1 DECEMBER 1967, Page 25

Dear money winter

SAVINGS LOTHBURY

What should savers do in the wake of devalua- tion? The obvious view to take is that the value of money has been eroded, and that therefore it is sensible to invest in something that will retain its value; which is an argument for buying ordinary shares, probably through a unit trust. There will be a time when that view is entirely correct, but I do not think the time has come.

The first point to observe is that interest rates are at their highest peacetime level this century. When I said, in October, that they could be expected to rise, I scarcely foresaw that Bank rate would go up by more than one third in five weeks—from 54 per cent to 8 per cent. Now it is generally reckoned that an 8 per cent Bank rate will not be with us for very long. It is a fancy rate, designed for foreign consumption: its purpose is to attract enough money into London to leave no doubt about sterling at its new-found level.

While it lasts, you can get 6 per cent by simply leaving money in your bank on deposit account, and there is a lot to be said for doing just that. The return on Post Office investment accounts—as with a bank deposit account, the money can be withdrawn at seven days' notice —has been increased from 54 per cent to 6 per cent. This reflects the higher yields now shown by government stock, into which the Post Office puts your money. Other National Savings rates are unchanged, and to that extent less attrac- tive. The return on Savings Certificates—equiva- lent to 71 per cent to someone paying tax at the standard rate, provided the certificates are held for five years—is still high. But to look five years ahead is now more difficult than ever— the crucial question is whether this devaluation can be made to stick, and no one begins to know the answer yet—and against the yield should be set the advantage of taking a short view. Building societies continue to offer 41 per cent net, eqdivalent to 74 per cent gross if you pay tax at the standard rate. The societies pulled in record sums this year, and are not hurrying to bid up for money.

Devaluation apart, the factors that were forcing interest rates upwards are still there. The war in Vietnam still has to be financed by borrowing, not by a tax increase, and so money will remain dear in America. In fact, with the dollar now 'in the front line,' the authorities will want the rates to stay high. So it looks like a winter of dear money; and, as often happens, Bank rate will prove easier to raise than to lower.

Investment Trust Units, which I suggested in October because of their high dollar content, came well out of the devaluation for just that reason. They have risen from lOs 8d xd to Its lld xd, where they yield £2 16s Id per cent. For a fuller examination of the case for invest- ment trusts, see John Bull's column this week.