financial

Reviewed by Charlene Rhinehart
Fact checked by David Rubin

The balance sheet, income statement, and cash flow statement are foundational to the financial reporting of any company. Public companies are considered to be held to a higher standard because of their mandate to follow generally accepted accounting principles (GAAP). But, that hasn’t stopped companies from cooking their books to post much better than actual results in many categories. Enron, WorldCom, and Lehman Brothers are some of the most commonly known cases of fraud. And they aren’t the only ones.

Creative accounting can come in many different forms. It can also occur in many different ways. Keep in mind that certain loopholes exist that may help a company legally spin its financial reporting in a positive light. Spotting creative accounting practices on the balance sheet can be broken down into three categories for analysis: assets, liabilities, and equity. Here we’ll explore some of the ways each of the three categories of the balance sheet can be manipulated.

Key Takeaways

• You can spot creative accounting practices on a company’s balance sheet by analyzing its assets, liabilities, and equity.
• Overstating assets and/or understating liabilities leads to increased net income on the income statement.
• Fraudulently increasing net income can create the illusion of better performance by the company and management.
• Inflating assets and understating liabilities on the balance sheet can also improve key performance ratios.
• A company’s balance sheet ratios can be improved by manipulating the balance sheet.

Why Boost the Balance Sheet?

The balance sheet is closely tied to the income statement which is often where issues with asset revenue and/or liability expenses can help to create inflated revenues or understated expenses that result in a higher bottom line and retained earnings tied back to the balance sheet.

Companies that manipulate their balance sheets often want to increase their net income earnings power to create the appearance of a stronger financial condition or stronger management performance. After all, financially sound companies can more easily obtain lines of credit at low interest rates, as well as more easily issue debt financing or issue bonds on better terms. Companies may also be looking to overstate their overall asset position to potential creditors.

Note

Keep in mind that any scenario involving the illegal overstatement of assets, understatement of liabilities, or overall under- or overstatement of shareholders’ equity can reap short-term benefits but will have negative consequences when spotted.

Overvaluing Assets

Assets top out balance sheet construction. Like liabilities, assets are divided into current (12 months or less) and long-term (more than 12 months). Items commonly found in the asset category include: cash and equivalents, accounts receivable, inventory, and intellectual intangibles.

Provision for Doubtful Accounts

Accounts receivable (AR) have a direct link to revenues on the income statement. Companies that use accrual accounting can book revenue in accounts receivable as soon as a sale is made. Thus, the processing of accounts receivable can be one high-risk area for premature or fabricated revenues.

AR may be overstated because of inappropriate planning for doubtful accounts. Prudent companies typically take proactive measures for AR defaults. By not doing so, this can inflate earnings. It is up to each company to analyze and estimate the percentage of accounts receivables that regularly go uncollected. If there is no allowance for doubtful accounts, AR will receive a temporary boost in the short term.

Investors may detect when the reserves for doubtful accounts are inadequate. Accounts receivable will not be fully turned into cash, which can show up in liquidity ratios like the quick ratio. Write-downs will also need to be made to revenues. If accounts receivable make up a substantial portion of assets and inadequate default procedures are in place this can be a problem. Without doubtful account planning, revenue growth will be overstated in the short term but potentially retracted over the longer term.

Revenue Acceleration

In the asset category, companies can also overstate revenues through acceleration. This could come from booking multiple years of revenue at once. Companies may also manipulate revenues by comprehensively booking a recurring revenue stream upfront rather than spreading it out as it is expected to be received. Revenue acceleration is not necessarily illegal but it is not usually a best practice.

Inventory Manipulation

Inventory represents the value of goods manufactured but not yet sold. It is usually valued at wholesale but sold with a markup. When inventory is sold, the wholesale value is transferred over to the income statement as the cost of goods sold (COGS), and the total value is recognized as revenue. Overstating any inventory values could lead to an overstated COGS, which can reduce the revenue earned per unit.

Some companies may look to overstate inventory to inflate their balance sheet assets for the potential use of collateral if they need debt financing. It is typically a best practice to buy inventory at the lowest possible cost to reap the greatest profit from a sale.

One example of manipulated inventory includes Laribee Wire Manufacturing, which recorded phantom inventory and carried other inventory at bloated values. This helped the company borrow some $130 million from six banks by using the inventory as collateral. Meanwhile, the company reported $3 million in net income for the period, when it lost $6.5 million.

Investors can detect overvalued inventory by looking for telling trends like large spikes in inventory values. The gross profit ratio can also be helpful if it is seen to fall unexpectedly or to be far below industry expectations. This means net revenues may be falling or extremely low because of excessive inventory expensing. Other red flags may include:

• Higher inventory levels than sales
• Higher inventory levels than total assets
• A decrease in inventory turnover
• An increase in the cost of sales as a percentage of sales

Any unusual variations in these figures can be indicative of potential inventory accounting fraud.

Subsidiaries and Joint Ventures

When public companies make large investments in a separate business or entity, they can either account for the investment under the consolidation method or the equity method depending on their ability to control the subsidiary. These investments are booked as assets, which can leave the door open for companies to potentially use subsidiaries, ownership investments, and joint ventures for fraud—oftentimes, off-balance sheet items are not transparent.

Under the equity method, the investment is recorded at cost and is subsequently adjusted to reflect the share of net profit or loss and dividends received. Gains on these investments inflate assets and also lead to higher net income which carries over to the retained earnings portion of shareholders’ equity. While these investments are reported on the balance sheet and income statement, the methodologies can be complex and may create opportunities for fraudulent reporting.

Investors should be cautious—and perhaps take a look at the auditor’s reliability—when companies utilize the equity method for accounting in situations where they appear to control the subsidiary. For example, a U.S.-based company operating in China through various subsidiaries in which it appears to exert control could create an environment ripe for manipulation.

Note

Inflating assets can lead to higher revenues or higher inventory values that can make a company’s asset position stronger than it actually is.

Undervaluing Liabilities

Undervaluing liabilities is a second way to manipulate financial statement reporting from the balance sheet. Any understatement of a company’s expenses can be beneficial in boosting bottom line profits.

Contingent Liabilities

Contingent liabilities are obligations that are dependent on future events to confirm the existence of an obligation, the amount owed, the payee, or the date payable. For example, warranty obligations or anticipated litigation losses may be considered contingent liabilities. Companies can creatively account for these liabilities by underestimating them or downplaying their materiality.

Companies that fail to record a contingent liability that is likely to be incurred and subject to reasonable estimation are understating their liabilities and overstating their net income and shareholders’ equity.

Investors can watch for these liabilities by understanding the business and carefully reading a company’s footnotes, which contain information about these obligations. Lenders, for example, regularly account for uncollected debts incurred through defaults and often discuss this area when earnings reports are released.

