Invest in shares for higher returns as savings rates fall

05 March 2009 / by Rachael Stiles
Savers should look towards investing in shares as interest rates on savings accounts continue to fall, Fool.co.uk has suggested.

Ahead of the Bank of England base rate decision later today, David Kuo, spokesperson for Fool.co.uk, is urging savers to think about investing in stocks and shares in case savings accounts rates fall even further.

When the Monetary Policy Committee meets tomorrow, it is widely expected to cut rates again – for the sixth consecutive month – from one per cent down to just 0.5 per cent.

Savings accounts have been offering up smaller and smaller rewards in recent months as the base rate has plunged from five per cent last September to one per cent in February, taking savings rates down with it.

Putting their money into stocks and shares instead of a traditional savings account could lessen the pain of further rate cuts, Mr Kuo suggests.

"We fully understand the need for low interest rates at a time when the UK economy is in recession," he said. "But the exceptionally low interest rates are disproportionately punishing consumers who rely on the extra money earned from savings to supplement their income."

"That said, none of us have to grudgingly dance to the Bank of England's sorrowful tune," Mr Kuo continued, recommending that savers can either invest in individual companies that pay good dividends, or invest in a portfolio of high-yielding shares for better returns.

"Currently the dividend yield on shares stands at 5 per cent, which is almost twice that paid on some of the best instant-access savings accounts. Admittedly shares may remain volatile in the short term. But that should be less of a worry if we invest for the long term." he concluded.

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