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Home -> William Cotton -> Everybody's Guide to Money Matters -> Chapter 5

Everybody's Guide to Money Matters - Chapter 5

1. Chapter 1

2. Chapter 2

3. Chapter 3

4. Chapter 4

5. Chapter 5

6. Chapter 6

7. Chapter 7

8. Chapter 8

9. Chapter 9

10. Chapter 10

11. Chapter 11

12. Appendix


THE safest of all investments are those repre-
sented by the National Debt of this country, but
the rate of interest or annual income derivable
therefrom is small. The debt is nominally
divided into three parts:- The Funded Debt, the
Unfunded Debt, Terminable Annuities.

The Funded Debt (1) is permanent; it is repre-
sented by Consols yielding interest at the rate
of 2 1/2 per cent. per annum, or ?2 10s. a year for
every ?100 of stock. The Government is not
under obligation to redeem the principal at any
fixed time, but power is reserved to pay off the
loan at _par_ (that is at the rate of ?100 for every
?100 stock, irrespective of its then selling value)
in the year 1905. Another debt of compara-
tively small amount, bearing interest at 2 3/4 per
cent. per annum, may also be paid off at _par_
in 1905.

The great bulk of the National Debt, amount-
ing to over five hundred millions sterling, is,
represented by what, in Stock Exchange _par-
lance_, is known as Goschen's Consols, so called
from the Chancellor of the Exchequer of that
name, to whom is due the conversion of the old
"three per cents.," in the year 1888.

This stock bears interest at the rate of 2 3/4
per cent. per annum until the year 1903; from
that date it is to be reduced to 2 1/2 per cent. until
1923, when the principal may be paid off at _par_.

There is yet another fixed debt of about forty
millions sterling called "Local Loans Stock,"
being money borrowed by the Government for the
purpose of making advances to Corporations for
local works. This stock may be redeemed at
_par_ in 1912.

The Unfunded Debt (2) consists of loans to
the Government for temporary purposes. These
loans are for various periods varying from seven
days to as many years. They are represented
by Exchequer Bills, Exchequer Bonds and Trea-
sury Bills, which bear interest, according to the
value of money at the time they are issued, from
day to day. Due notice is given when a loan is
to be paid off or renewed, and interest ceases on
the day named for redemption.


Terminable Annuities (3) may be regarded as
a "Sinking Fund," or means by which a con-
siderable portion of the National Debt is paid
off every year and "The Funds" proportionately

Thus the Government is empowered to give
an annuity for a certain number of years in ex-
change for permanent stock in the Funds. For
instance, a holder of ?1,000 2 3/4 per cent. stock is
receiving ?27 10s. a year in the shape of interest.
The Government offers to pay double the amount
of interest or ?55, if the ?1,000 stock is trans-
ferred to them, and to continue this ?55 a year
for twenty years and no longer.

At the expiration of that period the interest
ceases and the principal sum of ?1,000 is struck
off the National Debt, which is in consequence
reduced by that sum.


These consist of loans to the Government of
Canada for railway purposes, upon which 4 per
cent. per annum is guaranteed. Also loans to
the Colonies of Jamaica at 4 per cent. and Mauri-
tius at 3 per cent., to the Egyptian Government
at 3 per cent. and to the Turkish Government at
4 per cent.; in this latter case the French
Government joins in the guarantee.

These are all perfectly safe investments, so far
as the interest or income derived is concerned,
but there appears to be no arrangement for the
redemption of the loans.

The large loans to the Government of India at
3 1/2 and 3 per cent., repayable in 1931 and 1948,
are guaranteed by the Secretary of State for
India, practically the British Government.

Any amount may be invested in the above
stocks and annuities through the medium of
either a banker through his broker, or by a
broker direct. The broker's charge for trans-
acting in Consols is 25. 6d. (1/8) per cent. on the
amount invested, but provincial bankers make a
further small charge for guaranteeing the busi-
ness, that is, they protect their customer from
any loss that may arise owing to the failure of
the broker to carry out the contract.

The dividends, interest, or annuity derivable
from these investments, may be received by
personal application of the holder at the Bank
of England on certain fixed days, or on signing
a printed form furnished on application by the
Bank of England, per post, they will send from
time to time without further notice a warrant or
order for the amount due, which warrant or order
may be paid into a bank account, or, on a proper
introduction, cashed at any bank or post office.
The simplest plan, however, may be to give your
banker a Power of Attorney to receive the divi-
dends from time to time and place the amount
to the credit of your account.

Income tax is deducted from all dividends;
but if a person is not liable to such tax, by
reason of the total income coming within the
Exemption Clause, the amount can be recovered
through a surveyor of taxes, as to which the
banker would give all the information required (*).

(*) Such information may also be found in detail in a little handy
book, "Income Tax, and how to get it Refunded." 1s. 6d. Pub-
lished by Messrs. Effingham, Wilson & Co.

The stock of the Bank of England, which may
be purchased in any amount, the same as
Consols, is a favourite investment with some,
but the price is so high that the income to be
derived therefrom is no more, and sometimes
even less, than from the Funds.


Holders of stock in the Funds who are not
desirous of receiving their dividends, but prefer
to have them added half-yearly to the capital
sum without further action on their part, are
granted facilities by which this may be done
automatically, on application to the Bank of
England. The instructions apply to amounts of
stock of less than ?1,000 only. These facilities
are also extended to holders of Metropolitan
Consolidated Stocks, and to the India 3 per
cent. and 3 1/2 per cent. stocks.

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