Look to Europe for a savings home

The Bank of England has slashed its base rate from 4.5% to just 2% in recent months. The move, designed to help boost the economy, may be good news for borrowers, but it is decidedly bad news for savers.

Savers, the largest group of which are the elderly, now have to be a bit smarter about where they look for the best savings rates. There are some opportunities in Europe which might be beneficial. Many European companies have raised dividends, with one fund example being Ignis Argonaut European Income with a yield currently at 6.9%.

The latest American interest rate cut – to 0.25% – makes it likely that further Bank of England cuts will follow, and there have been some calls for the interest rate to be cut to zero. Where would that leave savers?

UK equity income funds have traditionally had the potential to pay out good dividends to fund holders over the long term, even when interest rates are low, but UK companies are beginning to cut dividends, so UK equities are likely to see a cut in income over the next couple of years.

Conversely, rising European dividends have just hit UK levels for the first time in twenty years. Morgan Stanley Capital International (MSCI) European dividend and the MSCI UK dividend yields both currently stand at 5.6%, but the European one is rising.

To date there have not been many European dividend income funds, and most have been started in the past couple of years. Those that do exist are showing impressive yields: Newton European Higher Income is at 6.29% net, and Jupiter European Income is net 5.3%.

Another benefit of European funds is the vast array of companies, sectors and stocks to choose from. Such diversification can give some protection from the vagaries of one area, be it geographical, sector or company.

Investors hoping to maintain income streams might see a move into European Income funds as a sound move, though they might also perceive there to be more risk. However, given what has happened all around the world, as well as to those supposedly most stable of institutions – banks – in the UK, there is little chance of avoiding some risk, wherever you place you money. Surely the biggest risk now is leaving your money where it might make no money at all, and is still vulnerable. Moving it where it could generate some more income sounds much more sensible.

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