in the first quarter of the year was just 0.1% – the lowest figure since 2012. Mortgage lending was also down, as figures for March showed it falling 2.3% to £20.5bn.

There were some positive figures: wages finally climbed above inflation as the year long squeeze on pay showed signs of ending earlier than expected, and unemployment fell to 4.2% – its lowest level since 1975. And London was voted the world’s top financial centre, finally climbing above New York for the first time in five years.

The vote was presumably taken without reference to TSB: April ended with TSB taking the phrase ‘banking chaos’ to a whole new level. The bank upgraded its systems – inevitably in order ‘to improve customer service’ – and ended up seemingly giving customers access to anyone’s account except their own.

Fortunately, there was no such chaos for the FT-SE 100 index of leading shares. After some lacklustre months, it rose 6% in April to end the month at 7,509. As so often happens, the pound went in the opposite direction, falling 2% to end the month trading at $1.3754.

Brexit
Throughout April, the debate raged about whether the UK should stay in some sort of customs union with the EU after March next year. Doing so would avoid a ‘hard border’ between Northern Ireland and Eire – but would severely limit the UK’s ability to do trade deals with countries outside the EU.

It would, sadly, be possible to write an entire 2,500-word commentary on the various models of customs union – or partnerships – that are currently being discussed: we will attempt to do it in less than 200.

The first option – favoured by the Brexit supporters and known in Whitehall as ‘Max Fac’ (short for Maximum Facilitation) would see the UK and EU agree to minimise all checks, using smart technology and building on best practice from around the world (for example, the USA and Canada do not have a customs union). This means that there would be a border between the UK and the EU, but it would be as light touch as possible.

The second option is a hybrid model – the Customs Partnership – which rests on the EU recognising UK customs checks as equivalent to their own, so that goods entering the EU at say, Rotterdam, could in theory travel on to the EU without further checks.

This appears to be Theresa May’s favoured option, but has been described by hard right Tory Jacob Rees-Mogg, as ‘cretinous’ while the International Trade Secretary Liam Fox, has come out firmly against any form of customs union. With eleven months to go until March 2019, the debate will undoubtedly rumble on: but we have reached the 200 word limit, we promised. Don’t worry, the politicians will undoubtedly still be discussing it next month…

Europe
April was a busy month for French President Emmanuel Macron, who made a high-profile visit to Washington and, earlier in the month, made a speech in Strasbourg calling for ever-closer union between the EU’s member states and, as the EU faced up to the loss of the UK’s contribution, more tax and revenue raising powers for the EU.

Many commentators perceived this as Macron’s bid for the de facto leadership of the EU, with German Chancellor Angela Merkel widely seen to be in a weaker position following her eventual coalition agreement with the Social Democrats. German dominance no longer a safe bet, ran a headline in City AM.

Away from the corridors of power and in the banking halls, the European Central Bank announced it would leave interest rates unchanged, despite the pace of growth in the Eurozone starting to slow. There was bad news from Deutsche Bank, which announced ‘significant’ job cuts as it scaled back its corporate and investment banking operations. Christian Sewing, the new CEO of Germany’s biggest lender, said that the cuts were ‘painful but unavoidable’ as the bank reported a sharp drop in first quarter corporate and investment banking revenues.

Fortunately, there was no pain on the German stock market, as the DAX climbed 4% in the month to end April at 12,612. The French stock market had an even better month as it rose 7% to 5,520 – and there was even good news from Greece, with the Athens stock market up 10% to 858.

US
All the attention at the beginning of the month focused on the war of words – and potential trade war – between the US and China. It ended with the historic meeting in Korea and South Korean President Moon Jae-in suggesting that Donald Trump be awarded the Nobel Peace Prize.

Away from that potential plaudit, the US President had some troubling numbers to contend with. The US trade deficit widened in February to $57.6bn (£42bn) and there are suggestions that the US could have a trade deficit of a trillion dollars a year by 2020.

Jobs growth slowed in March, with just 103,000 jobs created in the month, and there were disappointing figures for the first quarter, as annualised growth slowed to 2.3%. Those figures are unlikely to be helped by suggestions that the US could get as many as four interest rate rises this year, as the Federal Reserve pursues a more aggressive line in a bid to keep inflation under control.

