How much interest on 1 million pounds can you earn?
Learn how much interest you can earn when investing £1 million pounds to grow your wealth effectively.
From understanding interest rates to identifying the best investment opportunities, we look at how you can generate maximum interest from £1 million pounds.
- How much interest you can earn on £1m will depend on the bank base rate and the health of the UK economy
- You will have to pay tax on your interest, but there are ways to reduce the tax bill
- Alternatively you may consider investing your £1 million in the stock market or buying property
- A financial adviser can help you work out the best way to invest £1 million
How much interest can I earn on £1 million pounds?
The amount of interest you can earn on £1 million will depend on prevailing interest rates.
The base rate is set by the Bank of England (BoE) and influences the interest rates individual banks offer you.
The bank base rate is driven by the state of the economy, and the Monetary Policy Committee will take into account three key factors:
- How fast prices are rising (inflation)
- Growth in the economy (GDP)
- The number of people in work (unemployment data)
The Bank of England has a target to keep inflation steady at 2%. At its simplest level, if prices are rising too quickly it may increase interest rates. Alternatively, if inflation is falling it may reduce interest rates to encourage spending.
For the past decade, up until late 2021, the BoE base rate, and interest rates in general, were very low. So, interest earned on cash savings was also minimal.
Since December 2021, however, interest rates have increased rapidly, with the BoE base rate reaching 5.25% in August 2023. It has started to drop since 2024 and at the time of writing stood at 4.5%.
Economists are also predicting further cuts in 2025. Although this is great news for people with mortgages (as it reduces the cost of borrowing) it’s less good for savers who’ll earn less interest on cash deposits.
Since interest rates rarely remain stable for long, let’s look at the potential interest on a £1 million investment, according to Money Sprout, based on a range of different rates.
Interest paid on £1 million before tax
| Interest rate | Weekly | Monthly | Yearly |
|---|---|---|---|
| 1% | £191.78 | £833.33 | £10,000 |
| 2% | £383.56 | £1,666.67 | £20,000 |
| 3% | £575.34 | £2,500 | £30,000 |
| 4% | £767.12 | £3,333.33 | £40,000 |
| 5% | £958.90 | £4,166.67 | £50,000 |
| 6% | £1 150.68 | £5,000 | £60,000 |
As interest rates vary, it is vital to shop around for the best rates and investments for your personal circumstances and future goals.
For some context, let’s look at one UK bank in particular, Starling Bank.
On a one-year fixed-term savings account, Starling offers a 4.05% interest rate. The great news is the maximum deposit for such an account is £1 million.
If you were to invest £1 million in a Starling one-year fixed-term savings account, you would earn £41,260 in interest.
However, it’s worth flagging that the Financial Services Compensation Scheme (FSCS) only offers protection for up to £85,000 (per person and per banking institution), so it may make sense to spread your money across multiple accounts.
Of course, we have not discussed compound interest, which is when you earn interest on interest over the years. Compound interest is a complex topic best discussed with a financial adviser.
But, if you’re curious about how much compound interest you could earn on £1 million pounds, it’s worth using a compound interest calculator.
Do you pay tax on interest?
It’s also important to note that tax is charged on savings interest and you will likely pay a significant amount on a balance that’s as big as £1 million.
Can you avoid paying tax on savings interest?
There are several ways to avoid paying tax on savings interest.
Firstly, the UK government allows most people to save a certain amount before paying tax on savings interest.
This is your personal savings allowance (PSA). The lower your tax band, the larger your PSA. Once you exceed your PSA, you pay tax according to your income band.
The interest-free earnings allowance by tax band are:
| Basic rate | Up to £1,000 |
|---|---|
| Higher income | Up to £500 |
| Additional rate | No personal allowance |
You can also reduce your tax on savings interest by placing your funds in tax-free accounts such as individual savings accounts (ISAs).
Just remember that you can only contribute £20,000 to your ISA each year.
With an amount as large as £1 million, that won’t get you very far. So, it is vital to invest wisely to yield maximum returns on your investment.
What is the best way to invest £1 million pounds to earn better returns?
Knowing how to invest £1 million pounds is crucial if you want to enjoy good returns.
- The stock market: This can be a good approach to investment. The more volatile the stocks you buy, the higher the potential returns. More volatile stocks also mean greater risk, so it is vital to balance the potential risks and rewards. A happy medium can be to invest in low-cost index funds.
- Business investment: You could use £1 million to buy a business or invest in your own. This type of investment can yield great returns but requires extensive expertise and considerable time investment.
- Property: Purchasing property is another great way to increase returns on a £1 million investment. In the short term, you can rent out your property to earn rental income. In the longer term, your property may increase in value.
Whatever option you choose, it’s wise to diversify your portfolio by investing in various areas. It is important to note your investment returns should aim to beat inflation.
Is it best to invest or save £1 million?
There is no hard-and-fast rule when it comes to investing versus saving.
There are pros and cons to both options, including:
- The benefit of opting for a high-interest savings account is that your funds may be easily accessible. The downside is these accounts tend to yield much lower returns than other investments do over the longer term.
- Investing in a low-cost broad market index fund may yield greater returns over a decade or so, but your funds will remain tied up in that investment for a long time.
With this in mind, your choice between saving and investing depends on how soon you’ll need to access your funds, your financial goals and your risk strategy.
Can you live off the interest from £1 million pounds?
With the current state of the economy, you’re unlikely to be able to live off the interest from £1 million pounds kept in a savings account, but this depends on different factors, such as where you live.
While interest rates are high for the moment, that won’t always be the case. At the same time, high inflation is bound to impact your cost of living.
However, if you invest wisely in one or more of the opportunities listed above, the prospect of achieving future goals, such as early retirement, becomes much more realistic.
Get matched with a financial adviser
Knowing how much interest you could earn on £1 million pounds is affected by the economy, interest rates, and inflation, as well as how much tax you’ll pay.
Earning the best possible returns from your £1 million depends on many interrelated factors. These are often complex and best navigated with a trusted financial adviser.
Luckily, finding a financial adviser is easy with Unbiased.
Answer a few questions, and we'll match you with a financial adviser regulated by the Financial Conduct Authority (FCA) who is suitable for your needs.
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