Fixed-interest Investments

In Chapter 4 we discussed only deposit investments, namely investments that give complete security of the capital and from which you can disinvese simply by drawing the money out ? on demand, or after giving the prescribed notice, or at the expiry of the agreed term. With most such investments you do not have certainty of income, for the interest rate can fluctuate up or down. Exceptions to this are National Savings Certificates and SAYE (2nd issue), where you have security of both capital and income, and SAYE (3rd issue, index-linked) where you have absolute security of capital but no income.

In this section we shall contrast those investments with others where income is secure but capital value is variable. These are called 'fixed-interest investments', and most of them are marketable - that is to say, you can sell your holding to somebody else on the market, at whatever price it will fetch at that time. You cannot, of course, sell money-deposit investments, which are therefore called 'non-marketable', or 'non-negotiable'.

Personal Investment Exercises

A Lilian Garside, who is liable to basic-rate tax at 30% on her total income, has £2,400 to invest for a period of two years only. Which of the following will give her a better yield?

(a) Two-year term shares in a building society paying 0.75% over

ordinary share rate of 8.75%, tax paid.

(b) Bank deposit account on which the interest rate is 11%.

Would she get an even better yield by placing the £2,400 in an ordinary share account in a building society, and drawing out of it £100 a month which she places in a subscription share account paying 2%... see: Personal Investment Exercises

Personal And Business Finance 2018

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