By ADRIAN LOWCOCK 09/09/2011
The NS&I are closing the NS&I 5 Year Index-Linked Savings Certificate and Fixed Interest Saving Certificate. These products were only launched in May 2011 and have proved to be very popular.
The early closure of these NS&I products was widely anticipated because the NS&I have strict funding limits. This means the choice for income has once again become much harder for investors, but there are still some options available.
Cash
There are few cash products out there that offer inflation protection and to get the best interest rates savers will need to tie up their money for longer periods. The post office offers an inflation product and these may now prove popular so interested investors will need to act now to secure their allocation.
Interest rates are now expected to remain low until at least early 2013 and as such the interest offered on cash products remains generally low. We believe inflation will fall from current levels but there are many uncertainties over the economic recovery. As such further stimulus through quantitative easing could result in inflation returning.
Therefore, we do not believe investors should tie up their savings for longer than 3 years. Vanquis Bank offers a 2 year bond with a 4% interest rate. Savers should be reminded that these products tie up your money for the period and income is generally rolled up. Take a look at our income rates for more on cash savings.
Bonds
As investors have recently shied away from riskier assets such as shares, money has been invested into government debt (Gilts) and corporate bonds. The interest paid on UK gilts are at generational lows and in real terms investors are still losing money on Index-Linked Gilts.
Whilst we expect inflation to fall steadily from recent highs making investing in inflation-linked bonds less interesting, there are still those who believe otherwise and may want to get some inflation protection. We rate both the Fidelity Global Inflation Linked Bond and M&G UK Inflation Linked Corporate Bond.
Shares
Income seekers are again being pushed into taking more risk to achieve their objectives. However, with the recent falls in the stock market, the outlook for equities and in particular dividend producers is more positive. Investors are being paid to wait and prices are factoring weaker growth, but not a deep recession.
So for those willing to take on additional risk, and are able to tolerate some volatility, shares offer some attractive options. The Threadneedle UK Equity Income fund managed by Leigh Harrison yields 3.9% and the Newton Global Higher Income generates 4.6%.
General Tip
If you are looking for income to supplement your daily expenditure, then it is advisable to have a mix of investments which pay out income. This will reduce the volatility of your income as well as the portfolio, and also provide more regular income payments as many investments only pay out twice a year.
Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. Current yield figures provided are not a reliable indicator of future performance. You should make yourself aware of these specific risks prior to investing. We aim to provide investors with information to help them make their own investment decisions although this should not be construed as advice or an investment recommendation. If you are unsure about the suitability of an investment or if you need advice on your specific requirements, we strongly suggest that you consider professional financial advice.