The Motley Fool

Forget the Cash ISA! I’d pick up the Lloyds share price’s 6.2% yield

Image source: Getty Images.

Every year, millions of Britons put money into a Cash ISA, but I wonder whether they really know what they’re doing.

Cashing out

While it’s important to hold some cash for a rainy day, you can’t afford to leave too much money sitting idle. These days, you’re lucky to get more than 1% on instant access, which means the value of your money is falling in real terms.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Once you’ve built a pot of emergency cash, you need to put your longer-term savings to work to generate a higher return. I think the best way of doing this is to invest in the stock market, either through a fund or individual FTSE 100 stocks.

One of the most attractive on the index right now is Lloyds Banking Group (LSE: LLOY). Before the financial crisis, the high street bank was described as a ‘dividend machine’ because it regularly lavished investors with generous dividends. Millions used it to boost their income in retirement, and it remains one of the most traded stocks in the UK today.

On the mend

Lloyds has spent the last decade cleaning up its act after misdemeanours during the financial crisis, turning itself into a leaner, meaner operation, cutting jobs and closing branches. It has narrowed its focus on the domestic UK economy, providing loans to small businesses, and savings, mortgages and credit cards to consumers.

This should make it lower risk, although it does leave it exposed to the fortunes of the UK economy, which is one reason why the Lloyds share price struggled to grow during the political and economic uncertainty surrounding Brexit.

Lloyds has worked hard to restore its dividend, which is the real attraction of investing in the stock. Right now, it’s forecast to give you income of 6.2% a year, which is five or six times the return you’ll get on an instant access Cash ISA.

Rising income

Another attraction of dividend stocks over cash is that they aim to increase their payouts over time, which allows you to lock into a rising income. Next year, for example, Lloyds is expected to yield 6.4%. No savings account can match that. If its share price recovers, you’ll get capital growth on top, free of tax, in a Stocks and Shares ISA.

Investing in shares is more risky than leaving money in cash. You should be looking to invest for a minimum five years, but preferably much longer. I think Lloyds makes a strong ‘buy and hold’ case with shares you can hang onto for decades, all the way to retirement. Keep reinvesting the dividends for growth and then you can take the proceeds as a passive income after you stop working.

Lloyds isn’t perfect. If the UK economy stumbles, its share price will struggle. However, given that it trades at a bargain valuation of just 8.4 times forward earnings, you have a large safety net if that happens. Today’s low share price could be a good opportunity to buy it on the cheap. I’d pick it over a Cash ISA any day.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.