Other Expenses

Some other ways companies may manipulate expenses can include: delaying them inappropriately, adjusting expenses around the time of an acquisition or merger, or potentially overstating contingent liabilities to adjust them in the future as an increase to assets. Moreover, subsidiary entities as mentioned above, can also be a haven for off-balance sheet reporting of some expenses that are not transparently realized.

Note

Ownership in non-transparent entities can raise red flags for off-balance sheet items that may be disguised within subsidiaries rather than fully integrated in a company’s bottom line results.

Pension Obligations

Pension obligations are generally a result of the present value of future payments paid to employees. They are ripe for manipulation by public companies since the liabilities occur in the future and company-generated estimates need to be used to account for them. Companies can make aggressive estimates to improve both short-term earnings as well as to create the illusion of a stronger financial position.

One way to potentially manipulate this is through the discount rate used. Increasing the discount rate can significantly reduce the pension obligation. Companies may overstate the expected return on plan assets. Overstating expected returns creates more assets from which to pay pension liabilities, effectively reducing the overall obligation.

Since pension obligations can be ongoing for a company, accountants could potentially make various adjustments over the full length of the obligations to favorably manipulate net income in the short term or at some time in the future.

Shareholders’ Equity

Shareholders’ equity consists of the value of stocks, any additional paid-in capital, and retained earnings, which are carried over from net income on the balance sheet. If a company overstates assets or understates liabilities it will result in an overstated net income, which carries over to the balance sheet as retained earnings and therefore inflates shareholders’ equity.

Shareholders’ equity is used in several key ratios that may be assessed by financial stakeholders when evaluating a company as well as for maintaining current financing arrangements such as credit lines.

Some of these ratios may include debt to equity, total assets to equity, and total liabilities to equity. It is also used to calculate return on equity (ROE), which is central to evaluating the overall balance sheet performance of a company as well as the performance of management. ROE is the result of net income over shareholders’ equity.

The Bottom Line

Companies can manipulate their balance sheets in many different ways, ranging from inventory accounting to contingent liabilities. The goal is to increase net income, which comes with the integration of actions that also show on the income statement. Companies may seek to inflate their assets or understate their liabilities to present a stronger financial position for stakeholders who assess their willingness to provide new capital through debt or equity financing. Any dramatic spikes or decreases in a company’s assets or expenses can be reason for alarm and further investigation. Public companies are required to adhere to GAAP accounting but oftentimes use non-GAAP measures, which should also be investigated and understood by investors.

Public companies can be a better universe for the sourcing of investments for everyday retail investors because of the regulations that have been instituted by the Securities Exchange Commission. If an investor feels they may have spotted creative accounting that involves fraudulent reporting, a review of publicly available audit statements and related financial disclosures can be the first place to look. Sometimes though, methods may be hidden, which can lead to shareholder investigations and potentially lawsuits if solid evidence is found for unlawful manipulations. Reading the financial statements, understanding a company’s business, and integrating an appropriate knowledge for spotting questionable practices can be important steps for all investors to take before making substantial investments. Staying away from questionable investments or taking proactive steps to move out of investments when creative accounting measures have been spotted can also be prudent steps to take.

Student loans could become more prominent in paying for college if the United States Department of Education closes. Incoming-President Donald Trump promised to abolish the Education Department if elected, but federal student loan balances are unlikely to disappear. However, even if federal loans remain part of the higher education landscape, changes to the federal student loan program and the options available could lead to borrowers turning to private student loans in greater numbers.

Key Takeaways

• If President Trump fulfills his campaign promise to abolish the Department of Education, payments will likely be managed by other government agencies.
• Any new efforts for blanket student loan forgiveness are unlikely to emerge under the new administration.
• Changes to federal student loan borrowing and repayment options could lead to more families using private student loans to fund a higher education.

Trump’s Plan for the Education Department

While on the campaign trail, Trump repeatedly called for the end of the Department of Education. If congressional support emerges to shutter the department, trillions of dollars in federal student debt would still need to be managed. Trump has previously advocated for merging the Education Department with the U.S. Department of Labor.

Additionally, Trump would presumably sign the College Cost Reduction Act, an overhaul of several aspects of the federal student loan program. Introduced by House Representative Virginia Foxx (R-NC), this legislation proposes getting rid of PLUS loans and replacing the existing income-driven repayment (IDR) plans with a new “repayment assistance plan.” Under this new IDR plan, borrowers would qualify for forgiveness after paying an amount equal to the “principal and interest owed under the standard 10-year plan.”

Important

The Biden administration’s Saving on a Valuable Education (SAVE) plan is currently on hold due to several court actions. Borrowers enrolled in the plan have been placed in an interest-free forbearance until the matter is resolved.

Private vs. Federal Student Loans 

Private student loans only accounted for about 7.61% of outstanding student debts, or $133.43 billion, in March 2024. Meanwhile, as of Q4’24, there’s approximately $1.64 trillion in outstanding federal student debt.

Federal and private student loans both have advantages and disadvantages, so each type can work well for different students (depending on their needs).

Federal Student Loans

• No credit requirements for undergraduate loans

• Relatively low borrowing limits, which might not cover the full cost of attendance

• Fixed interest rate set by congressional formula and the same for each loan type

• Variety of IDR plans and hardship options

• No possibility of securing lower interest rates or avoiding origination fees

Private Student Loans

• Credit inquiries required for all loans, including undergraduate

• Ability to borrow sufficient funds to cover the entire cost of attendance

• Fixed and variable rates determined by lender, market conditions, and/or borrower’s

• Hardship options vary by lender

• Some loans come without origination fees, and well-qualified borrowers could get lower interest rates

^{Source: Federal Student Aid}

Generally, it’s best to start with federal student loans due to their fixed rates, lack of credit requirements, and multiple repayment options (including potential student debt forgiveness). However, private loans can be a good option if you still need to cover a funding gap after maxing out your federal student aid package. However, this dynamic could change if the Education Department disappears.

Even if the Department of Education remains intact, private loans could become a bigger part of the college funding picture should the College Cost Reduction Act become law. The proposed changes to federal student loans, including replacing IDR plans and eliminating PLUS loans, would limit the options available to borrowers, which may encourage more of them to take out private student loans.

The Bottom Line

Without the Department of Education, Federal loans may become less appealing to borrowers. While not necessarily likely, it’s possible federal government will stop originating new student loans altogether, leaving borrowers little choice but to turn to private lenders. Nothing has been decided yet, so borrowers—existing and new—must wait to see how the Trump administration deals with student debt.

Over the last few years, Texas has not only emerged as a popular tourist spot and hub for major American businesses but also a desirable retirement destination. If you’re nearing that time in your life, you may be curious if making the move to Texas is a financially smart move for you. 

Here’s what you need to know about living in Texas as a retiree on a fixed income. 

Key Takeaways

• Texas is one of the top destinations in the nation for new retirees.
• One of the key attractions to the state is its significant tax benefits for retirees, including no state income tax.
• The cost of living in Texas is generally lower compared to many other states.
• Texas has many diverse cities and communities with vastly different characteristics, so be sure to look closely at any areas you’re considering.

