For example, according to moneysavingexpert.com, the best easy-access (restriction-free) savings account rate is currently 1.45%. This is offered by the Marcus by Goldman Sachs savings account. Similarly, the best Cash ISA rate is also 1.45%. This is offered by Virgin Money.

I don’t know about you, but I see 1.45% as a pretty poor return. Let’s say I was to put £10K into one of these accounts – I’d only receive £145 interest for the year. Put in £20K, and I’m looking at less than £300 interest. That’s not going to help me retire early, is it?

When you factor in inflation (which has averaged around 1.9% in the UK this year so far), money earning 1.45% is actually losing purchasing power.

Worryingly, interest rates could remain low for years to come. With Brexit causing so much economic uncertainty, we’re not likely to see interest rates lifted back to a healthy level in the near term, in my opinion. As such, the outlook for cash savers remains quite bleak.

Higher yields

Of course, there are ways to generate a higher return on your money. One is to invest in dividend stocks. These are cash payments companies pay to their investors, out of their profits, on a regular basis. In the UK, there are plenty of companies paying their investors dividends, and some of the dividend yields are incredibly high.

For example, just look at the amazing yields on offer from these FTSE 100 stocks:

• Royal Dutch Shell: 6.5%

• BP: 6.4%

• Legal & General Group: 6.7%

• Aviva: 7.5%

• Lloyds Banking Group: 5.9%

• Imperial Brands: 12%

All of these yields are over four times the best easy-access savings account/Cash ISA rate. All you need to do to get your hands on the cash is own the shares. And if you own dividend stocks in a Stocks & Shares ISA, your dividends will be entirely tax-free.

Risks

Of course, there are risks to consider when investing in dividend stocks. Unlike a bank account, your capital is at risk when you invest in stocks because share prices are always fluctuating. It’s generally recommended you hold shares for at least five years, due to the fact they can be volatile in the short term.

It’s also sensible to spread your money across many different companies to lower your company-specific risk. In addition, it’s important to realise that dividends payouts are not guaranteed. They are linked to company profits, so if profits fall, dividend payouts can be reduced.

Overall, however, investing in dividend stocks can be a very effective way of boosting your wealth. When you consider you could potentially pocket a yield of 6%+ from dividend stocks, versus just 1.45% from a cash savings account or Cash ISA, the risk/reward proposition looks quite attractive, to my mind.

The post Forget 1.45% from a Marcus account or Cash ISA. I’d pick up a 6%+ yield here appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Royal Dutch Shell, Imperial Brands, Legal & General Group, Aviva, and Lloyds Banking Group. The Motley Fool UK has recommended Imperial Brands and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, you may recall that the 1.5% interest rate that was originally offered by Marcus actually consisted of two components – there was the standard interest rate of 1.35% and then there was the ‘bonus’ interest rate of 0.15% for the first 12 months. Unfortunately, for those savers who opened an account when it first launched, that 0.15% bonus rate has now expired. But don’t despair – there is a way to boost the interest rate on your Marcus account again.

Renew your bonus interest rate

The good news is that it’s possible to renew your bonus interest rate, although it is now only 0.1% instead of 0.15%.

To do this, all you need to do is login to your Marcus account and select ‘View’ and then ‘Review your savings.’ Then, click on ‘Renew your bonus.’ That’s it! This simple strategy will boost your interest rate back up to 1.45%, which is one of the better interest rates on the market right now.

The truth about 1.45%

Be aware, though, that while an interest rate of 1.45% may be attractive in relation to the interest rates offered by other savings accounts, it’s still an abysmal rate of return. UK inflation has averaged around 1.97% over the last six months, meaning that any money that is only earning 1.45% in a savings account is actually losing purchasing power over time.

Cash savings are useful for short-term goals and emergency cash, of course. But keeping the bulk of your wealth in a cash savings account earning a little over 1% over the long term really isn’t a sensible idea. Your money is likely to lose value in real terms.

Aim for higher returns

If you’re serious about building your wealth, it could be a good idea to put some of your money into growth assets such as shares and investment funds. These assets are higher risk than cash savings (it’s possible to lose money) but the rewards can be far greater, meaning they can really help you boost your savings, and beat inflation, over time.

