Investment Special: Searching for income

The outcome of last week’s Monetary Policy Committee meeting came as no surprise, but if you’re trying to live off income generated from capital, it was still bloody irritating. Once again, base rate was left at 0.5 per cent, its lowest level since records began in 1694. Once again, it was decided that quantitative easing must continue. So annuity rates will remain at record lows; deposit rates will remain below a level worth anything after inflation and tax; the squeeze on pensioner living standards will continue; and savers will feel forced to move into riskier markets to preserve the purchasing power of their cash.

So what can you do? The first thing to note is that you don’t have to be bullied into moving out of cash. Deposit interest rates are not all bad. Banks have been having trouble attracting deposits (for obvious reasons) and have started slowly edging rates up. You can get 3.1 per cent on instant access at Santander, 3.8 per cent at First Save for a two-year fix and 4 per cent at Halifax if you tie up your money for three years. The problem with many accounts, of course, is that the financial sector is habitually mendacious: the moment your introductory deal comes to an end, they’ll slash your interest rate as close to zero as possible. Then you’ll be left with a pittance, or the trying admin of moving money to an account with a better rate — so boring in fact that most people don’t bother doing it. That’s why the average rate on instant access accounts is 0.99 per cent and on cash Isas a mere 0.6 per cent, at a time when consumer price inflation is still close to 4 per cent.