The Appeal of Retiring in Texas

From its warm climate, diverse cultural offerings, and scenic environments to its pension-friendly status, there’s a reason why Texas is experiencing an influx of retirees. In fact, Texas was the fourth most popular state for net migration among people over age 60 in 2022, according to a study released in 2024.

Take a look at some of the appealing aspects of the Lonestar State, and why its highly affordable status might put it on your short list of retirement destinations.

1. Lower Cost of Living  

Cost of living can vary widely in a big state like Texas since it’s made up of large metro areas (some more affluent than others) and lots of suburbs and small towns. But overall, it’s fair to say that Texas is a less expensive place to live than many other states in the nation.

According to 2023 numbers from the Bureau of Economic Analysis, the average personal consumption expenditures per capita in Texas was $52,229, which was lower than the national average of $56,202. For comparison purposes, California’s was $64,835 and Florida’s was $60,204.

Note

Texas’ food costs, housing, health care, and utility costs all fall below the national average for spending in those categories, which means those retirement paychecks can go further there. 

When you drill down into specific places in Texas, you can also find some of the most affordable places to live in the nation. For example, in Kiplinger’s “Cheapest U.S. Cities To Live: U.S. Cities Edition” 2024 survey (based on government cost of living data), three Texas cities broke the top five (Edinburg, Harlingen, and Amarillo), and McAllen appeared lower down at No. 14.

2. Below Average Housing Costs

Housing costs in Texas are also lower than national averages. The average Texas home value in 2024 was $299,467, lower than the $357,469 average home value nationally. Renters can also find more affordable housing as the average rent in Texas was $1,255 per month, below the nationwide average of $1,560 (as of December 2024).

3. Favorable Tax Rates

Texas is one of just seven states with no individual income tax—and that’s a big deal for people living on a retirement budget. No income tax states like Texas are sometimes referred to as “pension friendly,” and tend to be popular with retirees. This is because residents don’t have to pay any taxes on their pensions, Social Security benefits, or distributions from IRAs or 401(k)s. This effectively gives you a bigger budget to work with.

State and local sales tax is also on the lower side in Texas. At 8.2%, the rate ranks 14th in the nation. For comparison, Oklahoma has an 8.989% state and local sales tax rate while Arkansas has a 9.448% combined rate. Also good news for retirees: Groceries, prescription drugs, and over-the-counter medicine are not subject to sales tax in Texas.

Potential Drawbacks

Despite all of the positive aspects of retiring in Texas, there are a few cons to consider as well.  

1. Natural Disaster Risks

Texas weather can be dramatically different depending on which part of the state you live. But more concerning is that Texas residents face the potential for extreme weather events from hurricanes to droughts and wildfires. The state’s cumulative cost of natural disasters reached over $400 billion from 1980 to 2023, the highest in the nation.

You may need to purchase extra insurance on your home if you live in Texas. Having a strong emergency fund is also crucial should you need to cover out-of-pocket expenses or evacuate for a period of time. 

2. Health Care Costs and Quality

One area where Texas falls short for seniors is with its health care system. Texas was ranked No. 38 for health in America’s Health Rankings 2024 Senior Report, based on social and economic factors, physical environment, behaviors, clinical care, and health outcomes.

Coverage-wise, Texas residents have both Medicare Advantage and Medicare Supplement plan options, however. Not every state offers both, so this is a plus. The average monthly Medicare Advantage plan premium in Texas for 2025 is $6.81, which is below the $17.97 per month average nationally.

3. Transportation and Accessibility Challenges

As the second most populous state, Texas has some transportation challenges since highway and road upgrades haven’t kept pace with the increasing number of drivers over the decades. State residents lose an average of 54 hours a year sitting in traffic. In addition, the Aging Texas Well Advisory Committee acknowledges that more needs to be done to accommodate people 65 and older who need public transportation services.

Again, access to transportation options may vary by locality. Metro areas tend to offer more public transportation, while some smaller suburbs can be more walkable or have better bicycle paths. Also worth exploring: If an area has volunteer driver programs that help seniors get to and from appointments. 

4. Higher Property Taxes

Although Texas is tax-friendly when it comes to income, it has higher property taxes than many areas. At 1.47%, Texas ranks seventh for property taxes paid as a percentage of owner-occupied housing value. 

The Bottom Line

Texas’ no-income-tax policy alone may put the state on your shortlist for retirement. It also has a lower average cost of living than many other places in the nation, so if you’re coming from a higher-cost area such as California or the Northeast, you will likely come out ahead financially.

That said, everything is bigger in Texas, including the number of options you have in terms of where to live. Compare lifestyle and cost of living carefully whether you choose to live in a city like Houston or Austin versus a small town like Fredericksburg. 

To help with the financial aspects of your decision, consider seeking counsel from a financial advisor who can help you make an informed decision that will fit your retirement finances.

Reviewed by Charles Potters

Australia might not be on people’s radar as a hotbed of entrepreneurial activity. In the past, the country has been accused of lacking innovation and encouraging a risk-averse mentality.

Nonetheless, a handful of entrepreneurs from Australia have overcome those barriers. In recent years, the Land Down Under has produced some great minds including Canva founders Melanie Perkins and Cliff Obrecht, AfterPay creator Nick Molnar, and Atlassian’s Mike Cannon-Brookes and Scott Farquhar. It’s also where John Ilhan, Rupert Murdoch, and Katie Page, arguably the most well-known Australian entrepreneurs, are from.

Key Takeaways

• Australia has been criticized for not being very entrepreneurial, although many innovative minds come from there.
• Three names that stand out are John Ilhan, Rupert Murdoch, and Katie Page.
• Ihan is best known as the founder of Crazy John’s, which went on to become the largest independent phone retailer in Australia.
• Murdoch built a media empire that includes Fox Television, 20th Century Fox, the Wall Street Journal, HarperCollins, Sky, the Sun, the Times, and the New York Post.
• Page helped turn Harvey Norman into a worldwide retailer generating billions in revenue.

John Ilhan

John Ilhan is best known as the founder of Crazy John’s, which went on to become the largest independent phone retailer in Australia, and for once being named the richest Australian under 40.

Ilhan was born in Yozgat, Turkey, on Jan. 23, 1965, and later migrated with his family from Turkey to Australia at the age of 5. He grew up in Broadmeadows, a working-class section in the northwestern part of Melbourne, was said to be a big fan of sports, playing on the football, basketball, and soccer teams, and rarely saw his parents because they were working so much.

During his childhood, Ilhan’s entrepreneurial spirit began emerging. At one point, he started selling a newspaper on the street corner, then sold the business to a friend for a nice profit. Later, he went to university to study art but quit and ended up working on the same Ford production line as his parents.

In 2011, a biography of John Ilhan, titled John Ilhan: A Crazy Life, was published.

