Late last week, The Australian Financial Review reported investors are becoming increasingly active in shopping around for better returns from their term deposits and savings accounts.
When the highest yearly return is just 3.75% on a minimum $25,000 investment, it's easy to see why.
For long-time savers, renewing five-year term deposits will likely result in a decrease of interest of around 40%. However it could get worse before it gets better.
According to the AFR higher capital ratios are expected to impact the big banks and could result in lower term deposit rates as margins come under pressure.
Then there's the expectation the RBA will lower rates in 2015. Both Westpac and NAB economists are forecasting two rate cuts in the year ahead. Justine Davies, finance editor at Canstar, said, "We expect fixed interest returns to continue their current decline."
Whilst many people opening fixed interest accounts will want safety above all else, history tells us that over the long-term (five years or more), the share market is the best place to park excess capital.
Indeed whilst cash accounts have historically performed quite well (averaging around 7.8% over the past 30 years), current low interest rates of 2.5% seem a world away from the 7% cash rate in 2008.
By comparison, over the past 30 years, Australian shares have returned over 11%, according to investment firm, Vanguard.
But best of all for share market investors, the returns do not look like slowing down.
Whilst the market – benchmarked by the S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) – may have had a lacklustre 2014, there are plenty of great stocks on offer which could perform strongly, and are expected to offer dividend yields in excess of 5%, throughout 2015.
Ardent Leisure Group (ASX: AAD), owner of Goodlife Health Clubs, Dreamworld and much more, has achieved an average annual total shareholder return (dividends plus capital gains) of 12.1% in the past decade. It's forecast to yield 5.2% in the next year. Despite a fantastic track record, shares in Village Roadshow Ltd (ASX: VRL) are down 22% in the past year but look cheap and are currently offering a 4.7% fully franked dividend yield.
Sky Network Television Ltd (ASX: SKT), the owner of New Zealand's version of Foxtel, has a strong competitive advantage and offers a 5.3% dividend yield. It'll also be a beneficiary of the falling Australian dollar.
Indirectly, Super Retail Group Limited (ASX: SUL) will also welcome a lower dollar. It's the owner of retail stores such as Rebel, Ray's Outdoors, Supercheap Auto and more. Whilst the near-term outlook appears challenging for the retail sector, it's tipped to pay a healthy 5.2% fully franked dividend in 2015.
