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Recent research from finance comparison website Finder has uncovered that in 2025, the average savings of Britons is £16,067. There are caveats to this number, of course. Some obvious, like Gen Z-ers having just a fraction of the amount while retirees have several times the figure. Some findings are surprising: men having £20k of savings and women just £12k.
All in all though, we might picture the average Briton with £16k in the bank and wondering how do I make that money work for me? Where do I get the best return? Where came I get the most passive income?
What’s to be done?
Those aren’t easy questions to answer. Some popular places to stash some money result in miserly returns when all is said and done. Savings accounts like Cash ISAs offer 4% these days, even at the top end.
A rental yield from a buy-to-let may pay 5-6%. A better return there, but only for those happy to suffer the headaches of being a landlord.
A third option that’s low on stress and could outperform both of these is dividends. Listed UK businesses places a lot of emphasis on paying out dividends, cash payments that come in mostly once or twice a year.
Often these are companies with large income streams but few avenues to invest or grow. In which case, lots of cash can be paid out. The top end yields 7-8% on an initial stake, although it’s important to bear in mind that’s never guaranteed.
One such stock I think is worth considering is Legal & General (LSE: LGEN). The financial services firm is a FTSE 100 stalwart, tracing its roots to a meeting on London’s Chancery Lane back before Queen Victoria had sat on the throne.
It boasts a dividend yield of 8.87%, the second highest on the Footsie and in the top 20 across the 350 biggest companies listed on the London Stock Exchange.
Dividends are never guaranteed, remember – Legal & General chose not to pay one when the pandemic was causing uncertainty a few years back.
But even taking that period into account, this is a dividend that’s grown at 4% in the last five years and at 7% in the last 10 years.
Come to the party
This terrific track record is married to a business that’s chugging along nicely. Earnings growth is expected in each of the next three years which should support rising dividends. Even if the dividend were to stay at its current level, our average saver could take their £16,067 and pull out a £1,425 passive income each year.
Is that life-changing? Probably not. But it’s a chunk of change that can be reinvested to get to where the real magic happens – when compound interest comes to the party.
As the years go by and our investor gets passive income on the passive income, it works exponentially. In other words, the nest egg grows faster and faster.
Let’s assume an investor aims for a 10% average across their entire portfolio with dividends and share price growth included. With 30 years to play with, that £16k turns into £318,728 without adding an extra penny.
This story originally appeared on Motley Fool