Ilhan moved into sales at Ford, then landed a job selling cell phones. There he unearthed a talent, topping sales records for three years, which eventually, alongside a dispute over pay, prompted him to open his own store across the road with just 700 Australian dollars and a loan from his parents in 1991.

The first few years were tough but Illhan’s hard work eventually paid off. Through expansion, Ilhan’s one store, Crazy John’s, became a retail chain of 120 stores that eventually developed into Australia’s largest Telstra mobile dealership. By 2003, he was named the richest man in Australia under 40.

Sadly, IIhan didn’t get to see through his plans to expand overseas. In 2007, at the age of 42, IIhan, who was also well known for his generosity and philanthropy, died of a heart attack. At the time of his death, he was estimated to be worth over 300 million Australian dollars.

Rupert Murdoch

Rupert Murdoch, born Keith Rupert Murdoch in March 1931, is one of the world’s most prolific business magnates. An Australian-American, Rupert was born in Melbourne, Australia, to Sir Keith Arthur and Elisabeth Murdoch. In 1952, at the age of 21, his father suddenly passed away, leading him to inherit Australia’s News Limited and become the managing director of the media company.

Throughout the 1950s and 1960s, Murdoch acquired a variety of newspapers based in Australia and New Zealand. In 1969, he was able to expand into the United Kingdom, where he took control of News of the World and, later, the Sun. In 1981, he acquired the Times.

Rupert Murdoch began to truly fulfill his potential for generating tremendous financial gains when he started using his entrepreneurial talents in the United States. He expanded into the U.S. market in the 1970s, funded by his substantial interests in the United Kingdom and Australia, acquiring the distressed San Antonio Express-News in 1973 and creating Star magazine, a supermarket tabloid, in 1974. Two years later, he bought the New York Post.

Note

Murdoch became a naturalized U.S. citizen in 1985, specifically to meet the legal stipulations required for U.S. television station ownership. To do so, he had to give up his Australian citizenship.

In 1985, Murdoch made acquisitions that eventually changed the landscape of U.S. television news, first by purchasing a controlling interest in 20th Century Fox, and subsequently by buying half a dozen U.S. television stations. These moves formed the foundation for the creation of the Fox Television Network and the Fox News Channel, which launched in 1996 and within five years became the number-one rated cable news network.

Murdoch’s global media holding company, News Corporation, continued to grow with the 198 acquisition of Harper & Row (later to be rebranded as HarperCollins), the founding of Sky television in Britain in 1988, and the 2007 acquisition of the Wall Street Journal.

In 2012, Murdoch split his newspaper and entertainment business into two separate entities: News Corp and 20th Century Fox. Disney later acquired the majority of the latter, with the remaining broadcast business now known as Fox Corp.

As of Jan. 10, 2025, News Corp has a market capitalization of $15.94 billion while Fox Corp has a market capitalization of $21.43 billion.

Katie Page

Katie Page is the chief executive of Harvey Norman, a large department store established by her husband, Gerry Harvey and Ian Norman, in 1982. Today, there are more than 270 Harvey Norman stores spread across the globe from Ireland to Singapore.

Page was born in 1956 in Mareeba, a town in North Queensland, Australia. Her father encouraged her to read the business sections of the newspapers and she went to a school where women were told they could do anything.

After school, Page moved to Sydney and began working with Gerry Norman. Together, they turned a one-store operation into a multinational retail chain generating billions of dollars in revenue. In sixteen years, Page went from an assistant to CEO. She has been credited with overseeing Harvey Norman’s massive expansion, including overseas, and keeping it relevant in the internet era.

Page’s company trades on the Australian Stock Exchange, or ASX, and is one of the component stocks of the ASX 200 Index. She was one of the first women to hold a top-level executive position at an ASX 200 company and is currently the 18th richest woman in Australia with a net worth of 1.6 billion Australian dollars.

Who Are the Five Richest People in Australia?

According to Forbes, the richest people in Australia are:

1. Gina Rinehart
2. Andrew Forrest and family
3. Harry Triguboff
4. Mike Cannon-Brookes
5. Scott Farquhar

How Many Billionaires Are There in Australia?

There are 159 billionaires in Australia in 2024, according to the Australian.

Who Is the Richest Entrepreneur?

Elon Musk, who is widely known for leading the way in electric vehicles and space travel, is the richest person in the world.

The Bottom Line

Australia has produced many entrepreneurs over the years, some of the highest profile of whom are Rupert Murdoch, Katie Page, and John Ilhan. These three figures led the way for others to follow and each offers fascinating stories characterized by lots of ambition, great ideas, hard work, and determination.

With no minimum deposit requirements and high interest rates, Barclays is a contender for the best CDs today

Fact checked by Michael Rosenston

Barclays is a 300-year-old British bank trying to stay globally relevant in modern times, and its CDs are a good-faith effort to that effect. Barclays Bank CD rates are good, and many people will appreciate its simple, straightforward options. 

Barclays Bank offers several terms for its online CDs in the United States market with rates up to 4.10% APY, which is competitive with many of the best CD rates.

Barclays Online CD Overview

Compare Barclay Bank Rates

Barclay Bank offers some CDs with competitive interest rates, but you may be able to find even higher returns on CDs by shopping around and comparing terms.

Barclays Bank CDs: Key Features

There is no minimum deposit required to open a Barclays CD. 

Use a CD interest calculator to check how much total interest you’d earn with one of Barclays Bank CD rates, based on the deposit amount you wish to make. 

Pros and Cons of Barclay Bank CDs

Pros

• Fairly competitive rates

• No minimum deposit requirement

Cons

• May find higher rates elsewhere

• Early withdrawal penalty

Pros Explained

• Fairly competitive rates: Some of Barclay Bank CDs offer high interest rates compared to other CDs.
• No minimum deposit requirement: Unlike many CDs, you don’t have a minimum deposit requirement with Barclay Bank CDs.

Cons Explained

• May find higher rates elsewhere: By shopping around, you may be able to find better interest rates and get higher returns for your investment.
• Early withdrawal penalty: Like many CDs, Barclay CDs have an early withdrawal penalty.

Important

Some people prefer opening CDs and savings accounts at other banks because it “hides” the account from themselves, making it easier to avoid the temptation to withdraw the money early. 

Alternatives to Barclay Bank CDs

• Other high-interest CDs: Many of Barclay Bank CDs offer competitive interest rates. Check the best CD rates currently available before making a deposit.
• High-yield savings account: If you want to protect your funds while also earning interest, you can also consider a high-yield savings account.
• Checking account: A checking account is another option for storing your cash, especially if you don’t want to be subject to withdrawal limits. Some high-interest checking accounts can provide more returns on your cash than traditional checking accounts.
• Money market account: Money market accounts are similar to savings accounts, though they may also come with check-writing abilities and a debit card. You can often earn a good rate on your savings, but you might have to deal with monthly fees or minimum balance requirements. 
• I bonds: I bonds from the U.S. government are an investment option for protecting your savings from inflation. I bonds may or may not offer a higher rate than the best CDs. When you invest, you have to commit to leaving your money in the I bond for at least a year.