April was, however, a good month for both Alphabet (the parent company of Google) and Amazon as their sales and profits surged ahead. But it was a lot less fun for Facebook’s Mark Zuckerberg: he endured an uncomfortable month as he apologised for his company’s massive data breach at a Congressional hearing. Not a good month for Wells Fargo either, as the bank was fined a record $1bn (£730m) for failing to resolve investigations into car insurance and mortgage lending breaches.

What did the Dow Jones index make of it all? Virtually nothing. Having opened the month at 24,103, the Dow closed April up just 60 points at 24,163.

Far East
The news from the Korean border rather overshadowed China’s news in the month – specifically that the country had seen its economy grow at 6.8% in the first quarter, ahead of the government’s growth target for the year of ‘around 6.5%’ – although obviously, this figure would be under pressure from a prolonged trade war with the US.

In Chinese company news, Didi Chuxing, China’s equivalent of Uber, the world’s largest ride-hailing app and currently reckoned to be worth nearly £40bn, announced modest plans for world-wide expansion.

The Economist Intelligence Unit published an interesting article, listing the countries which were most ready for the robotics revolution: South Korea headed the list, with Japan and Singapore joining it in the top four. (The UK was in 8th place, just ahead of the USA.)

Obviously, the news of the détente between North and South Korea had a positive influence on the region’s stock markets. Only China – perhaps still worrying about a possible trade war – saw its stock market fall during the month, with the Shanghai Composite down 3% at 3,082. Hong Kong went in the opposite direction, up 2% to 30,808 and the South Korean market rose 3% to 2,515. Japan, free of the worry of North Korean missiles flying over its islands, saw the Nikkei Dow rise 5% to close April at 22,468.

Emerging Markets
US sanctions hit Russian shares said a BBC headline in the middle of the month, reporting that sanctions imposed by the US had hit the shares of companies controlled by Russian oligarchs, ‘as the Russian stock market tumbled in the wake of the sanctions.’ This followed the diplomatic crisis sparked by the poisoning of former spy Sergei Skripal and his daughter, and President Trump’s threats of tariffs on aluminium and steel.

Well, sanctions or no sanctions the Russian stock market had recovered by the end of month, closing April up 2% at 2,307. There was an even better performance from the Indian stock market, up 7% in April to end the month at 35,160 – and Brazil completed our Emerging Markets hat-trick as the market there rose 1% to close at 86,115.

And finally…
April was a good month for the ‘And finally’ section of the commentary – but we start with something that is probably best not read while you are eating breakfast.

NASA, America’s space agency has been looking for a material that can be transported into space and used for the spare parts that are inevitably needed on a long space mission. The idea is that the parts would be made using a 3D printer: but what material to use? The rocket scientists at NASA have decided that, well… human waste would be ideal. Transported into space and put to use: that’s an idea that Major Tom never discussed with ground control…

There had been widespread rumours of an exodus of London’s leading bankers after Brexit. Apparently, that is not now going to happen. A report in Politico said that the bankers’ wives – and one husband – had been to inspect Frankfurt, the rumoured new banking capital of Europe, and found it to be ‘dark, grey and dull’. So there you are: David Davis and Michel Barnier can huff and puff all they like – in the end it looks like bankers’ wives will decide the shape of Brexit.

Sadly, one wife who had rather less influence was the wife of Tanzanian gambler, Amani Stanley. So sure was Amani that his beloved Manchester City would clinch the Premier League title by beating Manchester United at home that he bet his wife on the result. All was looking good when City were leading 2-0 at half-time. Unfortunately, United stormed back in the second half to win 3-2 and Amani lost his wife for a week to his United supporting friend Shilla Tony. As yet there is no news on her husband’s gambling from Mrs Stanley…

What is pound cost averaging?

Wednesday, April 18th, 2018

If you’re unclear on what the term ‘pound cost averaging’ means, the simplicity of what it describes is perhaps best demonstrated through an example. Abbie is an investor who has already decided where she wants to make a long-term investment. She also earns money through her job and invests more each month. Abbie therefore has three options as to how to invest her money. Firstly, she could invest all the money she currently has immediately, then invest the rest as she earns it. Alternatively, Abbie could hold on to her investment money and add to it as she earns more, waiting for the optimum time to invest a larger sum all in one go. Abbie’s third option is to stagger her investment, pacing herself so that the money is invested gradually over time.

This third approach is ‘pound cost averaging’ – staggered investment of relatively small sums of money in a regular schedule. It’s a method of investment which has a number of benefits. First of all, it reduces your exposure to falling markets which you might experience when investing a lump sum all in one go. Investing according to an established routine means you’ll be purchasing a larger number of shares when prices are low and fewer shares when prices are high.

