If you are lucky enough to have £1million burning a hole in your pocket then congratulations! Us lesser mortals will just have to imagine what that is like. However, an interesting question is just how much interest could you earn on a cool £1m?
Well, it depends on a number of factors. What interest rate can you get? And how long do you want to leave your money in the bak over time accumulating said interest?
These days with interest rates at all time low, as you will see below, it’s tougher than ever to make money from money.
Interest on £1m at BOE Base rate 0.1%
Starting with a lump sum of £1 million and with the interest rate at an all time low of 0.1%, the interest you would earn would be quite paltry. Although the Bank of England rate is 0.1%, this does not mean that you will get a savings account at this rate. This is just the rate at which the Bank lends money. As such it is designed to encourage borrowing from the Bank in order to boost the economy. It’s bad news for savers, but good news for those on mortgages which are linked to the base rate.
|Interest on £1m||Rate 0.1%|
INTEREST ON £1m at 2.5%
Let’s shift the interest rate up a bit. In years gone by, 2.5% would have been seen as fairly modest growth on a savings account, but since the crash of 2008 a rate of this size is seen as very generous. But what sort of numbers could we see at this rate? Even a shift of just over a couple of percentage points could provide you with something approaching the average UK salary – and we’re approaching numbers where you could as it were ‘live off the interest’.
|Interest on £1m||Rate 2.5%|
Interest on £1m at 5%
These days, you won’t get 5% on a traditional savings account for love nor money. If you are looking for this kind of growth, you would have to look at an investment. Incidentally, 5% is, there or thereabouts the median growth rate that many investment firms present in documentation for their investment plans so it’s a good number to look at.
Looking at these numbers, you are looking at what amounts to a very generous salary approaching a grand per week. Certainly enough for most people to live on anywhere in the UK.
|Interest on £1m||Rate 5.0%|
Interest on £1m at 1980s rates of 15%
What if you could go back in time to the early 1980s when interest rates were mind-bogglingly high? Back then, Margaret Thatcher had just gone into power, inflation was soaring and interest rates were at an enormous 15%. You could have made a blistering £160k in interest alone (a king’s ransom back in the eighties). The day rate would have been £440 – almost half what you would earn in a YEAR at today’s interest rates.
|Interest on £1m||Rate 15.0%|