Frequently Asked Questions (FAQs)

Is a Barclays CD Worth It?

Yes, a Barclays CD is a very good option if you’re looking to earn competitive rates and if you don’t mind opening a CD account at a new bank. For more CDs with high APYs, see the best CD rates currently available today.

Does Barclays Have a Minimum Deposit for CD Accounts?

No, Barclays doesn’t have a minimum deposit for its CD. But Barclays does require that you deposit enough to earn at least $0.01 in interest each month—otherwise, the bank won’t post any interest at all to your account and it’ll be stuck in an interest-free limbo until it matures.

What Is the Best Term Length for Barclays CDs?

Barclays Bank CD rates are currently the highest for its 1-year term. Normally rates are higher on the longest-term CDs. But given the strange high-interest-rate environment we’re currently in, many banks have reversed that pattern, likely so they’re not stuck paying ultra-high rates when they go back down in the future.

Are Barclays CD Accounts FDIC-Insured?

Yes, Barclays CDs are FDIC-insured. Just remember to keep your total deposits with Barclays under $250,000, which is the limit of FDIC insurance for all of your deposits at any particular bank. 

Your Guide to CDs

• What Is a Certificate of Deposit (CD)?
• What Is a Brokered CD?
• What Is a CD Ladder?
• Pros and Cons of CDs
• How to Invest With CDs
• How to Open a CD
• How to Close a CD
• CDs vs. Annuities
• CDs vs. Stocks
• CDs vs. Mutual Funds
• CDs vs. ETFs
• CDs vs. Savings Accounts
• Short-Term vs. Long-Term CDs
• CD Rates News
• Best 1-Year CD Rates
• Best 18-Month CDs
• Best Jumbo CD Rates
• Best 6-Month CD Rates
• Best 3-Month CD Rates
• Best Bank CD Rates

We independently evaluate all recommended products and services. If you click on links we provide, we may receive compensation.

Reviewed by Andy Smith

Mutual Funds vs. Systematic Investment Plans (SIPs): An Overview

Mutual funds are often described as a basket of stocks or bonds managed by a professional with shares of the portfolio made available for purchase by investors. At the end of each trading day, all the fund’s holdings are priced and the fund’s net asset value is calculated. Purchases of mutual funds can be made with lump-sum investments or through a systematic investment plan (SIP). While a mutual fund is an investment product, a SIP is an investment plan that involves mutual funds.

Key Takeaways

• A systematic investment plan involves investing a consistent sum of money regularly, and usually into the same security, which could be a mutual fund or funds.
• A SIP generally pulls automatic withdrawals from the funding account and may require extended commitments from the investor.
• SIPs operate on the principle of dollar-cost averaging, buying more shares when prices dip.
• Most mutual fund companies offer SIPs.

Mutual Fund

Mutual funds are investment vehicles that pool money from many investors and then put that money to use following a stated strategy. They allow investors to get professional money management across a range of strategies and investment styles.

For example, one mutual fund may generate extra returns by identifying under-valued small-cap stocks with high growth potential by undertaking in-depth research while another mutual fund may passively replicate the S&P 500 index.

Investors should understand the costs associated with mutual funds. Fees are based on the type of mutual fund, investment strategy, and/or the managing company. For instance, funds may come with expense ratios, sales charges, maintenance fees, and redemption fees. some funds may also have minimum investment requirements, which means there may be high barriers to entry.

Funds may be actively or passively managed, where:

• Active funds take a hands-on approach. These try to beat the stock market or underlying index and are regularly rebalanced.
• Passive funds take a back-seat approach to investing. They try to replicate the returns of the underlying index.

Investors can choose from different types of mutual funds, including stock funds, bond funds, index funds, and money market funds to name a few. These categories can be further divided to give investors even more options, such as large-cap or blue-chip stock funds.

Important

Make sure you understand the risks involved with any investment you’re considering before you dive in. Doing your due diligence and research will help you minimize your losses.

Systematic Investment Plan (SIP)

A systematic investment plan is an investment plan where investors make regular, equal payments into a mutual fund, trading account, or retirement account such as a 401(k). You might set up a SIP to buy $100 per month worth of Mutual Fund A. The order is executed each month on the specified date. This way of investing offers two key advantages: easy saving and buying shares consistently even when the markets are down, which enables better prices on average.

Setting up a SIP makes it easier to budget for retirement and other investment goals. When you work a small amount into a monthly budget, it becomes more likely that you stick with the plan, making it easier to achieve your investment goals. For example, it is relatively easy to commit to investing $100 per month for retirement savings, but coming up with $1,200 at one time may be more difficult.

Making regular mutual fund share purchases lets you reduce the average cost per share. Market fluctuations over time are likely to present opportunities where shares are purchased at a lower price. This technique, called dollar-cost averaging, is a widely used strategy by many investors and is recommended by financial advisors

Advisor Insight

Dan Stewart, CFA®
Revere Asset Management, Dallas, TX

A systematic investment plan, or SIP, simply means making periodic and scheduled contributions to your investment account or a specific security. Dollar-cost averaging is a SIP in its simplest form.

For example, investing $500 per month total in two different mutual funds of $250 each would be a SIP. But a SIP is not an investment strategy like a mutual fund. A mutual fund is a professionally managed fund in which the manager invests according to the fund’s prospectus.

While the SIP is a great way to invest when growing your assets, once you accumulate a decent amount of wealth and are, say, nearing retirement, you may want to consider some type of defensive strategy that involves more active management.

Do I Pay a Fee If I Cash in my Mutual Fund Shares?

This depends on the mutual fund. You may have to pay a fee if you decide to cash in your mutual fund shares. This fee is called a redemption fee or an exit fee/load. If you don’t want to pay a fee, consider looking for no-load funds. These mutual funds won’t charge you for selling your shares.

What Types of Investments Can Be Used in a SIP?

Systemic investment plans can be used to invest in different types of assets. These include mutual funds and exchange-traded (ETFs). SIPs can also be used as investment vehicles for certain retirement plans, such as 401(k)s.

Are There Any Fees Associated with SIPs?

There may be fees associated with SIPs. These may include service fees and custodial fees. Investors should also look out for heavy account maintenance fees, sales charges, and high redemption fees. One of the reasons why SIPs tend to charge hefty fees is because it costs a lot to create and maintain them.

How Safe Are Mutual Funds?

Mutual funds are considered to be some of the safest investments for investors because they allow investors to diversify their holdings. They are not nearly as risky as other investments like stocks or bonds. Keep in mind, though, that they do come with some risk—notably, general market and inflation risk. You may lose some or all of your principal and may also be subject to high expense, management, and redemption fees.

