Despite the derisory interest rates offered on most accounts, it does not take a Sherlock Holmes to find more appealing returns.
However, consider both how important it is to also gain growth and assess the level of risk.Anyone receiving less than 2.8 per cent (the Retail Prices Index rate) is actually losing the value of their money. A good and reliable income stream is vital to many, notably retirees and those taking a career break.
Start with the current account. Nationwide Building Society’s FlexDirect – not to confused with similar sounding ones like FlexAccount and FlexPlus – pays five per cent up to £2,500 for the first year and then falls to one per cent. It requires £1,000 to be deposited each month but is fee-free.
The Co-operative Bank pays £5 gross (£4 net) monthly on its Everyday Rewards account, provided there is at least £800 funding. Four different direct debit mandates need to be held and the account must be in credit or within an agreed overdraft limit by the end of each day.
Users must log on at least once each month. An additional 5p is paid every time the related debit card is used up to £1.50 monthly.
TSB, now Spanish-owned by Sabadell, pays three per cent on up to £1,500 with Classic Plus provided a minimum £500 is funded monthly. There is no charge for the paperless online account.
No adult cash ISAs or standard savings accounts keep up with inflation. However, to attract subscription investing, a fixed three per cent can be secured with Virgin Money but must be started in-branch. Monthly deposits from £1-250 are accepted for one year.
Children fare far better. With a tax-free Junior ISA for any under 18 years, a variable 3.6 per cent is paid by Coventry and 3.25 per cent by both NS&I and TSB. Up to £4,368 can be invested annually.
Youngsters can also secure a non-ISA savings rate of 4.5 per cent, fixed for 12 months, with the Lloyds Bank subsidiary, Halifax. The monthly Kids’ Saver accepts from £10 and can be held until 15 years.
Yet investing sensibly on the stock market is likely to bring better returns. Today’s savers are likely to hold equities for income and bonds for capital gains. The bizarre situation is that around US$17 trillion of bonds are now so expensive that they offer a negative yield.
“Global equities remain better value (than bonds) on a medium-term view for those investors with the capacity to take risk to capital,” says Adam Martell, chartered wealth manager at Charles Stanley. He suggests three funds for income, the first two paying quarterly and the third monthly –
Church House Investment Grade Fixed Income: low but secure income through bonds and gilts: 2.2 per cent yield and 0.83 per cent fee.
Franklin Templeton UK Rising Dividends: Leeds-based, seeks good yields, nimble and smaller than many funds: 3.7 per cent with 0.55 per cent charge.
Investec Diversified Income: defensively-minded process with reasonable income even if the markets fall: 4.1 per cent yield with 0.76 per cent fee.
Murray International, a globally diversified investment trust, is the preferred choice of Interactive Investor. Launched in 1907, it has been managed by Bruce Stout at Aberdeen Standard for 15 years. He aims for above-average yield and long-term capital growth.
Unlike its peers, the trust has almost half invested in Asia Pacific excluding Japan, Latin America and other emerging markets. Just 51 equities and 27 bonds form the portfolio with such top holdings as Taiwan Semiconductor, Mexican airport operator Grupo Aeroportuario and Unilever Indonesia. It yields an attractive 4.3 per cent.
Jason Hollands at Tilney warns against several catatonic collectives. The three-year return on £100 is underwhelming with several: £80 with LF Woodford Equity Income, £96 with Invesco UK Strategic Income (UK), £102 with Invesco High Income (UK) and £103 with T.M. Sanditon UK.
Bestinvest calls these ‘dog’ funds but its analysis also reveals some ‘best of pedigree’. On the same basis, notable examples are Lindsell Train UK Equity (£158), Liontrust Special Situations (£151), Evenlode Income (£151) and JO Hambro CM UK Dynamic (£142).
The major warning that should come out of Woodford’s gross under-performance and subsequent suspension of the fund is to seek collectives which hold nil or minimal unquoted stocks. His over-exposure to unlisted meant redemptions could not be honoured.
Beware of income offers where the risk is too high. Last week the dog-friendly Metro Bank failed to raise money despite promising 7.5 per cent interest. Although when launched in 2010 it gained the first UK banking licence in 150 years, it has been troubled by a serious accounting error and regulatory enquiries.
Car maker Aston Martin offered 12-15 per cent (up from 6.5 per cent in April) to entice but it is a company with a cash crisis, requiring 1,400 SUVs to be sold by August. It may provide the car chosen by James Bond but investors know the firm has gone bust seven times in its 106-year history.
One indicator of good management is the length of time that dividends have increased without a break. City of London Investment Trust has achieved 53 years while 52 years have been recorded by Alliance, Bankers and Caledonia Investments.
City of London has a 4.2 per cent dividend yield, way above 0.6 per cent with 10-year gilts (Government stocks) and 1.1 per cent with 30-year-old gilts. Job Curtis has been its manager since 1991.
As an investment trust, it can borrow and can also retain up to 15 per cent profits to smooth out dividends.
For those considering where to place retirement money, annuities may provide certainty but usually no increase (unless an expensive upward adjustment has been built in). By comparison, the dystopian approach through the stock market is likely to sustain one’s lifestyle.
Martin Payne, senior investment manager at Brewin Dolphin in Leeds, likes the global healthcare company GlaxoSmithKline, yielding 4.9 per cent, and Lloyds Banking with six per cent yield.
Payne says Lloyds is “one of the few European banks that has provided evidence of being able to deliver good underlying returns in a challenging regulatory environment”.
He also tips HICL Infrastructure with worldwide projects, typically leased to the public sector for three decades, and Standard Life’s Investment Property Income Trust with a 4.6 per cent yield. Currently, the trust has a relatively high level of exposure to industrials and logistics and low exposure to the stressed retail area.
For a Far Eastern effulgent choice, JP Morgan Asian Investment Trust is selected by Payne, drawing on a best ideas, high conviction portfolio.
Conal Gregory was awarded AIC Regional Journalist of the Year last week.