INTEREST TO DEPOSITORS.

Stratford Evening Post, Volume XXXVII, Issue 5, 6 September 1913, Page 5

INTEREST TO DEPOSITORS.

BOROUGH FINANCI

[To The Editor Stratford Post. J bir, —i nonce emit die norouga Council is, at us next meeting, going to consider tno matter 01 iaMii ri money on deposit at call at 4 per ceiu interest. J. sincerely trust mat tue Councu win carefully vveign' die conss. cogetner, witn cue pro«. m trus master, as it would be very easy lor it to lose more tlian it migut gam by adopting tlie proposal, iue council would, of course, only accept an amount equal to, or less than, its bank overdraft. The deposits, on which ic would pay 4 per cent, would be banked and thus reduce tlie overuratc, on wnich it pays o per cent, and a saving to the Council of i per cent, would thereby be effected upon a sum equal to the amount deposited. Assuming that the Council received deposits equal to its overdraft when the latter was at its minimum, about £4500, the Borough would consequently save some £45 in interest. When the overdraft was £3OOO tlie saving would be £3O, and if it again fell to £2OOO the amount saved would be £2O. The overdraft fluctuates throughout the year from about £4,500 to £1,500, the average is about £3OOO. and the annual interest saved would therefore be some £3O. Against this possible gain, however, has to bo set the very real and probable danger of the Council having to pay, at times, more interest to its depositors than it would save at the bank. Thus:—Suppose that the Council when its overdraft is very large accepts deposits up to £4,500 and has this money still on hand when the rates come in, which would reduce, the overdraft to £ISOO or £2OOO. The position then is that the Council would be paying no interest to the bank (and be saving, therefore, some £ls or £2O interest) but, on the other hand, it would bo paying 4 per cent to the depositors on the difference between £ISOO or £2OOO and the £4500 of deposits, namely, some £IOO to £l2O. This would hardly be termed good finance, nor prove very gratifying to the ratepayers. In towns like Gisborne, with a population of 8000, where the bank overdraft of £20,000 is heavy, and, owing to large loan expenditure being made therefrom in anticipation of Government loan money is fairly constant 'for a considerable time to come, the practice can be indulged in with comparative, but only comparative, safety, and ' the largeness of its.overdraft makes the matter of interest-saving one of very great moment. Nevertheless, even in Gisborne the scheme has yet to prove itself. So far, the position is merely that the Council there has obtained the money required. The matter of getting rid of it when required hps' .yet to be demonstrated. It will be argued, of course, that the Council need only, to take what amount of money is required and that tnij surplus offering can be refused or else offered such a low rate of interest that depositors will not invest. This is quite true, but .large 'deposits, mado and accepted thankfully when the overdraft is large, might, and probably would, be on hand when the overdraft had fallen. The Council could not compulsorily return to depositors the amounts deposited, nor reduce the rate of interest, on such existing deposits. If it only took money subject to such conditions as these, it would get none at all, as other existing institutions are quoting 4 per cent firm for call money for so long as the depositors care to leave , it. Reviewing the pros, and cons, the possible slight advantage, the probably heavy liability, it would seem that a small town like Stratford would I be well advised to leave "high fin-l ance" alone and direct its attention to more pressing and legitimate mat-' tens.—l am, etc.,

JOHN BROWN Stratford, September 5, 1913.