How Much Interest Will I Earn On 1 Million Pounds?
Becoming a millionaire is a dream for many, with people often setting an age by which they want to achieve the financial milestone.
If you’re lucky enough to find yourself with a big pile of cash sat in the bank you’re probably intrigued to know how much interest you can earn on £1million.
Is one million pounds enough to live on now and for the rest of your life without having to live frugally? Is it better to put it in the bank or invest it?
I’ve put together this guide to show how much interest you can earn from 1 million pounds. Don’t have your million yet? Check out these tips for how to make £1m.
How much interest will I earn on 1 million pounds?
So you’ve got your million and you now want to make it work for you.
How much interest you’ll earn depends on the account you choose and how long you’re prepared to lock your money away for.
Let’s start by looking at basic savings accounts.
The Bank of England base rate is currently 3.5%. If your bank were to offer this (which they won’t necessarily), your £1m will make you:
- £35,000 per year
- £95.89 per day
Many banks and building societies are paying less than this on instant access accounts, although rates are creeping up. Always shop around for the best deal right now.
If you already having a savings account and know the current interest rate, you can use this interest calculator to figure out what you’ll earn.
How much interest on £1 million a week and a month?
You can earn £673 a week on your million pounds, or £2,917 a month, in a bank account paying 3.5%.
This is assuming that you keep the full million pounds intact in an account that consistently pays this rate of interest, which in the real world is unlikely.
Interest rates can fluctuate significantly and are only just starting to rise after years of historic lows.
However, some people might remember the days when an eye-watering rate of 6% was normal!
If this were the case now, and you had £1 million in the bank, you’d earn £60,000 a year in interest (£164 per day / £1,153 per week / £5,000 per month).
Living off your million seems more appealing with amounts like this!
How much interest £1 million in the UK
As interest rates vary across the course of the year – and circumstances can inflate them or send them crashing – this guide gives you a rough idea of how interest rates can impact the growth of your £1m pot!
As you can see, just one or two per cent more makes all of the difference – if only you can chase down a bank account that will pay that much.
| Weekly | Monthly | Annually | |
|---|---|---|---|
| How much interest on £1 million at 0.5% | £97 | £417 | £5,000 |
| How much interest on £1 million at 1% | £194 | £833 | £10,000 |
| How much interest on £1 million at 2.5% | £483 | £2,080 | £25,000 |
| How much interest on £1 million at 5% | £962 | £4,167 | £50,000 |
| How much interest on £1 million at 7% | £1,362 | £5,833 | £70,000 |
Compound interest on your million pounds
The above returns don’t include what’s known as compounding, or compound interest.
In simple terms, this is interest on interest.
So, taking the 3.5% rate already mentioned, if your bank pays interest monthly on your million pounds, you’ll earn extra cash on this interest going forward.
Over the course of a year monthly compounding means you’ll earn £35,566.95 on your million pounds, or an extra £566.95, giving you an effective interest rate of 3.557%.
The longer you leave your pot untouched the greater the benefit of compound interest.
Consider this – if you leave your £1 million untouched for 25 years in an account paying a consistent 3.5% compounded monthly, your pot will grow to £2,395,822.11.
You can use this compound interest calculator to check out how compound interest could benefit you.
Is the interest from 1 million pounds enough to live on?
There’s no doubt that £1 million is a lot of money, but can you live off it with interest rates as they are?
It’s true that 1 million pounds isn’t quite the fortune that it used to be, especially with the cost of houses in the UK.
The average four-bedroom home will set you back around £430,000 – that’s nearly half your fortune gone already!
But if you’ve already got a property, and you can secure a return of 3.5% on your million pounds then the interest might be enough to live off.
You won’t be jet-setting around the globe in a private jet, but it’ll beat the average pay for full-time workers of £33,000 in 2022, according to the ONS.
You’ll still have to factor in tax though, so you won’t be getting your hands on all that lovely interest!
How much interest can I earn on my £1 million after tax?
The answer to this will depend on your specific set of circumstances, such as how much you earn already.
You’ll need to factor in things like your current tax rate, the £1,000 tax free allowance on interest earnings, any capital gains you make or any dividends you might receive from shares you hold.
So the exact amount of interest you’ll earn on 1 million pounds after tax will vary from person to person.
