Investing for income: What are your options?

Savers may have noticed a distinct lack of return on savings over the past year or so thanks to the effects of poor interest rates and rising inflation, but instead of suffering in silence it seems that many may be reaping the benefits of higher risk investments.

Long term income investments have often been seen as investment products available only to those with large sums of money and a working knowledge of the stock market. But statistics have shown that cash products are less favourable in the low rate market, pushing savers to look elsewhere.

Investing for income has also seen a surge in popularity as investors make the most of locking their money away but are rewarded by monthly or annual payouts.

Research by Fair Investment Company has revealed that more than two thirds of investors are prepared to take more risk while rates remain so low in the hope of better returns on their cash.

Of those polled 69 percent said they would be avoiding cash investments whole the Bank of England’s base rate sits at 0.5 per cent. And 55 per cent of these investors said they would consider putting their money into a structured products.

But what are your investment options if you’re looking for income?

Structured Products

Structured products have long been viewed as too risky and complicated, something that has put savers off. But with so many options on the market and a wealth of advice available they may be coming back into the mainstream.

As Julie Smith, Fair Investment Company’s Head of Structured Products Research says, “they’re just another investment vehicle”.

There’s much debate surrounding structured products and whether IFAs should recommend them. Ian Lowes, founder of StructuredProductReview.com, has urged advisers not to discount structured products when dealing with a client’s investments.

Head of pensions and Investments at fair Investment Company Nick Scarett says structures are well worth considering if you’re looking to diversify your portfolio.

 "The majority of those not looking to invest in cash are looking at structures, which in the current financial climate is understandable," says Nick.

"This is because structured products offer a way of moving into riskier assets while keeping a level of capital protection; this makes them popular with investors looking for higher returns than on cash savings but not willing to take the risks involved with stock-market investing."

Income funds

If you are looking for a longer term income solution, investment funds designed to provide an income could be a solution.

These work by providing investors with earnings from the dividends of the companies into which the fund manager puts money.

The main types of investment funds that provide an income are corporate bond funds and equity income funds, and income yields can be as high as around 7% per year.

They type of income fund that you choose though will depend on your personal circumstances, so it is important to shop around to make sure you find the right one for you. Fund supermarkets can help with this, and buying through a service like the Fair Investment Funds Service can reduce initial investment charges by as much as 5.50%.

Other options?

If you are not prepared to take a risk with your cash, there are some fixed rate accounts out there that still pay a decent income in return for you locking your money away for up to five years.

One example is the RBS Royal Deposit Plan, currently paying out 4.15% fixed for three years, but other market leading fixed rate bonds include the ICICI HiSave fixed rate bond offering 4.75% fixed for five years.

Weigh up your options

Whatever your attitude to risk, there are still a few investment options out there that can provide a decent income, it is just a case of doing your research and shopping around to make sure you get the best deal for your circumstances.

© Fair Investment Company Ltd