How much interest can you make on £1 million
Earning £100,000 puts you in the top 5% of earners in the UK, and sees you taking home between £5,400 and £6,000 a month. This article breaks down what it would mean to earn £100,000 in the UK
Key takeaways
- As of 2024, you can probably make around £50,000 a year in interest off £1 million.
- Currently there are many easy-access savings accounts are paying more than 5% interest.
- For any calculation on interest earned on savings or investments, it is sensible to account for inflation.
Table of contents:
- How much interest can I make on £1m?
- Is 1m enough to live on?
- Where to keep a million pounds?
- Are there tax implications if you have £1 million?
- How to make £1 million
- Can I retire on £1m at 55?
- Frequently asked questions
How much interest can I make on 1 million pounds?
The amount you can earn in interest on £1m depends on the rates available. In different economic climates you'll either have high or low interest rates.
At the time of writing, an easy-access savings account will yield around 5% interest - so 5% of £1m is £50,000.
This table breaks down how it works the interest would work on a balance of £1,000,000.
| Interest rate | Monthly | Annual |
| 1% | £833 | £10,000 |
| 2% | £1,667 | £20,000 |
| 5% | £4,167 | £50,000 |
| 10% | £8,333 | £100,000 |
| 15% | £12,500 | £150,000 |
Looking at this table you can get a sense of where the phrase 'rich get richer' comes from.
If you were one of the richest in the UK, and inherited anywhere north of £1,000,000, you're basically going to struggle to deplete that money unless you do something incredibly stupid. Even putting the money into the most bog-standard bank account will yield 10s of thousands a year, and that's before you get onto more sophisticated investments.
Is one million enough to live on?
In the UK, a million pounds can provide a comfortable living for many people, especially if you have a frugal lifestyle and aren't in high-cost areas like London.
However, it might not be enough for an extravagant or luxurious lifestyle, long-term retirement, or major unforeseen expenses.
It also hugely depends on your age. If you're young, you've got a long life left to lead, whereas if you're nearing retirement you - bluntly - have less long to live and so will need less money!
Where should I keep £1 million?
Here are some of the obvious options for keeping £1m, but you might want to seek professional help when it comes to handling such a large sum.
- High-Interest Savings Accounts: These offer security and accessibility, but low-interest rates may not yield substantial growth.
- Investment Portfolios: Diversified investments in stocks, bonds, or property can potentially yield higher returns but come with market risks.
- Property Investment: Buying property can offer potential appreciation and rental income but involves management and market risks.
- Retirement Accounts: Consider SIPPs, ISAs or other pension schemes or for tax advantages and long-term growth.
- Consult a Financial Advisor: As said above, a professional IFA can help you tailor a strategy based on risk tolerance, financial goals, and time horizon for optimal wealth management.
Are there tax implications if you have £1 million?
Yes, holding £1 million can have tax implications in the United Kingdom. Here are some considerations:
- Income Tax: If you generate income from sources such as investments, rental properties, or savings accounts, you may need to pay income tax on the earnings.
- Capital Gains Tax: When you sell assets like property, stocks, or valuable items at a profit, you may be subject to capital gains tax on the increase in value.
- Inheritance Tax: If your estate exceeds certain thresholds (£325,000 as of 2023, with additional allowances for property), inheritance tax may apply to assets passed on after your death.
- Tax-Efficient Investments: Utilising tax-efficient investment accounts like ISAs or pensions can help minimise tax liabilities on income and gains.
- Gift Tax: Large gifts or transfers of assets to individuals may be subject to gift tax, depending on the circumstances and amounts involved.
It's crucial to stay informed about tax laws, seek advice from tax professionals or financial advisors, and consider tax-efficient strategies to manage your wealth and minimise tax liabilities.
How to make £1 million
Making one million quid is no mean feat.
If you wanted to break it down into steps, it might look something like this.
- Increase Income: Pursue higher-paying opportunities or start a side business.
- Save & Invest: Create a strict budget and invest wisely in diversified assets.
- Continuous Learning: Develop skills that boost earning potential.
- Manage Risk: Take calculated risks in investments or ventures.
- Patience & Persistence: Understand it takes time and consistent effort.
- Networking: Connect with knowledgeable individuals in finance or business.
But really, undertaking to make £1m is a huge endeavour. Consider carefully if that is something you truly want, the sacrifices it might take to achieve, and the lifestyle that might accompany such a goal.
Many CEOs or high flying lawyers, bankers and consultants work extremely punishing hours - as do business owners.
If this doesn't put you off, and if you truly aspire to make big money, then absolutely go for it. Create your plan, and build your empire brick by brick!
Can I retire at 55 on £1 million?
Thinking about retiring at 55 with a million pounds? Let's consider a few things.
Life expectancy is increasing, and living costs are rising. Can a million pounds support a comfortable retirement?
First, assess your lifestyle and goals. For a comfortable retirement with leisure activities or travel, a million might not stretch far.
Consider investments. Rather than just saving, smart investments can grow wealth for a more secure retirement.
Remember inflation. Your million's purchasing power will decline over time. Plan for rising costs in retirement.
Frequently asked questions
- How long could you live of £1m?
- The duration you can live off £1 million depends on your expenses and lifestyle. Assuming a moderate lifestyle and expenses, it could potentially last 20-25 years, considering an annual expenditure of £40,000-£50,000. However, this estimate varies significantly based on factors like living costs, investment returns, and spending habits. You'd need to crunch the numbers yourself!
- How much will a £1,000,000 annuity pay?
- A £1 million annuity might pay around £40,000-£60,000 annually, depending on factors like age, rates, and chosen options. Actual amounts vary. Consult an advisor for precise figures.
- What percentage of people earn more than £100,000 in the UK?
- As you can see in the chart above, less than 5% of people earn more than £100,000 a year in the UK - though it is hard to put an exact figure on it, as this data changes regularly.