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How you can beat low interest rates with ASX shares

According to the latest cash rate futures, the market is divided on what will happen at the Reserve Bank’s next meeting in May.

Futures contracts indicate that there is currently a 48% probability of the central bank cutting the cash rate to zero and a 52% probability of it holding firm at 0.25%.

One thing that the market seems less divided on, though, is the outlook for rates over the coming years.

Many economists are expecting rates to stay lower for longer, especially given the damage the coronavirus pandemic is doing to the economy.

For example, according to the latest Westpac Weekly economic report by banking giant Westpac Banking Corp (ASX: WBC), it has forecast the cash rate to remain at 0.25% until at least December 2021.

In light of this, it looks likely to be many years before rates will return to normal levels again.

While this is great news for borrowers, it is disappointing for income investors. They will have to contend with low interest rates on term deposits and savings accounts for some time to come.

As a result, I think now is the time to look to the share market for income if you haven’t done so already.

But which shares should you buy for income?

One of the consequences of the coronavirus pandemic has been a need for businesses to maintain a strong balance sheet.

This has led to many companies either cancelling or deferring dividend payments. Which makes investing in income shares that little bit harder.

If you’re looking for income in the immediate term then I would suggest you look closer at shares such as BHP Group Ltd (ASX: BHP), Coles Group Ltd (ASX: COL), Commonwealth Bank of Australia (ASX: CBA), and Telstra Corporation Ltd (ASX: TLS).

I believe these four shares are all well-placed to pay dividends (albeit reduced in the case of Commonwealth Bank) as normal over the next 12 months.

Whereas if you’re looking for quality dividend shares but don’t mind waiting for your first payment, then take a look at Accent Group Ltd (ASX: AX1), Scentre Group (ASX: SCG), and Transurban Group (ASX: TCL).

I feel these three shares would be great long term options for income investors and expect decent yields will be on offer when trading conditions return to normal.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Transurban Group. The Motley Fool Australia has recommended Accent Group and Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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