Putting your £1 million in an ISA shields the interest you earn from tax, but you can only deposit £20,000 a year so it’s not the ideal solution if you suddenly find yourself with a large amount of cash.
If you ever find yourself in the fortunate position of trying to work out how much tax you need to pay on the interest from 1 million pounds then it’s best to consult an accountant.
Likewise, if you’re looking for the best way to invest your 1 million pounds then consider using the services of a qualified Independent Financial Adviser.
Which banks will pay the most interest on 1 million pounds?
This is an answer that will change from month to month – banks are constantly changing their products.
In order to figure out the best bank account for you, spend some time doing the research, looking at comparison sites.
Just to show you how much different banks can vary, at the time of writing we found Cynergy Bank offered 2.75% (although this includes a bonus for the first year), while Ford Money offered 4.55% (5 year bond).
Most banks and building societies offer lock away periods ranging from one year to five. You’ll find rates jump significantly even with a one year lock.
As you can see, if you’re lucky enough to become a millionaire, finding an account that will allow you to deposit the lot, offer you instant access and pay an inflation-busting rate of interest is easier said than done. But it’s a nice problem to have!
It’s worth noting that many accounts, especially the ones that require notice, only pay interest annually or at the end of the lock-in period.
This means you’ll lose out on the benefit of compound interest.
Remember that interest rates change frequently so double check the latest rates when you come to choose an account.
Can I earn more by investing 1 million pounds in the stock market?
While investing in stock and shares is riskier than leaving your money in the bank, the returns can be better.
Putting your £1 million in the stock market should be seen as a longer term investment strategy to smooth out the peaks and troughs of this type of investing which can be volatile.
Most financial advisers will tell you to plan to leave your investment untouched for at least five years.
The stock market can be affected by unpredictable events around the world, such as war, recession and economic factors like inflation.
This means the value of your investment can go down as well as up.
How to invest my million pounds?
There are many different ways of investing, and a lot will depend on your appetite for risk.
Some of the options are:
- Individual shares
- tracker funds
- Exchange Traded Funds
- Risk-rated model portfolios
It’s always wise to consider a range of investments and have a diversified portfolio rather than putting all your eggs in one basket.
If you keep your cash in the bank, the money is much safer and will grow with the interest payments. However, its actual value will be eroded over time due inflation.
Investing can produce better returns, but your money isn’t as safe.
Bank and building society deposits are protected by the UK’s Financial Services Compensation Scheme which covers up to £85,000 of your savings per institution.
If you were to win £1 million you would likely be covered for the full amount for up to 6 months under the ‘temporary high balance’ rules.
But after this, your deposit is potentially at risk, especially in the unlikely event of significant financial upheaval (remember 2007 anyone?).
One way of protecting yourself against this would be to split your cash across multiple accounts so that you don’t hold more than £85,000 per institution.
This is obviously a logistical headache and will mean that you’ll have to accept varying rates of interest.
However, if your money is in the stock market and there’s a crash, your losses aren’t covered.
Can I live off the interest from £1 million?
It’s fair to say that £1 million isn’t what it used to be.
I’ve already mentioned how property prices have impacted this, but the general cost of living can mean it’s harder to live for the rest of your life off the interest from 1 million pounds.
Of course, some places are much cheaper to live than others so you could always relocate where the cost of living is lower if you want more bang for your buck.
Otherwise, while the interest may enable you to survive, you’ll be living a fairly basic existence without many of the luxuries usually associated with a millionaire’s lifestyle.
You also need to consider that the value of the £1 million pounds and the interest will decrease in real terms over the years due to inflation.
So, it’s probably unlikely that you’ll be able to lie back on a sunbed just yet – depending on your age you might need to secure another source of income to ensure you live a comfortable life.
Key takeaways
It’s unlikely that you’ll be able to live a millionaire’s lifestyle, even if you’ve got 1 million pounds unless you have another income.
If you can, invest your million pounds over the longer term for the best return.
If you’re prepared to take more risks with your money the rewards could be great (but also the losses).
Consider seeking professional advice from an accountant or financial adviser if you ever find yourself with a million pounds to spare.
If having a million pounds is still a pipe-dream, then why not think about starting your own side hustle to boost your income. Many people ultimately turn them into six-figure businesses.
Check out my tips for the best side hustles.
