Investing is often done to build your money over the long term. But where do you invest your money to provide a steady, monthly income now?
Find out where to invest money to get monthly income UK.
Also consider: Best Stocks and Shares to Buy Now
Independent financial advice
Before you read this guide on where to invest money, it’s important to note that these are not personal recommendations or advice. If you need financial advice, I suggest speaking to a professional financial advisor or planner. An expert can recommend the right investment strategy for you, based on how much you want to invest, your investment goals, your tolerance for risk, and your personal circumstances.
You can search for a local advisor using the tool on our website.
6 types of investments that can provide a monthly income
Looking for investments that can provide you with regular payments? Here is my guide to six types of assets where you can invest your money in search of an income.
1. Stocks and shares
It’s possible to generate monthly income by simply investing in the stock market.
Generally, investing is thought of as a long-term endeavour: you select stocks and shares that you think will rise in value in future, and then liquidate your investments later down the line to provide yourself with an income.
But, rather than investing in this way, you can instead create a regular income stream from stocks and shares by investing exclusively for dividends.
Many companies pay out dividends to investors as a reward for holding their shares. While these amounts are typically not enormous, investors receive a dividend for each share they own.
For example, Coca-Cola announced a dividend of $0.44 a share for investors in April. So, investors who have 100 shares in Coca-Cola will receive $44 in July on the payment date.
Dividends can be ideal for producing a passive income because, so long as the company pays dividends to shareholders, it doesn’t matter what the value of your actual shares is.
Indeed, share prices could fall in value while you hold them and you’d still potentially receive dividends.
The only slight issue with dividends is that companies typically pay them quarterly, bi-annually, or annually. This may make it difficult to produce a monthly income, albeit it’s still possible to create a regular income stream over the course of a year.
Dividends can be suspended
However, it’s important to note that companies can suspend dividend payments at any time in response to certain factors.
Poor company performance and reduced profits might see a company reduce or suspend its dividends. Meanwhile, events such as the Covid-19 pandemic saw many companies cancel dividend payments to conserve funds during an uncertain period.
This can make it dangerous to rely entirely on dividend payments for income.
One other point to note is Dividend Tax. While you do have a Dividend Allowance (currently £2,000 in the 2022/23 tax year) before tax is due, gains from dividends are taxed separately, according to your marginal rate of Income Tax.
The Dividend Tax rates in 2022/23 are:
- 8.75% for basic-rate taxpayers
- 33.75% for higher-rate taxpayers
- 39.35% for additional-rate taxpayers.
Of course, holding your investments in a Stocks and Shares ISA would mean that any gains are entirely free from Dividend Tax. That means you could derive an income from dividends tax-free.
In summary: stocks and shares pros and cons
- Dividends from stocks and shares can offer a source of income for your portfolio
- It doesn’t matter what the value of the share is, so long as it pays a dividend
- Shares can even fall in value and you’ll still receive a dividend payout.
- Companies can suspend dividends, meaning you cannot always rely on receiving them
- Dividend Tax may reduce the amount you receive in income, unless you hold your investments within a Stocks and Shares ISA.
Property can be a great way to invest your money. Rather than investing in stocks and shares which can feel somewhat theoretical, property is a tangible investment with real value.
You can invest in many different kinds of property, including:
- Residential property
- Commercial property
- Holiday property
- Student property
Generally, you can generate a return from property in one of two ways: becoming a buy-to-let landlord and charging rental income, or seeking capital growth over the long term.
You can generate income from a property by renting it out as a buy-to-let landlord.
Whether that’s a residential property for a family to live in, a commercial property for a business to work from, or a shorter-term home for students or holidaymakers, monthly rent payments can be a useful source of regular income.
One thing to bear in mind is to choose properties with the best rental yields. High-yield properties might be holiday homes or student properties, where the cost of the property is generally lower and the rental yields are higher and more consistent.
Meanwhile, buying property somewhere such as London may be less attractive for rental income. This is because, while rents are higher, the cost of buying the property itself makes it less cost-effective.
The other way property investments generate income is from capital growth over time.
However, increases in property values tend to happen over years, rather than months.
This value is also entirely illiquid – that is, you can’t access your money without selling the property.
As a result, targeting growth in the value of your property is not likely to be a good strategy if you’re seeking a regular income.
Property investments do have some downsides
Before you invest in property, it’s important to be aware that there are some drawbacks to investing in bricks and mortar.
Firstly, there’s the cost of the property itself. According to the UK House Price Index, the average UK house cost £278,000 in March 2022 when data was last available.
That means you’ll need a sizeable sum to make a start in property investing.
Then, there can be other costs you have to meet to invest. These might include:
- Mortgage payments – unless you’re paying for your property outright, you’ll need to take out a buy-to-let mortgage. You’ll likely need an initial deposit to do this, and you’ll then also have to make monthly repayments on your borrowing.
