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Forget buy-to-let and cash! A Stocks and Shares ISA is now the best investment for income

Warning! Interest rates are crashing again. More than 30 central banks around the world have cut rates so far this year, with the European Central Bank driving eurozone rates into negative territory at -0.5%.

Very little interest

These are crazy times and the impact on cash isn’t exactly hard to gauge. While a handful of best-buy, easy-access accounts pay 1.5%, the vast majority give you under 0.5%. Unless you’re willing to shift accounts again and again, you will get a near-zero return.

You can get yields of around 5% on a buy-to-let property and there are still a few pockets of value, typically where prices are lower in the North of England. But, as I have written before, buy-to-let is an awful lot of bother. You have all the upkeep of a property combined with the hassle of dealing with tenants, and HM Revenue & Customs will take a fat chunk of any profits. Any capital growth from rising house prices is now likely to be minimal, as economic sentiment slumps.

Massive yields

I can see the pull of bricks & mortar, but I seriously wonder why people bother now, given that you can get a yield of 4.54% from the FTSE 100 right now, with absolutely none of the hassle of becoming an amateur landlord. You can buy and sell shares and funds in moments, with minimal trading fees, and rock-bottom ongoing costs.

Also, shares are highly liquid, as it can take months to sell a property, during which time anything can happen to prices. You have to spread risk with a basket of stocks though, in case one of your choices does a Thomas Cook.

The one advantage that property does have is leverage – you can borrow money to invest. That’s tempting, given today’s low, low interest rates, but means taking on a lot of debt.

Personally, I’d go for dividend-paying stocks and shares. Especially since many companies now offer far higher yields than the FTSE 100 average. Here are three stocks worth considering that currently offer massive yields of 8% or more.

It’s not all doom

Share prices can be volatile, and some are warning of a crash this autumn. But they’ve been warning of impending disaster year after year, and it still hasn’t come. Anybody who shunned stocks and shares over the last decade as a result will be kicking themselves for missing out on the longest bull run in history.

Right now, the FTSE 100 is packed with income heroes such as Aviva, BP, GlaxoSmithKline, Lloyds Banking Group, National Grid and Royal Dutch Shell. Alternatively, you can invest simply and easily using a low-cost index tracking exchange traded fund (ETF) such as iShares Core FTSE 100 ETF.

The beauty of dividends is that companies aim to increase their payouts every year, which gives you a rising income stream. Better still, you can reinvest those payouts for growth. The downside is that dividends can be cut, with Centrica and Vodafone taking the axe to theirs this year and others, including BT Group’s 8.65% yield, also vulnerable.

But if you’re investing for the long-term, the problems afflicting both cash and buy-to-let mean dividends are now the income kings.

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Harvey Jones owns shares of iShares FTSE 100. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended 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.