The Bottom Line

Mutual funds are a very popular investment vehicle because they give investors a good way to diversify their holdings with little risk. Investors can use systemic investment plans, which can be used to invest in mutual funds, to execute their investment goals. Mutual funds and SIPs can be a great way to help you reach your investment goals. But, make sure you do your research to ensure that your investments align with your financial situation and goals so you don’t end up with major losses on your hands.

Reviewed by Amilcar Chavarria

You’re looking at investing in new stocks or adjusting your portfolio to keep up with the trends in the market. But there are so many different factors to consider. So how do you do it? There are a number of ways you can analyze companies and their stocks. One way to do so is through an analysis using Porter’s Five Forces Model, a methodology that looks at external factors within a specific industry. Keep reading to see how these five forces apply to JPMorgan Chase, one of the world’s leading financial institutions.

Key Takeaways

• Competition from within the financial industry is probably the strongest of Porter’s Five Forces when analyzing JPMorgan Chase. 
• Large groups of retail clients, major corporate clients, and high-net-worth individuals can have a big impact on JPMorgan’s bottom line.
• The threat of substitute products—payment services and peer-to-peer lending—continues to threaten the financial industry.
• The bargaining power of suppliers and the threat of new entrants have minimal impact on the likes of JPMorgan.

Porter’s Five Forces Model

Developed by Harvard Business School professor Michael Porter, the Five Forces Model is a business analysis tool that examines the relative strength of five primary market dynamics that govern competition within virtually any industry.

Porter’s analysis considers the competition level among the leading companies in an industry, then considers four other factors that affect the industry and the success of companies within that industry:

• The bargaining power of suppliers
• The bargaining power of consumers or clients
• The threat of new entrants into the industry
• The threat posed by substitute products
• Rivalry among existing competitors

JPMorgan Chase: An Overview

JPMorgan Chase (JPM) is a major global bank holding and financial services company. It is a universal banking company that provides commercial, retail, and investment banking services. It is one of the four principal money center banks in the United States, along with Wells Fargo, Bank of America, and Citigroup. With more than $3.5 trillion in assets as of September 30th, 2024, JPMorgan is one of the 10 largest banks worldwide.

The company, as we know it today, is the result of a series of mergers of a group of major U.S. banks. It is one of the four major banks in the United States, along with Citibank, Bank of America, and Wells Fargo. JPMorgan operates as a bank holding company with a number of subsidiaries engaged in the company’s four main areas of financial enterprise:

• Retail banking
• Commercial banking
• Corporate and investment banking
• Asset management

In addition to regular retail, commercial, and investment banking services, JPMorgan offers Treasury services, letters of credit for domestic or international payments, foreign exchange, fund administration, and private banking services.

JPMorgan had a market capitalization of over $675 billion as of January 12, 2025. The company reported consolidated net income of $46.9 billion for the 2023 fiscal year.

An analysis of JPMorgan Chase using Porter’s Five Forces reveals that the company must concentrate on the competition from industry rivals, the bargaining power of consumers, and the threat of substitute products. The bargaining power of suppliers is a lesser force, while the threat of new entrants to the industry is considered minimal.

Competition From Industry Rivals

Competition within the financial industry is probably the strongest of Porter’s model when analyzing JPMorgan Chase. The company not only faces intense competition from the other three major money-center banks in the United States, but there’s also a threat from international banks like HSBC and Barclays.

Important

JPMorgan faces stiff competition from domestic rivals as well as major international banks on a global scale.

The relatively low switching costs from one bank to another intensifies the importance of competition from within the industry, especially in the retail and commercial banking spheres. It doesn’t cost much—in most cases, nothing at all—to close an account at one bank and open a new account at another one. And to sweeten the pot, major banks extend offers to draw customers away from their rivals. JPMorgan is no exception. New customers can earn as much as $600 when they open a checking and savings account as long as they meet certain eligibility requirements.

Overall, JPMorgan deals with industry competition in three main ways:

• By distinguishing itself in the marketplace primarily on the basis of its history and experience
• By staying on the cutting edge of offering customer convenience and low-cost and cutting-edge services
• By acquiring smaller banks, thereby removing some potential competition from the marketplace

The Bargaining Power of Consumers

The banking industry relies heavily on the bargaining power of consumers. Some have more power than others. For instance, individual consumers, especially those in the retail banking marketplace, have relatively little bargaining power. That’s because the loss of a single account basically has minimal to no impact on the company’s bottom line. Consider what effect Mr. Jones has on the bank when he decides to close his account. On the whole, the loss of his account won’t bother the bank too much.

But the bargaining power of large groups of customers is greater because the bank cannot afford to suffer mass defections of depositors. Corporate clients and high-net-worth individuals (HNWI) also have greater bargaining power since the loss of sizable accounts and sources of revenue can more substantially affect the bank’s profitability.

JPMorgan addresses the issue of customer bargaining power primarily by extending attractive sign-up offers to new clients. It also makes efforts to get existing clients to open additional accounts and sign up for additional services, which effectively increases the switching cost for consumers by making it more troublesome for them to transfer their finances to another bank.

The Threat of Substitute Products

The threat of substitute products has increased in the banking industry, as companies outside the industry have begun to offer specialized financial services that were traditionally only available from banks. PayPal and Apple Pay, prepaid debit cards, and online peer-to-peer lenders (P2P) such as LendingClub.com offer a multitude of options that cost JPMorgan—and other major banks—a considerable amount of revenue.

So how does JPMorgan keep up? The bank has initiatives that include a division that focuses on small business lending. It also established Chase Pay, its own digital wallet service.

The Bargaining Power of Suppliers

There are two main suppliers for a bank. The first group comprises of depositors who supply the primary resource of capital, while the second is its employees, also known as the resource of labor. The threat from individual depositors is minimal, just the way it is with the bargaining power of consumers. Major corporate customers, HNWIs, and large groups of depositors, though, tend to be a big threat.

JPMorgan’s approach to dealing with this force is to try to attract new clients and to increase the extent to which existing depositors hold funds and access the bank’s services. When it comes to the bargaining power of suppliers of labor, individual employees have little bargaining power unless they’re major executive employees. JPMorgan must address its overall bargaining power by offering an attractive salary and benefits package to retain the best employees.

The Threat of New Entrants to the Industry

The threat of new entrants from within the financial industry is relatively small. It isn’t easy for a new bank to enter the market and try to compete on the same level as JPMorgan. In fact, a new competitor would face a number of significant obstacles, notably the massive amount of capital required, the length of time needed to establish a significant brand identity, and the cumbersome government regulations that apply to the operation of banks.

While brand new entrants may not be much of a threat, JPMorgan does have to brace for some competition from already established banks in other countries. For instance, the company must keep an eye out for major banks in developing economies such as China that will eventually compete on an international scale.

Fact checked by Katharine Beer
Reviewed by Ebony Howard

Your response to money is dictated by your personality. But have you thought about how your behavior affects your bottom line? Understanding your money personality will help you shape your spending, saving, and investing.

