Currently, the interest rate of a savings account is around 3%. That means you could earn £90,000 per year in interest on £3 million. Fixed-rate accounts, bonds, and certificates of deposit offer 4-5% annually. Which makes you earn £120,000 to £150,000 per year in interest on £3 million. However, the exact amount will depend on where you put your money and current market rates.
Where should I put my 3 million pounds to earn interest?
There are many options available where you can put your £3 million pounds to earn interest. But the best option always depend on your personal circumstances. In the following, we provide some investment options, where you can earn a good interest income.
Easy-access savings account interest on 3 million pounds in the UK
Currently, easy-access savings accounts provide a low interest rate. You can get an average interest rate of 3%. So on 3 million pounds, you could generate £90,000 a year. This interest income can be higher if you deposit your money in online banks. The benefit of an easy-access savings account is the ability to withdraw money without penalties. You can open an easy access savings account here.
Fixed-term savings account interest on 3 million pounds in the UK
The fixed-rate savings account can be a great option to earn interest. You could generate a very good interest in that. The average interest rate of a fixed-rate savings account is 5%. So on a 3 million pounds, you could generate £150,000 a year. The bad thing about fixed-rate accounts is money gets locked for a certain period. This period depends on which fixed-rate account you open. Usually, it comes between 1 to 5 years. You can open an fixed-rate savings account here.
CDs interest on 3 million pounds in the UK
CDs are a simple, low-risk way to earn interest. Like fixed-rate savings accounts, CDs also have a fixed period of time. It comes from 3 months to 5 years. Also, the interest rates on CDs can vary depending on the term. However, in the UK, typically CDs offer interest rates of 4.5%. In that case, you can earn £135,000 pounds on your 3 million investments. You can buy online CDs at Barclays.
Bonds interest on 3 million pounds in the UK
Bonds are one of the safest investment options to generate interest income. Mainly, there are only two types of bonds available. They are Government bonds (Gilts) and Corporate bonds.
1. Government bonds (Gilts): Gilts are the British government bonds. It is used to raise money from investors. You can buy gilts at a fixed interest rate for a fixed period. This period can vary between 1 month to 50 years. The average gilt interest rate comes to around 4.25%. So on a 3 million pounds, you could generate £127,500 pounds. You can buy gilts from UK Govt.
2. Corporate bonds: Corporate bonds are company bonds. It is also used to raise money from investors. But it has a higher risk than Gilts. Because, if the company defaults, then you lose all your money. So, invest the money carefully. The average interest rate of corporate bonds is around 6.5%. So on a 3 million pounds, you could generate £195,000 pounds.
Where should I invest 3 million pounds to get the highest return?
There are many options available to invest £3 million pounds in the UK. Here are a few options for investing 3 million pounds to get the highest return.
Stocks market return on 3 million pounds in the UK
To maximise your returns, you can invest £3 million pounds in the stock market. But, the return depends on where you invest the money. Like blue-chip stocks, index funds, mutual funds, individual stocks, etc.
Blue-chip stocks
Blue chip stocks refer to stocks of large, well-established companies. These kinds of stocks can have low risk with good returns over time. However, the UK stock market has an average return of 10-12% annually. So on a 3 million investment, you could generate around £300,000 to £360,000 pounds.
Index funds
An easy way to invest in the overall stock market is through index funds. Like the FTSE 100 and FTSE 250. According to the Motley Fool, over the past 20 years, the FTSE 100 has returned about 6.89%. So a 3 million pound investment could generate around £206,700 pounds in returns.
Individual stocks
If you want to aim for higher returns, you can invest in individual company stocks. However, investing in individual stock can bring high risk. Because individual stock returns vary based on the company. We can’t provide average returns of any individual stocks. The returns can be 10% or -10%. It fully depends on the company’s performance.
Real estate return on 3 million pounds in the UK
Real estate can be an attractive option to generate returns on 3 million pounds. In real estate, you can earn money through rent and capital appreciation.
Rental Income
The average rental yield on buy-to-let properties in the UK is around 5-6%. On a £3 million portfolio, that could mean £150,000-£180,000 in annual rental income. However, the actual amount depends on the property and the location.
Capital Gains
Besides rental income, the value of your properties also increases over time. Historically, the average return on your real estate investment is around 7%. So, a £3 million real estate investment can generate around £210,000 pounds each year.
Taxation on your interest income from 3 million pounds in the UK
Govt. imposed taxes on the total income of an individual person. This income can come from interest, dividends, capital gains, or other sources. That means you have to pay tax on interest income from 3 million pounds.
The actual taxed amount depends on your interest income. For example, if you generate £150,000 from interest, then you come under the additional-rate tax bracket. That means you have to pay 45% of your income as a tax. After tax, your £150,000 would be £89,778.
To reduce your taxes, you can consider tax-free options like ISAs. It allows up to £20,000 tax-free interest income per year. You can also reinvest the interest income to reduce taxes.
Is interest income from 3 million pounds enough to live in the UK?
The short answer is yes, you can live on interest income from £3 million pounds. It will generate a good amount of income to live comfortably in the UK.
For a comfortable retirement, you will need an income of between £30,000 to £60,000 pounds per year. For an individual, it will be £35,000 pounds or above and for a couple, it will be £50,000 pounds or above. However, the actual retirement amount depends on your lifestyle and location. Living in a smaller city up north is much more affordable than living in central London.
The bottom line is, if you live within your means and avoid a lavish lifestyle, then the interest from £3 million could be enough to live on. Keep in mind that interest rates and inflation will affect your buying power over time. But with careful planning, your nest egg could fund your retirement.
Conclusion
So there you have it. Three million pounds could earn you anywhere from £90,000 to £300,000 pounds in interest per year depending on the type of investment you choose. Not bad for doing nothing but letting your money work for you. The key is finding the right investment option to balance the risk and reward. And over time, compounding interest on such a large principal can really add up.
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