A second advantage of pound cost averaging is the cushion it provides for you if the market falls. Let’s consider a scenario where Abbie had £10,000 and invested it all in one go into a diversified portfolio. If the market consistently fell over the course of twelve months so that Abbie’s portfolio was worth only £9,000 a year after her initial investment, she would have lost 10% and would need to grow that investment by more than 11% to regain her portfolio’s original value.

Using a pound cost averaging strategy investing £1,000 each month over a sustainable savings routine, Abbie is able to buy more assets at a lower price each month as the market falls. The assets purchased later also spend less time in the falling market. As such, Abbie’s portfolio has a greater value after twelve months than it would have had under the scenario where she invested a lump sum all at once.

Another benefit of pound cost averaging is the good behaviour it instills in investors. By having an established routine, investors overcome the temptation to attempt to time the markets, a method which often leads to worse returns than sticking with a long-term investment. Pound cost averaging can be achieved through automation such as a direct debit from your bank account. As such, investment feel less like a gamble dictated by short-term gains and losses, and more like the ongoing and disciplined activity it needs to be for long-term success.

Warren Buffett runs a website… for your kids!

Thursday, April 12th, 2018

As one of the most successful investors of all time and currently the third richest person in the world with a net worth of over $88 billion, it’s likely that you’ll know Warren Buffett’s name. You might even have visited his website at WarrenBuffett.com, perhaps giving particular attention to the page entitled ‘Warren’s 10 Ways To Get Rich’. What you might not know, however, is that Buffett has another website – one which is aimed not at you, but at your children and grandchildren.

The site, ‘Warren Buffett’s Secret Millionaires Club’, is based around an animated television series of the same name which ran in the US from 2011 to 2014. In the series, Buffett acted as a wise mentor to a group of four children, helping them make positive decisions about earning and investing money. Whilst the series has now finished and has never aired outside America, the site gives you access to twenty-six ‘webisodes’, all no more than five minutes long, giving your youngster the chance to get to know the characters whilst picking up some child-friendly financial advice.

The ‘Games’ section of the site is one your kids are likely to enjoy whilst also helping them hone some valuable numeracy and business skills. ‘Number Blaster’ and ‘Counting Money’ will help your child work on their addition and subtraction, whilst ‘What Do You Know About Business?’ and ‘Business-Building Brainstorm’ aim to give a basic grounding in what a business is and how someone might go about successfully setting one up.

Another page you might want to look at with your youngster is ‘Ask Warren Buffett’s Secret Millionaires Club’, which gives them the opportunity to submit a question to one of the four characters mentored by Buffett in the series in order to get some advice. Even if your child doesn’t have a question they want to ask, the page offers plenty of questions from other kids and the answers provided. Currently there are questions answered about how to start investing in the stock market, how to start up a fashion business, and why it’s a good idea to save money.

Hopefully, you’ll find something on Buffett’s site for your children or grandchildren to explore, on their own or with you. Whilst there’s no guarantee that visiting the site will be the first step to your child becoming a millionaire in the future, starting their financial education early in a way that makes it fun is always a good idea. Warren Buffett’s Secret Millionaires Club can be found at www.smckids.com.

What is a ‘market correction’?

Wednesday, April 4th, 2018

The start of 2018 has been an eventful time in the world of the stock market. After hitting highs at the end of January, both the Dow Jones and Standard & Poor’s 500 saw a considerable drop at the start of February, a fall from which the markets have now mostly recovered. At the time, however, this was reported as a ‘market correction’ by most media outlets. But what exactly does a correction mean in this context?

Put simply, a market correction is when the price of any security or market index declines by at least 10% after a recent high. There are a number of reasons why a correction might happen, but it’s regularly due to short-term gains being experienced despite very little changing in the market. The value increases are often down to the expectation of perceived gains within the mass psychology of investors. As the number of investors buying into the trend goes up, the price goes up too. Buying slows once the price reaches a certain height, and some of the investors lock their gains by selling. This in turn causes the price to go down again after the brief increase, which creates the market correction.

A market correction isn’t the same as a crash, which is a drop of 10% or more without the preceding high. Neither is it the same as the more sustained market downturn of a bear market, which sees a decrease of at least 20%, nor the significant decline in activity across a number of months during a recession. A correction can sometimes act as a forerunner to either a bear market or a recession, however.