- Stamp Duty Land Tax (SDLT) – Stamp Duty is a tax payable on property purchases in the UK. It’s known as Land and Buildings Transaction Tax (LBTT) in Scotland, and Land Transaction Tax (LTT) in Wales. Rates can be as high as 12%, depending on the value of the property, and there’s an additional 3% charge due when purchasing buy-to-let properties.
- Capital Gains Tax (CGT) – you may have to pay CGT if you sell your property down the line and make a gain on it. You do have an annual CGT exempt amount, which is £12,300 in the 2022/23 tax year. However, any gains above this amount could be subject to CGT. CGT rates for selling buy-to-let properties are 18% or 28%, depending on your marginal rate of Income Tax.
- Management and administration costs – if you’re renting out your properties, there may be costs involved in paperwork and admin, as well as in upkeep, decorating, and sorting problems that tenants experience.
Additionally, if you intend to buy to let, you aren’t guaranteed to find tenants for your properties. If this happens, you won’t receive any rent payments.
This can be particularly problematic if you have a mortgage, as you’ll still need to make repayments, even if the property is temporarily empty.
All in all, property can be expensive without actually providing the income you bought it for.
Real estate investment trusts
Alternatively, rather than coughing up the money to cover these expensive costs, you could choose to invest in property through real estate investment trusts (REITs) instead.
A REIT is a type of investment company that exclusively invests in property, both residential and commercial.
You pool your money in the REIT with other investors, receiving dividend payments depending on how the trust performs.
Read my guide to REITs if you want to find out even more about how they could provide you with a regular income.
In summary: property pros and cons
- Potential for steady income from rent payments while the property itself grows in value
- Is a tangible asset, rather than being “theoretical” like stocks, shares, or other investments
- Option of investing in REITs rather than buying property outright.
- Can be expensive to make a start in, particularly when buying without a mortgage
- Ongoing costs could reduce how much income you receive
- There’s a risk you won’t find tenants, meaning you won’t see any regular income from rent payments.
Bonds are a type of financial security issued by a company or government which you can buy, essentially lending your money to them in the process.
For example, a company might try to raise capital by issuing bonds. You can then buy and hold this bond, knowing that at the maturity date (that is, the expiration date) the company will have to pay you back.
You can lend money to companies by buying corporate bonds, or to governments by buying treasury bonds, sometimes referred to as “gilts”.
You can make money from bonds in one of two ways: collecting the interest on your loan, or selling your bonds for profit.
Collecting interest payments
As bonds are a form of lending for companies and governments, they typically come with regular interest payments.
Bonds have set interest rates and they will then periodically pay interest to the holder, usually around twice a year.
So, by buying bonds, you’ll receive regular income from interest payments every six months or so. This can be useful as a source of steady, passive income to your portfolio up to the maturity date of the bond, when your initial investment is returned to you.
Selling your bonds on a secondary market
Alternatively, you can try and sell your bond on a secondary market for a profit.
A buyer might want a bond that you have because it has a particularly favourable interest rate to them, while you might prefer to cash in now.
In doing so, you give up your right to the interest payments from the bond issuer, but you’ll be given a cash sum that’s ideally more than you paid for the bond.
Of course, this depends on whether you can find a buyer who’s willing to pay more for the bond than you did.
As a result, there’s no guarantee that this will provide you with an income every month.
And, even if you do manage to find a buyer, this will defeat the point of the monthly passive income you were receiving, turning your investment into something that requires additional thought and management.
Even so, it’s a nice bonus to know that you can sell the bond if the interest payments are no longer providing you with what you need.
Corporate bonds vs government bonds
One decision you’ll need to make is whether to buy corporate or government bonds.
In general, corporate bonds pay higher interest rates than government bonds. However, they also come with more risk.
A company will issue bonds to raise money, perhaps intending to use it for company growth. But, if the company fails in the meantime, there won’t be any money to pay you. That means you’ll lose your investment, as well as any future interest payments.
Government bonds, on the other hand, are lower risk. It would require an entire government to collapse for you to lose your investment, a highly unlikely (albeit possible) scenario.
However, as mentioned, the interest payments will generally be lower.
In summary: bonds pros and cons
- Interest payments from bonds can provide a regular stream of income, typically twice every year
- You have the option to sell them on a secondary market if the interest payments are no longer providing you with what you need
- Government bonds are a typically secure and safe source of income.
- The maturity date means the regular payments will stop at some point
- Companies can fail before they pay you back, meaning you lose both your investment and any interest payments
- Selling on a secondary market requires effort and can be time consuming
- Yields can be small, particularly for government bonds.
4. Peer-to-peer lending
Peer-to-peer, or “P2P” lending, involves lending your money to individuals and businesses who are looking to raise money.