Key Takeaways

• Understanding the various money personalities helps with investing, spending, and saving.
• Five common money personalities are investors, savers, big spenders, debtors, and shoppers. 
• Debtors and shoppers may tend to spend more money than is advisable. 
• Investors and savers may overlap in personality traits when it comes to managing household money.

1. Big Spenders

Big spenders love nice cars, new gadgets, and brand-name clothing. People with a “spending” personality type aren’t typically bargain shoppers. This often means a desire to have the latest and greatest technology and a beautiful home. When it comes to keeping up with the Joneses, big spenders are the Joneses. They are comfortable spending money, don’t fear debt, and often take risks when investing.

2. Savers

Savers are the opposite of big spenders. They turn off the lights when leaving the room, shop only when necessary, and rarely make purchases with credit cards. They generally have no debt and may be viewed as frugal. Savers are conservative and don’t take risks with their investments.

3. Shoppers

Shoppers often develop great emotional satisfaction from spending money. They can’t resist spending, even if it’s to buy items they don’t need. They may be concerned about their debt. They look for bargains and are happy when they find them. Shoppers are varied in terms of investing. Some save regularly through 401(k) plans and may even invest a portion of any sudden windfalls to make a purchase.

4. Debtors

Debtors aren’t trying to make a statement with their expenditures. They commonly don’t spend much time thinking about their money or tracking what they spend and where they spend it. Debtors generally spend more than they earn and are deeply in debt.

Important

The Fair Credit Reporting Act (FCRA) requires that credit bureaus ensure that the information they collect about you is accurate and provide a free copy of your report once every twelve months.

5. Investors

Investors are consciously aware of money. They understand their financial situations and try to put their money to work. Regardless of their financial standing, investors tend to seek a day when passive investments will provide sufficient income to cover their bills. Their actions are driven by careful decision-making, and their investments reflect the need to take a certain amount of risk.

Making Changes

Many spenders and savers share parts of all five personality types. After evaluating your habits, here are some tips to help tweak your dominating trait:

• Spenders: Shop a little less and save a little more.
• Savers: Use moderation. Sometimes, a saver who is too conservative may be missing out on high-return investments.
• Shoppers: Establish a weekly or monthly budget, and don’t spend money that you don’t have.
• Debtors: Evaluate your debt and credit limits. Start a saving plan.
• Investors: Keep up the good work and stay mindful of long-term goals and opportunities.

How Can Spenders Cut Back on Purchases?

Spenders can limit spending to only things they will use and save more. This provides spenders the opportunity to think long-term and look for slow and steady gains as opposed to high-risk, quick-win scenarios.

What Is a Risk for the Debtor Personality?

Credit scores and credit reports are a concern for this type of spender. Relying on credit or debt can affect long-term goals, such as obtaining a car loan or qualifying for a mortgage.

How Can I Start a Budget?

Start by calculating your take-home pay. Know how much money is coming in each week or month. Begin tracking and categorizing your expenses and what is left for saving and investing. 

The Bottom Line

While you may not be able to change your money personality, you can acknowledge it and address the financial challenges that it presents. Managing your money involves self-awareness. Knowing where you stand will allow you to modify your behavior to achieve your financial goals.

Fact checked by Vikki Velasquez

Home equity loans can be a good option in many situations, but as with any loan, borrowers may face a dizzying array of fees. However, some costs may be avoided or reduced by shopping around, and some fees may be signs of abuse or outright fraud. In between are costs that can vary widely among lenders, local markets, and even between the date of applying for and closing the loan.

In any case, getting a home equity loan or a home equity line of credit (HELOC) is like getting any other loan: Understand what you’re getting into, shop around, and be prepared when faced with fees.

Key Takeaways

• Home equity loans and home equity lines of credit (HELOCs), like first mortgages, come with an array of costs at closing and over the life of the loan.
• Many closing costs are unavoidable and vary little from market to market and among lenders.
• Other costs are optional, and some can be reduced by shopping around.
• The U.S. government has sought to curb abuses in home equity lending, but some unscrupulous lenders may engage in abusive practices. Fortunately, there are clear red flags that may signal trouble for potential borrowers.
• Emerging tech-based financial services products offer alternatives to borrowers who want to tap their home equity, but some may have hidden risks and drawbacks and may leave consumers less protected by the laws regarding more traditional loans.

Closing-Cost Fees Can Vary

Applications for home equity loans, as with first mortgage loans, typically allow borrowers to lock in a rate when applying. However, if there are changes in circumstances, you may face a different rate. If the lender was unable to verify income, you may not be seen as able to afford the payback and could face a higher rate or a smaller loan amount.

If an appraisal of your home value comes in at less than expected, then you may not qualify for the initial rate. You can ask for a reappraisal, but you will likely have to pay for it.

Home equity loans generally have a fixed interest rate, while HELOCs are more likely to have an adjustable rate. In such cases, know how your actual rate will be determined. Typically, the rate is tied to a common and widely published interest rate, such as U.S. Treasury bond rates, plus a prescribed margin. Finally, lenders may use discounted rates in their promotions, such as a quarter-point off for their credit card customers or for setting up automatic payments or for “qualified borrowers.”

Be Aware of Unnecessary Closing Costs

Many home loan costs are standard and predictable: Attorney’s fees, document preparation fees, application fees, recording fees and taxes, escrow, and insurance payments. But some may be shopped for, and others cover services that may not be necessary.

Title insurance guards against mistakes in titles and other paperwork recording a land transaction and is standard in home loans. Generally, a borrower may shop for a better deal than what the lender’s preferred provider offers.

Credit insurance—which makes payments should you become unable to make them due to illness, disability, or a similar reason—may also be an optional addition. Lenders are required to tell you if they require it. If you do not need it and don’t want it, ask for it to be removed.

Warning

For much of the last decade, interest rates have been incredibly low. However, this era appears to be ending, as the Federal Reserve increased interest rates multiple times in 2022. Home equity loans still carried risks, but were relatively cheap with low payments. As interest rates rise, borrowing against your home’s equity means larger payments that may be harder to accommodate if your income decreases.

Predatory Lending Practices

A federal case brought in 1999 at the apparent height of subprime lending targeted abusive practices, primarily lending to people who could not afford it and charging high rates and adding expensive fees. Much of the case involved asset-based lending, in which lenders made loans sized on the value of the homes involved, rather than the borrower’s ability to pay. Changes in federal law, particularly the Home Ownership and Equity Protection Act—an amendment to the Truth in Lending Act (TILA)—and subsequent legislation sought to stop the practice.

The Home Ownership and Equity Protection law attempts to rein in predatory lending practices. Some of its protections include: banning many prepayment penalties; balloon payments due in fewer than five years on high-rate, high-fee loans; and increasing the interest rate in case of default.

