You can generate £50,000 in interest every year by depositing your 1 million pounds in a fixed-rate savings account. This is because a fixed-rate savings account provides an average interest rate of 5%.
On the other hand, the Stock market will give you an average 10% return on your investment. So, with 1 million pounds you can generate £100,000 every year.
How much interest on 1 million pounds in different financial products
Currently, there are many financial products available in the market to invest one million pounds. In the following, we discuss some famous investment options, where you can invest your one million pounds.
Easy access savings accounts interest on 1 million pounds
If you don’t want to invest your money, then deposit your one million pounds in easy-access savings accounts. On average, you can get 1.5% in interest. So, on a 1 million pounds, you could generate around £15,000 in interest per year. This is equal to £1,250 per month and £57.69 per day. However, you can generate a high-interest income in online banks. You can open an easy-access savings account here.
Fixed-term savings accounts interest on 1 million pounds
A fixed-term savings account is one of the best options to generate interest income. You can get an average interest rate of 5% in a fixed-term savings account. If you deposit 1 million pounds in a 1-year fixed term, then you can generate £50,000 in interest each year. This is equal to £4,167 per month and £192.30 per day. You can open a fixed-term savings account here.
Certificates of Deposit (CDs) interest on 1 million pounds
CDs are the safest option to invest your 1 million pounds. You can invest your 1 million pounds from 3 months to 5 years in CDs. The interest can vary depending on your investing time. On average, you can get 4.5% interest on CDs. So, on a 1 million pounds, you could generate around £45,000 in interest every year. This is equal to £3,750 per month and £173.07 per day. You can buy CDs here.
Treasury bills (T-bills) interest on 1 million pounds
T-bills are the low-risk investment option. It was backed by the Govt. You can invest your money in T-bills from 3 months to 5 years. T-bills will provide you with an interest rate of 5%. So, on a 1 million pounds, you could generate around £50,000 in interest per year. This is equal to £4,167 per month and £192.30 per day. You can buy T-bills here.
Bonds interest on 1 million pounds
You can also generate interest income from Bonds. In the market there are two types of bonds available. They are Govt. bonds and Corporate Bonds.
- Govt. bonds (Gilts): In the UK, Government Bonds are known as Gilts. Gilts are one of the low-risk investment options in the UK. Gilt’s maturity period is between 1 month to 50 years. On average, Gilts will provide you with an interest rate of 4.25%. So, on a 1 million pounds, you could generate around £42,500 in interest per year. This is equal to £3,542 per month and £163.46 per day. You can check the gilt details here.
- Corporate Bonds: Corporate Bonds are issued by the companies. It is a high-risk investment option. Here, you can lose your money if companies default. Corporate Bonds maturity is around 13 years. Here you can get an average interest of 6.5%. So, on a 1 million pounds, you could generate around £65,000 in interest each year. This is equal to £5,417 per month and £250 per day.
Following table saw you how much interest income you can actually generate with a different interest rate:
| Interest Rate | Daily | Monthly | Yearly |
|---|---|---|---|
| 1% | £38.46 | £833.34 | £10,000 |
| 1.5% | £57.69 | £1,250 | £15,000 |
| 2% | £76.92 | £1,666.57 | £20,000 |
| 2.5% | £96.15 | £2,083.34 | £25,000 |
| 5% | £192.30 | £4,166.67 | £50,000 |
| 7% | £269.23 | £5,833.34 | £70,000 |
| 10% | £384.61 | £8,333.34 | £100,000 |
Investing 1 million pounds – options and returns in the UK
Investing is one way to make your money work for you. You have options like stocks, mutual funds, and index funds to consider.
Stocks
Investing 1 million pounds in stocks helps you to generate a glorious return. Make a portfolio of 10 to 20 companies’ stocks where you want to invest the money. It helps you to reduce the risk. If you invest the money in only one company, then it brings a high risk for you. So, always make a portfolio of companies to get a high return from stock investment.
Mutual Funds and ETFs
Mutual funds and ETFs invest in stocks and debt. They instantly provide diversification in your investment. But they charge annual fees for maintaining the portfolio. Therefore, always invest in low-cost funds with a long term high return performance. It help you to generate a very good return from your one million investment.
Index Funds
Index funds track major market indexes. They have very low fees but provide the average market return. Over time, average returns can generate good profits from a million pounds. The average return of the Index fund is around 10-12%. So, investing 1 million pounds helps you to generate £100,000-£120,000 every year.