In general, this is done through a P2P lending website, which collects money from multiple individuals and then parcels it into small loans for individuals and businesses.
In return, you’ll receive interest payments from those who borrow from the site, providing you with a regular income.
Crucially, these interest payments tend to be higher than savings accounts and bonds, as the P2P lenders cut out the middleman of the banks that typically do this lending.
P2P lending can be tax-efficient
The income you receive from interest payments when P2P lending is liable for Income Tax. But you may be able to lend tax-efficiently through an Innovative Finance ISA.
Like other ISAs, any interest or returns generated by investments held within it are entirely free from Income Tax, Capital Gains Tax (CGT), and Dividend Tax.
That means you can lend your money without having to worry about Income Tax.
You’ll be taking on additional risk
The hefty downside to P2P lending is that there’s a higher chance of the person or institution that you lend to being unable to pay you back.
Rates of default tend to be higher with P2P lending, meaning you need to be comfortable with additional risk.
In general, P2P lending is often best used by experienced investors and finance professionals. If you’ve set your mind on this as a way to derive an income, consider speaking to an expert first.
Additionally, most P2P lenders are not covered by the Financial Services Compensation Scheme (FSCS). That means, if your provider experiences financial trouble, you’ll have no protection or way of getting your money back.
In summary: P2P pros and cons
- Lending in this way typically offers higher interest rates than other options
- Can be done tax-efficiently through an Innovative Finance ISA, meaning you can keep any income you receive.
- Higher rates of default with P2P lending means greater risk for your money
- There are not many peer-to-peer lending platforms and websites available.
5. Mutual funds
To gain access to a variety of assets, you could choose to invest in mutual funds instead.
Mutual funds involve pooling your money alongside other investors. You do this by buying units in the fund, which are like shares in the fund itself.
Your money is then invested on your behalf in a range of assets, often by a fund manager.
By investing in funds, you can gain access to a range of assets, including shares, stocks, bonds, property, REITs, and more, all with one single investment.
Crucially, they help you to do this without requiring you to pay for these assets yourself. So, even if you can’t afford certain shares or to buy a property, you can still benefit from the proceeds of these investments.
In doing so, you can then benefit from a combination of the way these assets provide income. In particular, dividend payments will be passed onto you, which you’re then free to reinvest in the fund or instantly withdraw as income.
Alternatively, you can sell units of the fund if they rise in value, drawing an income by only selling once they generate a certain amount of value.
All in all, mutual funds could be a sensible choice for making the most of various different income-generating assets.
The downside to this is that you’ll need to pay fees and charges to the fund for the work the manager does on your behalf.
This can eat into the income you would otherwise be able to draw from the fund.
Another option to consider is exchange-traded funds (ETFs).
ETFs are a type of mutual fund that can be traded throughout the day on a stock exchange. This means you may be able to capitalise on smaller changes in the fund’s value.
This can be a big benefit if you’re seeking income, as you can try to buy and sell units at varying prices in the day, ultimately adding up to a healthy return each month.
Some ETFs exclusively track a single kind of asset or investment. For example, you might buy a FTSE 100 ETF which exclusively buys shares in the constituents of the FTSE 100.
This can give you access to a wide range of investments without having to pay a fund manager for the privilege.
This can be a cheaper option, meaning you can keep more of your money for yourself as income.
In summary: funds pros and cons
- Invest your money in a range of assets, including stocks, shares, bonds, and more, with a single investment
- Some funds are monitored by fund managers, giving you access to a professional who keeps an eye on your money.
- There may be additional fees, costs, and charges associated with funds, particularly if there is a fund manager
- You’ll have less choice over the investments as these are selected by the fund manager or the index that the fund tracks.
You might be surprised to see cash savings on a list of passive income ideas. But the right kind of savings account could be an effective choice.
As you likely know, you’ll typically receive interest on cash held in savings. And, as there are many different kinds of savings accounts, you may be able to find one with a particularly favourable interest rate that can provide you with the income you need.
For example, according to Moneyfacts, the highest one-year fixed-rate savings account available on 31 May offered an interest rate of 2.4%.
So, if you had £10,000 to invest, saving it in this account could see you earn £240 in a year, assuming you only received interest annually.
If you choose to lock your money away in a fixed-rate savings account for even longer, you may be able to find a higher rate for your money.
Even better, holding money in cash is typically safe, as it isn’t invested. And, so long as it’s covered under the FSCS, up to £85,000 of your money will be protected in the event that your provider fails.
While interest from cash may not be enough to fully support yourself, it adds a valuable addition to an income-seeking portfolio.
You may not have access to your cash
The downside to saving in this way is that you may not be able to access your cash if you have to “lock” it in the account for the term.
This means you would be unable to take your earned interest as income each month, which may not be ideal if your plan is to live on this money while keeping the remainder saved in the account or invested elsewhere.