A 2014 rule adopted after the subprime crisis sought to crack down on abuses in lending. A list of banned practices from the Consumer Financial Protection Bureau (CFPB) suggests several red flags from prospective lenders to look out for:

• Balloon payments in most cases. Exceptions are for borrowers with sporadic income or in certain rural or underserved areas.
• Late fees that are more than 4% of your regular payment
• Fees for getting statements on how much you owe, aka a payoff statement
• Fees for loan modifications, except under certain circumstances

Is There Any Negotiating Room in the Fees?

Many of the fees that a lender tries to charge aren’t set in stone. Some lenders may be willing to bend on origination fees, which cover the commission paid to the loan officer or broker. If they require you to pay points on your loan, they may be willing to haggle on that, too. But you have to ask. 

How Important Is My Credit Score?

In general, you’ll get the best terms if you have a history of steady employment and an excellent credit score. As with any mortgage application, it’s a good idea to check your credit reports ahead of time and make sure that they’re free of errors. For this reason, it may also be worth considering employing a credit monitoring service as a means of keeping this information safe.

Do All Home Equity Loans Have Fees?

No. Some home equity loans have no fees. Some lenders charge different fees depending on the amount of the home equity loan, and some have zero fees for any home equity loans. As with any loan product, shop around to make sure you’re getting the best deal.

Is a Home Equity Loan Safer Than a Home Equity Line of Credit (HELOC)?

Home equity loans and home equity lines of credit (HELOCs) both use your home’s equity as collateral and carry the same risk of losing your home to foreclosure if you can’t pay them back. Where they differ is in their interest rates. A home equity loan has a fixed interest rate, while a HELOC usually has a variable interest rate.

Because of this, a home equity loan can be safer than a HELOC if your HELOC has a high balance. With a HELOC, there’s an additional risk that rates could rise to the point that you can’t afford your monthly payment. With a home equity loan, your rate and payment remain fixed.

The Bottom Line

Home equity loans can be a good way to use home equity for financially sound purposes, but as with all borrowing, it pays to be educated about fees and the real costs of taking out the loan. Scrutinize the costs, and shop around for the best rates you can find.

Reviewed by JeFreda R. Brown

Why Did Berkshire Hathaway Invest in StoneCo Ltd.?

When billionaire investment guru Warren Buffett acts, other investors pay attention. So when his multinational conglomerate holding company, Berkshire Hathaway, announced plans to make a sizable investment in a Brazilian fintech company called StoneCo Ltd. (STNE) in October 2018, individual and institutional investors alike became curious about this, at the time, relatively unknown company.

When StoneCo was launched in 2012, founders André Street and Eduardo Pontes had already spent 12 years working in the electronic payment and payment processing fields in Brazil. Although they had achieved success before with their online payment technology firm called Braspag, the pair shuttered this earlier operation in order to build StoneCo from scratch.

The company utilized the most advanced technological capabilities in the electronic payment space. StoneCo also stressed the importance of human connection, calling itself a customer-centered company.

The company is based in Sao Paulo, but has its official corporate headquarters in the Cayman Islands. It currently employs more than 7,200 people.

Key Takeaways

• In October 2018, Berkshire Hathaway announced plans to purchase a large share of Brazilian fintech company StoneCo Ltd.
• StoneCo’s founders André Street and Eduardo Pontes had spent over a decade working in the electronic payment and payment processing field in Brazil.
• They launched StoneCo Ltd. in 2012, shuttering their earlier operation, Braspag.
• After StoneCo’s 2018 initial public offering (IPO), the company’s share price spiked by 30% in the first two days.
• As of 2024, StoneCo had over 4 million active clients.

Electronic Commerce in Brazil

Cashless transactions are an expanding industry in Brazil, as in other emerging market economies where the majority of transactions are conducted in cash.

StoneCo provides an end-to-end, cloud-based technology platform for merchants to conduct electronic commerce using in-store, online, and mobile channels. The cloud-based platform helps its clients to connect, facilitate transactions, receive payments, and grow their businesses.

The company makes money by charging fees for its services. These include transaction payment processing, prepayment financing, subscription, and equipment rentals. The company’s target audience is small- and medium-sized businesses. During 2024, StoneCo topped 4 million customers.

Note

Fintech is short for financial technology and is all about the new and innovative technology that has automated the financial services used by businesses and consumers. It emerged as a term in the 21st century.

StoneCo Ltd.’s Growth

StoneCo launched an initial public offering (IPO) in 2018. The company offered 54.9 million shares at a price range of $21 to $23 per share. In its Securities and Exchange Commission (SEC) filing, the firm claimed to have achieved substantial growth, margin expansion, and scale.

The company boasted a total revenue and income of 636 million Brazilian real (approximately $160 million) for the first quarter of 2018, as well as a valuation of $6.1 billion. That was about 22 times the company’s revenue for the trailing 12 months.

StoneCo also claimed to have captured more than 5.5% of Brazil’s market share for the second quarter of 2018, with more than 230,000 clients locked in by the third quarter of 2018. In the third quarter of 2019, its market share was 8%. As of March 2020, it was the fourth-largest electronic payment processor in the country and had a market capitalization of $7.58 billion.

StoneCo Ltd.’s Investors

With such impressive numbers achieved in such a short period of time, it’s no surprise that StoneCo attracted the attention of investors at Berkshire Hathaway. The company purchased more than 14 million shares of StoneCo at the IPO price, making it an 8% owner of the company.

Berkshire Hathaway is known for focusing on blue-chip stocks and predictable, consistent companies. Therefore, its investment in StoneCo attracted a fair amount of attention in the industry.

A new interest in a largely untested fintech company marked a shift in Warren Buffett’s typical investment approach. Buffett is also notoriously distrustful of IPOs.

In large part due to Berkshire Hathaway’s investment, StoneCo quickly rose to a position of prominence after its IPO. Its share price rose by 30% in the first two days of trading. The company became one of Brazil’s unicorns and was also widely considered to be one of the most innovative payment companies in Brazil.

In addition to Berkshire Hathaway, the Chinese fintech giant Ant Financial, controlled by billionaire Jack Ma, also invested sizably in StoneCo. Other shareholders included Brazilian investment firm 3G Capital Inc.’s founders Jorge Paulo Lemann, Marcel Telles, and Carlos Alberto Sicupira.

What Is StoneCo Ltd.’s Market Capitalization?

As of May 2022, StoneCo’s market capitalization was $2.87 billion. That’s a large drop from its market cap in 2020 of $7.58 billion.

Does Berkshire Hathaway Still Own Shares in StoneCo?

As of Q1 2022, Berkshire Hathaway continues to hold shares of StoneCo stock. Unfortunately, as of May 2022, the stock’s price had plummeted over 85% in a year.

Has Warren Buffett Sold Shares of StoneCo Ltd Stock?

Yes. Due to the stock’s declining price during 2019, Berkshire Hathaway took some profits by selling 3.5 million shares in Q1 2021. That represented 24% of its stake in StoneCo.