Here’s a great example: when I wrote about the Marcus savings account this time last year, I suggested that those looking to build their wealth might also want to consider investing in the Lindell Train Global Equity fund in a Stocks & Shares ISA. Fast forward to today, and that particular fund has returned around 14% over the last year – nearly 10 times the return from a Marcus account.

Keeping a little bit of cash in a savings account is always smart. You never know when you’ll need it. However, the bottom line is that for long-term wealth building, growth assets are a far more sensible choice.

The post Have a Marcus savings account? This tip could boost your interest rate! appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon has a position in the Lindsell Train Global Equity fund. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As such, FTSE 250 shares such as Saga (LSE: SAGA) could offer income investing appeal. The company has a dividend yield of around 8% at the present time, with there being scope for its dividend payout to rise over the medium term. Alongside another dividend growth stock which released an update on Tuesday, it could be worth buying in my opinion.

Improving outlook

The stock in question is industrial thread manufacturer Coats (LSE: COA). Its trading update showed that group sales for the July to October period increased by 3% on a constant currency basis. Its Industrial division saw improving momentum, with sales rising by 9%. This was underpinned by higher growth rates in both the Apparel and Footwear segments, as well as the Performance Materials business.

The company’s performance was relatively strong in spite of mixed demand from retailers, with strong momentum in Asia helping to offset this. A focus on product innovation and digital solutions could help it to continue outperforming the wider market.

With Coats due to report a rise in earnings of 16% in the current year, followed by further growth of 8% next year, its dividend could rise at a rapid rate. Although it only yields 1.7% at the present time, dividends are covered 4.5 times by profit and are expected to grow by 10% next year. As such, the stock could become increasingly appealing from an income perspective.

High yield

Of course, Saga’s 8% dividend yield is one of the highest in the FTSE 250 at the present time. The stock has endured a challenging year, with difficult operating conditions causing its financial outlook to deteriorate. In the current year, for example, it is expected to report a fall in earnings of 5%, followed by disappointing growth of 2% next year. This could mean that dividend growth is somewhat lacking over the medium term.

One reason for its slowing profit growth outlook is increased competition. The company is finding it harder, and more expensive, to win new business in what is a challenging wider market. And with there being the potential for weakening consumer confidence as the Brexit process moves ahead, its financial prospects may remain relatively downbeat.

Despite this, Saga could offer impressive total returns in the long run. The company has a price-to-earnings (P/E) ratio of 8.5. This rating factors in its forecast decline in earnings in the current year, and could suggest that it offers a wide margin of safety. And with a high yield to provide an impressive total return on its own in the meantime, the stock may be able to generate significantly higher returns than a savings account.

The post Forget 1.5% from a savings account. I’d rather have FTSE 250-member Saga’s 8% dividend yield appeared first on The Twelfth Magpie.

More reading

• Hot, hotter, hottest. Is it too late to consider these 3 amazing FTSE 250 shares?

Peter Stephens owns shares of Saga. The Motley Fool UK has recommended Coats Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The problem, though, is that 1.5% is still significantly below inflation of 2.4%. As such, a Marcus account is expected to deliver negative real-terms returns over the next year. At a time when the FTSE 100 is yielding over 4%, I think now could be the right time to focus on large-cap dividend shares with high yields.

Negative returns

While a 1.5% interest rate may sound high at a time when savings rates are low, the reality is that it is expected to destroy wealth in real terms. In other words, every £1 invested at an interest rate of 1.5% is likely to have less spending power in future as a result of inflation being 0.9 percentage points higher. With Brexit having the potential to cause inflation to spike depending on the eventual outcome, the negative real-terms return could increase yet further over the coming months.

Of course, cash has often failed to deliver positive real-terms returns in recent years. Interest rates are close to historic lows, and while they may increase to some degree over the medium term, it may be a number of years before they can compete with the FTSE 100’s dividend yield.