Real Estate Investments
Property investment is one of the best investment options. Because the property value will grow over time by doing nothing. Buy a residential or commercial property where ROI is high. Then rent out the property and enjoy the rental income and property price appreciation. The average property price appreciation is around 7%. So, on one million pounds, you can generate around £70,000 per year.
Investing in peer-to-peer lending
If you want a higher interest rate from your investment, you can invest your money in peer-to-peer lending. CapitalStackers and Loanpad provide you with peer-to-peer lending facilities. On average, you can get an 8% interest rate from peer-to-peer lending. So, with one million pounds, you can generate around £80,000 per year.
(Please remember peer-to-peer lending is a high-risk, high-return investment option. Don’t invest all your money here.)
Tax implications on interest income from £1 Million in the UK
When you earn money from interest, you have to pay tax on it. How much depends on how much interest you earn.
Savings account interest
Interest earned from a standard savings account is taxable. The UK Govt. provides £12,500 as a personal allowance. If you cross that amount, then you have to pay income tax. So if you earned £50,000 in interest, you’d pay tax on £37,500 (£50,000 – £12,500).
ISAs
Interest from Individual Savings Accounts (ISAs) is tax-free. You can get tax-free benefits up to £20,000 per year into an ISA.
Bonds
Interest income from corporate bonds is taxable at your income tax rate. However, you can reduce your taxes in interest income by holding bonds in an ISA. Some NS&I also offer tax-free interest income.
Following table saw you interest income after taxation.
| Annual Interest Rate | Annual Income Before Tax | Annual Income After Tax |
|---|---|---|
| 1% | £10,000 | £10,000 |
| 1.5% | £15,000 | £14,222.40 |
| 2% | £20,000 | £17,622.40 |
| 2.5% | £25,000 | £21,022.40 |
| 5% | £50,000 | £38,022.40 |
| 7% | £70,000 | £49,649.40 |
| 10% | £100,000 | £67,049.40 |
Can I live on an interest income from 1 million pounds?
Well, it depends on you. Because every person has a different lifestyle and cost of living. For example, if you live in London, then £50,000 may not be enough to live in, but it’s enough to live in Wales.
It also depends on where you invest the money. For example, if you deposit your money in a savings account at a 1.5% interest rate, then it could generate only £15,000 each year. It is not enough to live anywhere in the UK.
So, in my opinion, if you want to live with an interest income, then invest 1 million pounds in the stock market. It will give you an average return of 10% every year. With a 10% return, you could generate £100,000 in income every year. This will be enough to live in most areas of the UK.
How to make one million pounds in the UK?
Making a million pounds is challenging, but doable with hard work and dedication. Here are some realistic approaches to making a million.
Starting a business
If you have any innovative ideas, then start your own business. It is one of the best ways to make a million pounds. While starting a business is risky, the potential for returns is also high. Currently, starting an e-commerce business is the best option to make a million.
Invest in real estate
Property investment is a tested method to make money. You should buy a property where the ROI is high. Then renovated the property and sold it for a profit. Reinvest the proceeds into more property. This property investment method helps you to reach one million pounds easily.
Invest in the stock market
Stock market investment is another best option to reach £1 million. Here, your money will grow over time through compounding interest. Select an index fund that tracks the overall market. This will help you to reach £1 million fast.
Save diligently
Even saving a few hundred pounds each month can help you to reach £1 million, over 30-40 years. The key is to start saving as early as possible and invest the money in a high returns financial product. After your income rises, increase the investment amount. It will help you to reach £1 million fast.
Is my £1 million safe in a bank?
Yes, your £1 million is safe in the bank. UK banks are insured by the Financial Services Compensation Scheme (FSCS). They protect up to £85,000 per person per bank. So if anything were to happen to your bank, only £85,000 would be covered from your £1 million. Therefore, you have to deposit the £1 million in different banks. So the money is 100% protected. For this protection, there is no cost to you.
Conclusion
So there you have it, earning interest from your million pounds. If you invest one million pounds properly, it could be a great stream of passive income. While interest rates are still low, you can make £20,000-£30,000 per year. You can also make a higher return by investing your money in the stock market.
You can also check
- How much interest on 10 million pounds
- How much interest on 50 million pounds
- How much interest on 50,000 pounds
Disclaimer: All the information provide on this article only for educational purposes. We don’t guarantee every information provide in this article will be true or right. Please do your own research or consult financial advisor before taking financial decision.
