Savers looking to draw an income from their investments were dealt another blow last week when the Bank of England announced it could introduce negative rates within six months.
That raises the prospect of savers paying banks to hold their cash and the paltry yields offered by the safest bonds, such as those issued by governments, facing a further squeeze as their prices rise. The yield on two-year British government bond is already negative, while the 10-year bond offers just 0.46pc.
But there are still opportunities for investors to target a 5pc income if they are willing to be a little more adventurous – without taking too much risk. Wealth managers have suggested four ways for investors to fight the threat of negative interest rates and keep income flowing.
Investment trusts which invest directly in projects such as renewable energy, schools, hospitals, toll roads and energy grids are an excellent source of stable and substantial income for savers.
Jason Hollands, of fund shop Bestinvest, said the income was backed by very long-term contracts, was sometimes underwritten by government partnerships, and could even be linked to inflation, which made it extremely secure.
He recommended the £2.5bn Greencoat UK Wind investment trust, which yields 5.1pc, and £3.3bn HICL Infrastructure, which yields 4.7pc.
However, the catch is that because these funds are in high demand, the shares trade at 19pc premiums to the assets which they own. This means that a jolt to investor confidence could cause share prices to fall.
“High premiums have been a perennial feature of these types of investment companies because investors are willing to pay up for a stable and attractive income stream, especially in times of low yields and economic uncertainty, but they do tick the boxes of high yield and relatively low risk,” he said.
Real estate investment trusts (Reits) own physical property and are lauded for their ability to give savers a reliable income, uncorrelated to stock market swings. However, commercial property funds have been hit by declining rents and rising vacancies due to the pressure on the high street and have disappointed investors.
Mr Hollands said the most secure option was to buy “logistics” Reits that owned warehouse space and served the booming e-commerce industry.
“The more secure plays are the specialist logistics Reits which have benefited from the shift to online shopping,” he said.
He recommended the £542m Warehouse Reit, which yields 4.9pc. The shares trade at a 9.3pc premium to the trust’s assets.