High yields

While the large-cap index may have a yield of 4% at the present time, it is possible to generate a significantly higher income return in the current year. At the time of writing, 14 shares in the FTSE 100 yield over 6%, while a further 25 have yields that are between 4% and 6%. This means that it is possible to build a portfolio with an average yield of four times the interest rate that is available on a Marcus account, with it likely to provide significantly better protection against inflation.

Growth potential

The stock market may also offer capital growth potential. In recent months, it has experienced a pullback as investors have become increasingly concerned about the outlook for the world economy, while Brexit continues to cause a degree of uncertainty. In the short run, further falls cannot be ruled out, which could wipe out all of the income return available through FTSE 100 shares.

At the same time, though, the FTSE 100 offers capital growth potential for the long run. Historically, it has delivered positive total returns which are in the high-single-digits. As such, for investors who are happy to tie their money up for a number of years, high-yield stocks could be a sound place to invest.

Outlook

While keeping some cash in reserve in case of emergency is a sound idea, an interest rate of 1.5% is likely to remain below inflation over the medium term. The FTSE 100’s dividend yield suggests that it may offer stronger total returns in the long run than a savings account.

The post Forget 1.5% from a Marcus account. I’d buy 4%+ FTSE 100 dividend stocks instead appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Somewhat predictably, the Marcus account offered by Goldman Sachs — with its 1.5% rate — has proved highly popular since its launch in September, so much so that other providers have been forced to act. Only this week, the Post Office introduced a new online saver account offering a similar rate.

Beyond having a buffer against life’s challenges, however, I wouldn’t want much of my money in any of these accounts, Marcus included. After all, a rate of 1.5% is less than inflation, which means that the value of cash stored here is actually decreasing. What’s more, this rate includes 0.15% bonus which only lasts for a year. 

So, having cleared any debt and saved for a rainy day, there’s no doubt in my mind that a better destination for any surplus cash is the stock market, particularly as many companies in the FTSE 100 offer dividends that easily dwarf the returns offered by the aforementioned accounts. 

Big hitter

Big oiler Royal Dutch Shell (LSE: RDSB) is one example. Sitting at the top of the FTSE 100 tree, the £195bn cap currently yields 6% — four times that offered by the Marcus. 

And while Shell’s fortunes hinge on the price of oil, it’s worth highlighting that the company hasn’t cut its payout since the Second World War. That doesn’t mean it never will, but it certainly places a lot of pressure on management to avoid doing so. 

Having lost around 13% of its value since peaking in May this year, Shell’s stock currently trades on a little over 11 times earnings for the current year. If we assume that analyst earnings projections are correct, this drops to under 10 in 2019 (based on the current share price). That looks good value to me, particularly as recent results suggest the company is in far better health than it was a few years ago. At the beginning of the month, Shell reported a near 40% rise in profit to $5.6bn over the third quarter of its financial year. 

Paper profits

Another FTSE 100 stock I’ve had my eye on for some time is packaging and paper firm Mondi (LSE: MNDI). Given the huge popularity of online shopping — and the subsequent need for goods to be delivered safely to consumers — I think firms like this have a very bright future.

Like Shell, the shares have encountered a bit of selling pressure recently, falling 20% since August. Like Shell, this leaves the stock on 11 times earnings.  Although not the cheapest firm in its industry (peers DS Smith and Smurfit Kappa trade on lower valuations), Mondi does appear to generate the best returns on capital invested by management. While it’s important not to oversimplify things, this is usually indicative of a higher quality company. 

Forecast to yield 3.5% in the current financial year, the Addlestone-based business might not return anything like the payouts offered by Shell, but these are more than covered by profits and look set to increase another 7% next year. They’re also still over double that offered by the Marcus account and higher than the FTSE 100’s average yield of 3.1%. Factor in reliable cash flow and Mondi should tick a lot of boxes for most income investors.

The post These FTSE 100 dividend stocks offer far bigger rewards than the Marcus savings account appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

While this may be the case, the reality is that a rate of 1.5% is behind inflation. It’s also lower than the dividend yield of the FTSE 100, which means that for anyone with a long-term time horizon, large-cap shares could be a significantly better option.