Whilst corrections are often reported with similar negativity to crashes and recessions, they usually don’t warrant such pessimism. Corrections are an inevitability of the market: when stock value is going up, investors want in on the profits which could be made, leading to irrational exuberance and prices going above their underlying value. A correction in the price of a stock after a high period is often indicative of the stock’s true market value; as such, the correction may in fact indicate the market’s return to stability rather than a loss in value.

In this sense, corrections are healthy for the stock market, which is relatively volatile in the short term but in the long-term has a strong track record. They provide investors with the opportunity to see how comfortable they are with market risk and adjust or maintain their portfolio accordingly. There have been corrections in the past, and there will be more corrections in the future; unless it precipitates something more severe in the months ahead, the correction experienced at the beginning of February is no cause for panic.

April market commentary

Wednesday, April 4th, 2018

Introduction
To say that March was a busy month is an understatement.

Russia went to the polls to elect a new President and, in the least surprising result of the year, Vladimir Putin won another six year term. With the Chinese Communist Party removing the rules limiting Xi Jinping to two terms in office, two of the world’s three superpowers now effectively have presidents for life. North Korean leader, Kim Jong-un, jumped on the train and headed to Beijing for talks, ahead of his meetings with Moon Jae-in, the South Korean leader, and with Donald Trump. Presumably Kim and Xi Jinping did not discuss sanctions: China is supposedly imposing harsh UN sanctions on North Korea – and yet Kim saw his economy grow by more than 3% last year. ‘Curious and curious-er’ as Alice would have said.

Talk of sanctions and trade tariffs brings us to Donald Trump, who kept one of his pre-election pledges as he imposed a 25% import tariff on foreign steel and a 10% tariff on aluminium. The world may be worrying about a trade war between the US and China – and China has recently hit back with tariffs on US imports – but Trump is sticking to his ‘America first’ policy, and figures for February showed that the US added 313,000 jobs in the month.

In the UK, we had Chancellor Philip Hammond’s first Spring Statement, and agreement was finally reached on the transition agreement with the European Union, which will last until New Year’s Eve 2020.

Unsurprisingly, talk of a trade war meant that it was a bad month for world stock markets, with all but two of the major markets we cover in this commentary falling in March.

UK
As mentioned above, March in the UK brought us the first of Philip Hammond’s Spring Statements. There was relatively good news on the UK’s debt and borrowing figures but, as George Osborne frequently reminded us, the UK is always vulnerable to economic activity in the wider world, and any optimistic figures from the Chancellor could swiftly be consigned to the bin if the threatened trade war between China and the US develops.

He did, however, give a pointer to what we might see in the Autumn Budget. The plastic tax had been widely trailed, as had yet more moves to tax multinational companies such as Google and Apple. Interestingly, he made a reference to ‘seeking views’ on encouraging businesses who want to use digital payments. And why wouldn’t he? Digital payments can be tracked and taxed and would represent a way to strike back at the black economy.

Sadly, there are rather a lot of businesses on the UK high street that would like to take any payment, digital or otherwise. Restaurant chain Prezzo announced the close of 94 branches with the loss of 1,000 jobs; Next said it was experiencing ‘the toughest trading for 25 years’ and the Bargain Booze chain admitted it was close to administration.

House price growth was the lowest for five years and the balance of payments deficit in the three months to January widened to £8.7bn as imports of fuel increased.

There was good news on inflation however, which dipped to 2.7% thanks to a fall in petrol prices, which allowed the Chancellor to comment that most people should see a rise in their real wages “by the end of the year.”

Unfortunately, it looks as though the Bank of England will have increased interest rates well before then, with some commentators expecting an increase in base rates as early as next month and the Bank saying that rises might need to be “earlier” and “by a somewhat greater extent” than they had previously thought.

Unsurprisingly, the FTSE 100 index of leading shares didn’t like the sound of this and fell 2% in March to end the month at 7,057. It is now down by 8% for the first three months of the year – its worst opening quarter since 2009, when we were mired in the financial crisis. However, it was a good month for the pound, which will at least give you some comfort if you are planning a holiday abroad. The pound was up by 2% against the dollar in March and is now trading at $1.40.

Brexit
Well, we have spent a few months in this commentary reporting ‘no real progress’ on the Brexit negotiations. Now, it seems we might finally be getting somewhere, with the UK and EU reaching an agreement over the ‘transition deal’ – the relationship and arrangement we will have with the EU after we leave, which is currently less than a year away on March 29th 2019.