In that case, it may be sensible to choose an account with a lower interest rate but that allows a certain number of withdrawals each month or year.
While you may receive less interest, at least you’ll be able to withdraw it as income when it arrives.
Watch out for inflation
Another particularly prominent threat to cash savings is inflation.
According to the Office for National Statistics, the Consumer Price Index (CPI) reached 9% in the 12 months to April 2022.
This means that the “basket” of goods and services that the CPI measures has increased in value by 9%. So, if it cost £1,000 to buy them last year, it now costs £1,090.
Now let’s look back at the example of the one-year fixed-rate savings account above. If you saved £1,000 in that account then, assuming you only received interest on an annual basis, you’d have £1,024 in a year’s time.
That means, even though your money has increased in value over the year, it’s unable to buy the same amount of goods or services as it was the year before.
So, while you may be receiving income in the form of interest, your cash could simultaneously be losing spending power in real terms.
Make sure you factor inflation into your monthly income stream calculations.
In summary: cash pros and cons
- Safe, secure way to hold money as it isn’t invested
- Your cash may be protected up to £85,000 if your provider is covered by the FSCS.
- Inflation may reduce the spending power of your money in real terms
- May not be able to instantly access your money if it is “locked” in the account.
What is the best investment for monthly income?
This list is by no means an exhaustive look at every option you might have for income-generating assets, but these assets can be a good starting point in designing a portfolio that produces income on a monthly basis.
So, which is best? As you can no doubt see, each of these asset types has benefits that can make them a valuable place to hold your money. Equally, there are also specific drawbacks that could expose you to risk.
Often, the most sensible course of action is to design a diversified portfolio that includes elements of all of them.
This gives you exposure to all of these different advantages, while also spreading the risk across them too.
Above all else, this also means you’re not entirely dependent on one type of income in a month. For example, if your stocks and shares stopped providing dividends, you’d perhaps still be able to rely on the rent from your properties or the interest from your bonds.
How much should I invest to generate a monthly income?
Now that you’ve seen some of the assets you could consider, you may be wondering how you could go about using them in your portfolio to produce an income.
Realistically, the amount you can generate will depend on the size of your initial investment.
Below is a brief look at how you could go about targeting £1,000, £2,000, or £5,000 of income from your investments a month, based on general calculations and assumptions.
Remember: you should only invest money you can afford to lose. Don’t invest with money you need to live your daily life.
Please also note that the examples below are purely illustrative and do not in any way represent what will happen if you invest in the mentioned assets.
Past performance is not a reliable indicator of future performance.
How much money do I need to invest to make £1,000 a month?
Targeting £1,000 a month means looking to produce £12,000 a year off your portfolio.
According to the Motley Fool, the average dividend yield from the FTSE 100 in March 2022 was 4.1%. That means to produce £12,000 alone from dividends in your portfolio, you’d need around £300,000 invested across the index.
Now let’s look at mutual funds. Investment platform interactive investor (ii) provides some interesting data on what this might look like.
ii note that many funds will benefit from a dividend yield of again around 3% to 4%. But, bond yields are currently at historic lows, meaning returns on funds will likely be slightly lower.
Even a return on funds of 3% would require you to have £400,000 to invest over the year to produce £12,000.
Finally, let’s consider property. Property investment firm SevenCapital measured 2021 rental yields from 11 areas in the UK.
The highest yield was seen in the north-west, coming in at 4.41%. So, using the average price of a north-west property of £199,865 in December 2021, that means you could have feasibly produced a return of £8,814 in the year.
That would be around £734 a month, not miles away from your £1,000 target – although bear in mind that this calculation doesn’t factor in mortgage payments or other property costs.
While it will likely require a fair amount of start-up cash and a combination of these methods, a target of £1,000 is not impossible.
How much money do I need to invest to make £2,000 a month?
This time, you’re talking about producing £24,000 a year in income from your portfolio.
Using the figures above, you’d likely need either:
- £600,000 of FTSE 100 stocks and shares, achieving a dividend yield of 4.1%
- £800,000 of multi-asset bonds, generating returns of 3%
- Three north-west BTL properties (costing £599,595 in 2021) producing a 4.41% rental yield.
Similarly, using a combination of these methods, it may be possible to find these returns.
How much money do I need to invest to make £5,000 a month?
Once again, let’s think of this amount in annual terms: £60,000 a year.
In this case, you’d need to have one of the following:
- £1.45 million of FTSE 100 stocks and shares, achieving a dividend yield of 4.1%
- £2 million of multi-asset bonds, generating returns of 3%
- Seven north-west BTL properties (costing around £1.4 million in 2021) producing a 4.41% rental yield.
As you can see, it’s going to require a healthy nest egg to produce £5,000 a month.
Where to invest money to get monthly income FAQs
What investments can provide a monthly income?
Can you invest and get paid monthly?
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.