Do you have £1 million tucked away? Or have you just won the lottery? Either way, I’m sure you’re interested in knowing how much interest you can earn from 1 million pounds.
How much interest on 1 million pounds?
Based on the current interest base rate in the UK of 4%, placing £1,000,000 into a bank will earn you £40,000 per year before tax. This is equal to £3,333.33 per month or £769.23 per week.
Could you live off the interest from 1 million pounds?
I’m sure we’ve all dreamed of having 1 million pounds in our bank. Whether it’s from being very lucky and winning a jackpot, working hard or investing and saving each month, it’s something that many of us want.
And it will be a life-changing sum. But the question is, would it be enough to live off? Could you stash the money away and rely on the interest to see you through the rest of your days?
The truth is, depending on where you put your money, the interest might not be as good as you hope. Interest rates in the UK, and across the world have been low for some time now, although they are on the way up.
As you can see from above, you will earn £40,000 per year if your interest is paid at the current Bank of England (BOE) of 4.25%. But how much could you earn at different rates?
How much interest on £1 Million at 1%?
- Daily rate: £27.40
- Weekly rate: £192.30
- Monthly rate: £833.33
- Yearly rate: £10,000
You may struggle to find a savings account that pays the current BOE interest rate, so 1% is more achievable. But at £10,000 per year, you would have to live incredibly frugally if you no longer wanted to work.
How much interest on £1 Million at 2.5%?
- Daily rate: £68.49
- Weekly rate: £480.77
- Monthly rate: £2083.33
- Yearly rate: £25,000
Finding a savings account at 2.5% will be quite difficult. However, if you’re willing to invest, then 2.5% should be easily achievable. So, £25,000 per year might not give you a luxurious lifestyle, but it will be enough for most people to live off.
How much interest on £1 Million at 5%?
- Daily rate: £136.99
- Weekly rate: £961.54
- Monthly rate: £4,166.67
- Yearly rate: £50,000
Now we’re talking. £50,000 every year is more than enough for most people in the UK to live off. Again, to achieve this kind of rate, you will need to look away from a traditional savings account and consider investing.
How much interest on £1 Million at 10%?
- Daily rate: £273.98
- Weekly rate: £1,923.08
- Monthly rate: £8,333.33
- Yearly rate: £100,000
This is the kind of thing dreams are made of. Earning £100,000 per year would be enough for anyone to live comfortably and also allow you to reinvest. That means you should earn more and more every year, and 10% is an achievable rate with some investment opportunities. In fact, NerdWallet reports that the average return from the top American companies sits at 10%.
Where should you put your million pounds?
If you ever have the fortune (pardon the pun) to make £1 million, think carefully about where you place your wealth. As I said above, an easy-access savings account or a cash ISA from a UK bank tends not to pay too much, but it’s a safe and easy way to secure your money. Plus, if you don’t withdraw, with compound interest, your money will continue to grow.
Just make sure that your chosen account is covered by the Financial Services Compensation Scheme. If something should happen to your bank, up to £85,000 of your money will be protected.
Property can be a good way to invest as it will see decent returns. But unless you pay somebody to manage the property for you, it might not be a passive way to make money.
Investing in stocks and shares can be another good way to make money, with the potential return far more than an ordinary savings account. And the good thing is, you don’t even need to know much about it as you can have others invest for you. At the moment, my Fidelity stocks and shares ISA returns an average of 8% every year.
Investing in the stock market does come with increased risk, so this might not be for everyone.
Whatever you choose to do with your money, make sure that you find a legitimate company that is regulated by the Financial Conduct Authority (FCA). Steer clear of any scheme that sounds too good to be true. And if you’re unsure, contact a financial adviser for help.
Would 1 million pounds see you through retirement?
As long as you don’t lead a lavish lifestyle, a pension pot of £1 million will give you a very comfortable retirement income. The interest payments alone should be enough for the vast majority of retirees.
How to become a millionaire?
So we’ve discussed where you should put your money, but how do you get there in the first place? It’s actually an achievable goal for most people, as long as you’re willing to make some sacrifices. Take a look at my post on compound interest and how you can become a millionaire from investing.
Don’t forget tax!
It’s not all good news. Don’t forget that savings interest counts as income, just like a salary. If your money isn’t saved in a tax wrapper like an ISA or in Premium Bonds, you may be expected to pay interest on anything over your personal savings allowance.
Even if you don’t have a salary and live off the interest income from one million pounds, 20% of it will be taken in tax. This can rise to as much as 45% if you start to earn big money.
C
Thursday 1st of February 2024
Then the money taken from you is wasted by the government. Shameful.