Your view of the transition deal will very much depend on your initial stance of Brexit: but let us try and summarise the main points as impartially as possible:

  • The transition period will end on New Year’s Eve 2020 – three months earlier than had been predicted
  • The UK will be able to negotiate, sign and ratify trade deals – for example, with the USA – during the transition period
  • Existing international agreements and EU trade deals will continue during the transition period
  • The financial settlement we have already agreed is locked in, and both sides are committed to ‘acting in good faith’ during the period
  • It is less good news for the UK’s fishermen: the UK can only ‘consult’ on fishing during the transition period
  • New EU citizens arriving in the UK during the transition period will have the same rights as those EU citizens already here
  • And nothing has so far been agreed regarding the border between Northern Ireland and the Republic of Ireland.

It has been repeatedly said of the EU negotiations that ‘nothing is agreed until everything is agreed’ – but you have to think that the above will be the basis of our relationship with the EU for the 21 months after March next year.

Those in favour of Brexit generally see greater control of trade policy and the agreement to act in good faith as ‘wins’. They are less keen on the extension of free movement and the fisheries policy. Those in favour of staying in the EU see it all as a mistake – but we are moving inexorably towards March 2019 and the UK will be leaving the EU.

Europe
The beginning of March brought the Italian election and – to no-one’s surprise – no clear result. The Eurosceptic, populist Five Star Movement was the biggest single party with a third of the vote, but Matteo Salvini, leader of the anti-immigrant League was also claiming the right to run the country as part of a right-wing coalition with former Prime Minister Silvio Berlusconi’s Forza Italia party. Inevitably, forming a coalition could take weeks of negotiation and horse-trading.

Much of the attention elsewhere in Europe focused on the Brexit deal, although French leader Emmanuel Macron will see his resolve tested this week by a series of rail and airline strikes as the transport unions begin a series of planned strikes in protest at his reform agenda.

The two major European stock markets both drifted down by 3% on the worries about a global trade war. The German DAX index was down to 12,097 while the French stock market closed the month at 5,167.

US
It is a testament to the newsworthiness of its President that we now accumulate as many notes for the US section of this commentary as we do for the UK.

As above, Donald Trump slapped tariffs on imports of steel and aluminium, with China responding over Easter by imposing tariffs on a number of US imports, including wine. There has been much wailing in the California wine regions – but the state is staunchly Democratic and the President is teetotal, so he is unlikely to lose any sleep. With 313,000 new jobs added, there are plenty of Americans who approve of what the President is doing.

Trump’s ‘America First’ policy and concerns for national security were further evidenced as he blocked the takeover of chipmaker Qualcomm by Singapore-based rival Broadcom.

At $140bn (£100bn) the deal would have been the biggest technology sector takeover on record, but there was “credible evidence” that it threatened US security, with fears that it could have put China ahead – or further ahead – in the development of 5G wireless technology.

If March was a good month for jobs and for national security, it was a dreadful month for Facebook. The company had $58bn (£41bn) wiped off its value after the Cambridge Analytica data breach scandal, leaving CEO and founder Mark Zuckerberg with a lot of apologising and explaining to do.

Nor was it a good month for Wall Street with the Dow Jones index inevitably falling amid worries about a trade war. It closed March down 4% at 24,103.

Far East
After the death of Mao Zedong in 1976 the Chinese Communist Party introduced a ‘two term limit,’ intended to ensure that a cult of personality could not re-emerge and that no-one could ‘rule for life’. But in March the ‘two sessions’ – the annual meetings of the national legislature and the top political advisory body – did what had widely been expected and scrapped the rule, effectively opening the way for Xi Jinping to rule indefinitely.

One of the first appointments the new ruler-for-life would have rubber-stamped was that of US-educated economist, Yi Gang, as the next governor of China’s central bank. It is an appointment seen as an attempt to ensure continuity, as China continues to try and rein in growing debt and risky financial practices.

No doubt, the cautious new central banker would have approved of China’s growth target for 2018, now confirmed as 6.5%. This is below the growth of 6.9% reported for 2017 (the first time in seven years that the pace of growth had picked up) and unquestionably reflects the country’s commitment to less risky economic policies and lending.

As mentioned above, the month ended with Kim Jong-un visiting China – seen as a necessary prequel to his meetings with Moon Jae-in and Donald Trump. The visit received a cautious welcome in South Korea, which wants to see the end of nuclear weapons in the Korean peninsula.

