The Motley Fool

Forget cash and NS&I! I’m building a passive income by investing £100 a week

Image source: Getty Images

Savers looking to generate a passive income are having a miserable time right now. In fact, desperation is setting in as interest rates looks set to stay at near zero levels for years. Any savings account offering more than 1% is swamped by demand.

In April, National Savings & Investments (NS&I) reversed plans to cut its savings rates, and found itself offering some of the best deals on the market. The result: it attracted an incredible £14.5bn in just a few months. It has responded by slashing rates to the bone.

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...

NS&I is cutting the rate on its market-leading easy-access Direct Saver account from 1% to a meagre 0.15%, from November 24. On the same day, its best buy Income Bonds fall from 1.15% to 0.01%. Good luck generating a passive income with NS&I.

I’m using UK shares to build a passive income

The Treasury-backed savings provider isn’t the only one slashing rates due to sky-high demand. Skipton Building Society last week pulled its Online Bonus Saver, which paid 1.2% (inflated by a 0.5% introductory bonus). This was available for just three days, before Skipton closed the offer citing “unprecedented demand”.

Hunting around for a savings account to generate some kind of passive income is a thankless task. You will have to keep on moving on, constantly, to generate any type of return. That is why I am investing for the long term in UK shares instead.

This has also been a tough year for investors looking to generate passive income courtesy of FTSE 100 dividends. More than a third of companies listed on the index have scrapped or suspended shareholder payouts due to the pandemic.

However, many continue to offer investors a high and rising income. Incredibly, asset manager Standard Life Aberdeen has stuck by its dividend and now yields 10.05%. Even if it is trimmed, you should still get a great passive income. The same goes for Legal & General Group, which yields 9.86%. 

Imagine if a savings account offered that kind of return. It would be swamped by savers demanding a piece of the action.

Two more FTSE 100 income heroes

Pharmaceuticals firm GlaxoSmithKline is another company to stand by its dividend in recent days, and it currently yields 5.41%. Spirits giant Diageo has also said it will continue to reward loyal shareholders. Its dividend yield is lower at 2.8%, but management has a progressive attitude and the payout tends to rise year after year. 

I’m investing around £100 a week right now, turning stock market volatility to my advantage. If share prices fall, my regular payment picks up more stock. That will generate more dividends, which I will reinvest back into my portfolio for growth.

Later, when I retire, I will rely on it to deliver the passive income I need. UK shares may be riskier than cash, but if you invest for the long term, short-term volatility becomes a non-issue.

The paltry returns you get from cash and NS&I are not enough to live on. With luck, dividends should deliver the passive income you need.

Here's where I'd start.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and GlaxoSmithKline. 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- 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.