Inflation

Of course, having some cash on hand is always a good idea. There may be emergency costs, such as housing or health, which require an individual to have access to a sizeable amount of cash. Beyond that, though, holding cash is a relatively inefficient pursuit. Historically, it’s underperformed most other major asset classes while, at the present time, it lags inflation.

Even though the Marcus account has a relatively high interest rate when compared to rival products, it’s still around 0.9% below the current rate of inflation. As such, any money invested in the account is set to be worth less in real terms in future than it is today. In other words, the spending power of any cash in a Marcus account (or any other easy-access savings account) is being constantly eroded by inflation.

Dividend potential

In contrast, the FTSE 100 has a dividend yield of around 4% at the present time. Not only is this higher than inflation, it’s likely to remain so over the long run. Even if inflation spikes, it’s unlikely to be above 4% for an extended time period, having surpassed that level only briefly in the last decade, for example.

Furthermore, it’s possible to generate a higher yield than 4% from FTSE 100 shares. A number of stocks within the index, and also in the FTSE 250, offer dividend yields of 5%, 6% and even as much as 9%. Certainly, they may be unable to raise dividends at a rapid rate in future due to their uncertain outlooks. But with such a high income return available today, they could also offer good value for money and capital growth potential.

Risk

Clearly, investing in the FTSE 100 is riskier than having cash in a Marcus account. However, given that an investor is very likely to end with a real-terms loss from having cash savings over the long run, the risk/reward opportunity presented by an interest rate of 1.5% seems to be rather unappealing.

In contrast, the FTSE 100 has historically offered a total return in the high-single digits. While it’s likely to experience periods of volatility, in the long run it has the potential to not only beat inflation, but to provide significantly higher total returns than cash. As a result, it could be a better place to invest excess capital in order to boost savings.

The post Why the FTSE 100 could beat a Marcus account when it comes to boosting your savings appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Clearly, after years of sub-1% interest rates being offered by the UK’s banks, domestic cash savers are excited by Marcus’ interest rate of 1.5%, and they’re rushing to open an account with the challenger bank. Do I think you should join them?

Good in the short term 

The answer to that question, in my view, depends on what you’re trying to achieve with your cash savings.

When saving for short-term goals, such as a house deposit, a holiday, or a wedding, saving money in an easy-access savings account such as a Marcus, makes sense. An interest rate of 1.5% isn’t exactly going to turbocharge your savings, but it may help you achieve your goals a little sooner. Importantly though, your savings are not going to fluctuate in value, like they would if they were invested in the stock market, so there’s no risk of losing money. 

Another good use of a Marcus account is for emergency money (an ‘emergency fund’). The thing about life is that it tends to be full of financial surprises, such as unexpected medical bills or house/car/phone repairs, and you never when you’re going to need access to a little extra money. You could even lose your job suddenly and find yourself without any money coming in. For this reason, experts recommend having enough money on standby to cover at least three months’ worth of living expenses. For an emergency fund, the Marcus account could be a good choice, as it lets you easily access your savings.

Not so good in the long term 

However, if your savings goals are more long-term oriented (e.g. saving for your retirement in 20 years), holding cash in a Marcus probably isn’t such a good idea. There’s one key reason for that – inflation.

Inflation refers to the increases in prices of goods and services over time. You don’t notice it on a day-to-day basis, but over a period of 10 or 20 years, it can have a devastating effect on your wealth if you’re not protected from it, because goods and services will cost you more in the future.

Currently, the Bank of England has an inflation target of 2% per year. Yet look at the chart below.

Clearly, inflation has been above 2% per year for a while now. In other words, the prices of goods and services are rising by more than 2% every year. What that means is that any money earning 1.5% per year is actually losing purchasing power over time.

To beat inflation, your money has to grow at a rate that’s higher than it. That’s why, here at The Motley Fool, we’re big fans of investing in the stock market, because, over the long run, stocks tend to produce returns of around 7-10% per year, which is far higher than inflation. Cash savings are important, sure, but for long-term investing, stocks are usually a better bet.

The post Is it wise to hold money in a Marcus savings account right now? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?