There was good news for Samsung in South Korea as the company launched its new S9 and S9+ phones at the World Mobile Congress: the company seems to have regained much of the ground lost when its phones recently took to rather inconveniently exploding…

Unsurprisingly, three of the four major Far Eastern markets were down in March, reflecting concerns over a possible trade war between China and the USA (with China responding by imposing tariffs on US imports over the Easter weekend). China’s Shanghai Composite index fell back 3% to 3,169. The Japanese market was down by a similar amount to close the month at 21,454 while the Hong Kong index was down just 2% to 30,093. The one market to buck the trend and manage a gain during the month – albeit only by 1% – was South Korea. Buoyed by hopes of positive talks with the North the market rose 1% to end the month at 2,446.

Emerging Markets
As we mentioned in the introduction, Vladimir Putin secured another six year term as Russian President, winning 76% of the vote, with his main rival, Alexei Navalny, barred from contesting the election. This came hot on the heels of the tit-for-tat expulsions of ‘diplomats’ after the alleged poisoning of former spy, Sergei Skripal in Salisbury, but that was never going to affect the result of the election. Putin’s share of the vote was up from the 64% he won in 2012. Asked if he would run again in 2024 (by which time he will be 72), Putin replied, “What you are saying is a bit funny. Do you think I will stay here until I am 100 years old? No!” So that confirms it then…

With the West supposedly imposing sanctions, the Russian stock market is more immune than some to threats of a global trade war, and the stock market was down just 1% in March to 2,271. The Indian stock market was hit much harder and fell 4% to end the month at 32,969. The Brazilian market was the only other market of those we cover not to fall in the month, closing up just 12 points at 85,366.

And finally…
There is news that the Church of England will now accept contactless transactions through Apple and Google Pay, albeit only for weddings, christenings and church fetes. Donations via contactless to the collection plate are still being trialled. “It may take too long,” said a Church spokesman. “The old ways could still be the best.”

…A sentiment that was probably echoed by Kentucky Fried Chicken. We wrote about the problems of KFC last month: how the bargain bucket became the empty bucket after they jilted long time food delivery partner Bidvest for the sultry charms of DHL.

Like a middle-aged man admitting the truth after a mid-life crisis, KFC have now repented their error and begged Bidvest for forgiveness. A new agreement has been reached and at least 350 of KFC’s 900 restaurants can look forward to what Bidvest promise will be a “seamless return.”

Rather less seamless may be the foreheads of Apple engineers at their new $5bn (£3.6bn) headquarters in Cupertino. Apple had a problem: according to Reuters, “if engineers had to adjust their gait when entering the new building they risked distraction from their work.”

The solution at the 175,000 acre campus, which is home to 13,000 employees, was doors with completely flat thresholds and massive glass windows with extra transparency and whiteness. So transparent and white that “when the walls have been cleaned you can’t even tell they are there.”

Which was bad news for Apple’s super-intelligent engineers as they walked along lost in thought. Several Apple employees have been left bloody and concussed after walking into the transparent doors and windows. The San Francisco Chronicle has published transcripts of three 911 calls made after Apple employees injured themselves in this way. “We did recognise that this could be a problem, especially after the doors and windows had been cleaned,” said an Apple spokesman.

If only Apple had shown the insight of the Church of England…

The ISA deadline approaches

Thursday, March 8th, 2018

It may seem as though the year has barely begun, yet the month of March is already upon us. That means that spring is just around the corner. It also means that the ISA deadline of 6th April is rapidly approaching.

Individual Savings Accounts (ISAs) are tax-free savings accounts open to anyone over the age of 16 to deposit their savings each year. With attractive savings allowances, ISAs have become very popular with people across the UK intent on building a nest egg for their future.

As of the end of the 2017/2018 tax year, the maximum amount you can deposit in an ISA in one financial year is £20,000 per annum, up from £15,240 in the previous tax year.

This limit will remain unchanged into the 2018/2019 tax year. However, as those in the know will tell you, any tax savings are dependent on the amount you deposit into your ISA over the course of the tax year. Deposits cannot roll over from one tax year’s allowance to the next, meaning that you can’t ‘top up’ your savings in 2018/2019 using any unused portion of this tax year’s allowance. When it’s gone, it’s gone!

Maximising your ISA allowance is therefore a great way to save for your future. This is further highlighted by the fact that ISA allowances can be split across different financial products, including cash ISAs, stocks and shares ISAs, innovative finance ISAs and lifetime ISAs (LISAS).

