Forget the top Cash ISA rate. I’d pocket 5%+ from income stocks

Sick of the low interest rates offered on Cash ISAs and savings accounts? Here’s a look at how to pick up a yield of 5%+.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s fair to say that it’s a miserable time for UK savers at the moment. Savings account interest rates are dreadful. Cash ISA interest rates are just as bad. And to top it all off, earlier this week, the interest rate on Premium Bonds was slashed.

Of course, if you’re willing to accept a little risk, there are plenty of ways to earn a higher return on your money at the moment. Here, I’ll explain how ‘income stocks’ could help you generate a yield of 5% or higher on your money, tax-free.

Income stocks explained 

Income stocks are those that pay their investors regular cash payments out of the underlying company’s profits. The payments are called dividends. When you own an income stock, you get paid a share of the profits on a regular basis for being a part-owner of the business.

Should you invest £1,000 in NatWest Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if NatWest Group made the list?

See the 6 stocks

In the UK, there are plenty of well-known income stocks and many pay their shareholders very generous income streams. Compared to the interest rates on offer from Cash ISAs and savings accounts, the yields on some income stocks are incredible.

Income stock examples 

Take FTSE 100 oil giant Royal Dutch Shell, for example. Last year, it paid its investors $1.88 per share (about £1.46 per share at current exchange rates) in dividends. Now, Shell’s share price is currently about £19. So that means that the yield on the current share price is roughly 7.7% (£1.46/£19 = 0.077). Buy the shares today at £19, and you could potentially earn an income return of 7.7% for the year (assuming Shell pays the same amount of dividends this year and the exchange rate remains constant).

Legal & General Group is another good example of an income stock that offers a stunning yield at the moment. It’s expected to pay out dividends of 17.5p per share to its investors for the 2019 financial year. At its current share price of 314p, that equates to a yield of 5.6%.

There are many more companies in the FTSE 100 that currently offer yields in excess of 5% including the likes of insurance firm Aviva, broadcaster ITV, advertising specialist WPP, and tobacco giant British American Tobacco.

Put together a portfolio of FTSE 100 income stocks within a Stocks and Shares ISA, and you could be looking at a yield of 5% to 6%, or even higher, completely tax-free. That certainly beats the abysmal returns on offer from Cash ISAs right now.

Risks to consider

Of course, it’s important to understand the risks of investing in income stocks. When you invest in the stock market, the value of your portfolio will fluctuate every day. Given the volatility of stocks, it’s generally recommended that you invest for at least five years. This kind of investment horizon will give you time to ride out the volatility.

Each company also has its own unique risks to consider. And if a company’s profits fall, the dividend payout can be reduced, or even cut completely.

Overall, however, I believe income stocks offer a lot of appeal in the current low-interest-rate environment. With yields of 5%+ on offer, they can help you earn a higher return on your money.

Should you buy NatWest Group now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Royal Dutch Shell, Legal & General Group, Aviva, WPP and ITV. The Motley Fool UK has recommended ITV. 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.

More on Investing Articles

Investing Articles

What’s up with the Lloyds share price?

The Lloyds share price is up 26% in 2025, representing one of the strongest performance on the FTSE 100. Dr…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Here’s how a 40-year-old could start investing £100 per week to retire early

If a 40-year-old decides to start investing today, here's how they could potentially turn £100 a week into over £500k…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

The FTSE 100 is up 60% in 5 years. Here’s why — and a big lesson!

The flagship FTSE 100 index has put in a very strong performance over five years. There's a specific reason for…

Read more »

Investing Articles

How much do investors need in an ISA to earn a £2,500 monthly passive income?

Charlie Carman explores how investors could strive for £30k in tax-free passive income each year from a dividend stock portfolio.

Read more »

Investing Articles

How much would a 45-year-old need to invest in an ISA to earn a £1k monthly passive income at 65?

Harvey Jones looks at how much an investor would need to put away every month to build a steady passive…

Read more »

Investing Articles

3 things to do ahead of the new 2025-26 ISA year

It's time for us all to put on our investing boots and get to work on developing our plans for…

Read more »

Older couple walking in park
Investing Articles

Is £150,000 enough to generate £1,000 a month in passive income?

Stephen Wright takes a look at three UK stocks with dividend yields above 8% that passive income investors might be…

Read more »

Investing Articles

Aim to earn a £50k second income in retirement by investing just this much each month

Even with a small monthly investment, it’s possible to earn a £50k second income with a successful investment strategy and…

Read more »