If you have £10,000 currently sitting in a savings account earning practically zero interest, today may the day to look for potential investment opportunities.
There are of course many ways to invest £10,000. A stocks and shares ISA, regular ISA, Premium Bonds or just general stocks and shares, are some of the current popular ways.
If you’re new to the world of investment you are not alone. Final salary pension schemes have all but disappeared.
Interactive Investor is a good easy way to open a Stocks and Shares ISA with £10,000 – they’ve just won the Best Low Cost ISA Boring Money Award – check them out here
The Government’s introduction of employer assisted pensions will go some way to stemming the void that has kept pensioners in a comfortable retirement, but this will need to be supplemented by own additional efforts.
Investing today is much better than investing tomorrow, and far better than starting next year!
With 30 now being the age in which people have managed to save enough deposit for their first home, the equity in our home at time of retirement may not be as lucrative as it once was – and again less money in a retirement fund.
If investing is something you are contemplating, here are some of the popular options and methods out there to invest your £10,000.
What should you do if you have £10,000 to invest in 2022?
A decade ago, standard UK savings account offered interest rates of around 3%-6% interest. The variance based on the amount you invested.
It’s strange how times have changed and how 6% was considered the norm for such a long time and now even 0.6% is often out of reach!
High street bank current accounts currently offer around 0.1% interest per year.
That means a £10,000 investment on January 1st is worth-, on 31st December, a disheartening £10,010!
Just £10 passive income a year in a year with a £10,000 investment. Even the usually resilient compound interest can’t flex its muscle for you.
It was a commonly understood, just 10 short years ago, that winning £1million on the lottery could mean you bank the cash and live off the interest.
10 years ago, this would have given you £60,000 per year. Not bad. Today, it would be closer to just £1,000 per year in interest. Yes, that is £59,000 less a year in interest than 10 years ago.
How times have changed!
Your £10,000 investment in Year 1 would be worth £10,100.45 in 10 years-time. A total investment passive income earning of £100.45 in 10 years.
We will need to find better ways to invest our £10,000.
Stocks and Shares ISA
ISA’s have been around for a few years now. The ISA Government scheme is a tax free way of saving money for the first £20,000 per annum you invest (this is the current 2021-2022 rate).
Further Information: -> Government’s Guide to ISA’s 2022
Different types of ISAs exist on the market today and available from banks and other investment companies. ISA simply stands for Individual Savings Account.
UK law dictates you, of course, pay tax on any earnings you make. It doesn’t matter of those earnings come from employment, self-employment or investing. You can invest up to £20,000 per year within an ISA and not pay tax on any earnings made.
A stocks and shares ISA – through a good company such as Interactive Investor – is one way to invest your £10,000. This should in theory provide returns a better than just adding it to a regular savings account.
Banks and investment companies charge a small service fee to setup and manage your ISA account for you. This service fee pays for the services company who will take care of your ISA and investment as part of a larger investment portfolio.
Service fees from these institutions are usually around 0.5%-0.75% of your investment, which means for a £10,000 investment you would pay between £50 and £75 in fees. Fees are usually deducted from any earnings within your ISA account.
An initial investment of £10,000 with a financial investment company, who pays on average 6% per annum, after one year your investment would be worth £10,600.00. You would earn £600.00 income.
This is considerably a more sizeable a return than the £10 from a savings account, although of course investment carries risk, and you may not earn back as much as you put in.
It becomes even more exciting though when we look at the earnings for year two and beyond as the compound interest begins to work its magic.
After ten years your investment would have grown to £17,908.47. A total income of £7,908.47. A much bigger passive income returns on investment than the £100.45 in a standard savings account.
If, today, you plan to start a Stocks and Shares ISA with your initial £10,000 investment, could add £800 per month to your plan (so £9,600 per year, below the £20,000 threshold) and used the same investment company with an average return of 6% per annum – what could you earn?
After ten years your investment would be worth £147,887.23. Your contribution to your investment would be £106,000 and therefore your income would be £41,887.23.
Start this plan at the age of 25 and at the predicted UK retirement age (67) your investment would be worth £1,850,657.83. Your contribution would be £413,200 and passive income would be £1,437,457.83.
Remember rates are not guaranteed and you could end up with less money than you invested.