Lifetime ISAs, for example, were first launched in April 2017 to help first-time buyers under the age of 40 buy their first home and/or savers to build a nest egg to use in retirement once they reach the age of 60. Borne of research into economic and behavioural psychology, the Lifetime ISA tackles two problems simultaneously: that many people between the age of 18 and 40 are not saving for a home and nor are they contributing a significant portion of their earnings to a pension.

Making use of an ISA allowance is typically one of the features of sound financial planning. ISAs, though, are just one of many ‘tax-wrappers’ available – meaning investors can ‘wrap’ their investment, sheltering them from paying tax on all, or a portion, of their assets. Your adviser will likely talk to you often about the wrappers you are using, how to maximise them and which are the most appropriate for your current circumstances. If you have any questions around this topic, please feel free to get in touch with us directly.

Who owns your bank?

Wednesday, February 14th, 2018

Following the financial crisis of 2008 when a number of big British banks came close to collapsing, the Financial Services Compensation Scheme (FSCS) was strengthened by the government. As such, the FSCS 100% guarantees the first £85,000 of a person’s cash savings per banking licence in total, including interest. This means that a couple with a joint account holding up to £170,000 will have every penny of this covered.

But what does ‘per banking licence’ mean? Simply put, one banking licence can cover a number of different banks, building societies or brands. It’s important therefore to spread your cash across more than one provider, as it could mean some of your hard-earned money isn’t as safe as you think in the event of a future collapse.

With that in mind, below is a list of the biggest banks and building societies in the UK and all the brands which fall under their banking licence. That means if you hold more than £85,000 across different brands but under the same licence, you could be in a position to lose out should the worst happen.

HBOS (Halifax/Bank of Scotland group):

  • AA
  • Bank of Scotland
  • Birmingham Midshires
  • Halifax
  • Intelligent Finance
  • Saga

Lloyds Banking Group*:

  • Cheltenham and Gloucester
  • Lloyds Bank

*HBOS was acquired by Lloyds Bank, but both HBOS and Lloyds Banking Group have continued to operate under separate banking licences.

TSB:

  • TSB

Barclays:

  • Barclays
  • Barclays Direct (formerly ING Direct)
  • Standard Life
  • Woolwich

HSBC:

  • First Direct
  • HSBC

Royal Bank of Scotland (RBS)**:

  • RBS

NatWest:

  • NatWest

Ulster Bank:

  • Ulster Bank

Coutts & Co:

  • Coutts

**NatWest, Ulster Bank and Coutts are all subsidiaries of RBS, but have their own separate banking licences. As such, someone with accounts in each of these banks would be covered for up to £85,000 in each bank.

Santander UK:

  • Cahoot
  • Santander

The Co-operative Bank:

  • Britannia BS
  • Smile
  • The Co-operative Bank

Bank of Ireland UK:

  • Bank of Ireland UK
  • Post Office

Clydesdale Bank PLC:

  • Clydesdale Bank
  • Yorkshire Bank

Sainsbury’s Bank:

  • Sainsbury’s Bank

Tesco Bank:

  • Tesco Bank

Virgin Money:

  • Virgin Money

Nationwide BS:

  • Cheshire BS
  • Derbyshire BS
  • Dunfermline BS
  • Nationwide BS

Yorkshire BS:

  • Barnsley BS
  • Chelsea BS
  • Egg
  • Norwich and Peterborough BS
  • Yorkshire BS

Coventry BS:

  • Coventry BS
  • Stroud and Swindon BS

Skipton BS:

  • Chesham BS (renamed Skipton BS)
  • Scarborough BS (renamed Skipton BS)
  • Skipton BS

So, what about banks outside the UK? Whilst most banks which accept British savings are not covered by the FSCS, some within the European Economic Area are covered by their home country’s compensation scheme through the ‘savings passport’ scheme. One of the most prominent examples is Triodos Bank in the Netherlands, which is covered by the Dutch equivalent of the FSCS up to €100,000 per person. There are also some international banks which are covered by the FSCS, including:

  • Axis Bank UK
  • ICICI Bank UK
  • State Bank of India UK

National Savings & Investments (NS&I) is also covered by the FSCS – but as it’s owned by the government, the expectation is that all deposits into NS&I (both up to and over £85,000) would be covered apart from in the most extreme financial circumstances.