To get a monthly income from investing in the UK you should buy a selection of bonds, dividend stocks, and income-generating funds. In this guide, we will explain what each of these income-generating investors are and how to buy them.
Best investments for monthly income in the UK
- Dividend stocks
When you buy a bond you are essentially lending a company or government money and receive regular income through coupons. These coupons are paid based on what percentage yield a bond pays. There are two types of bonds, investment bonds or savings bonds.
Investment bonds can generate higher returns because the buy and sell price can go up and down (so they come with additional risk) whereas monthly income savings accounts pay you a fixed monthly income.
If you want to receive income each month from investment bonds you will need to buy a selection of different bonds where the coupon pay date is for each month of the year.
Interested in bonds?
Top tip: Hargreaves Lansdown offers access to a huge range of bonds that can be bought online or over the phone. HL also has a service called Active Savings that lets you invest in savings bonds as well as investment bonds.
When you buy dividend-paying stocks you receive a percentage of a company’s profits. The amount you receive depends on how many shares you own. For example, Lloyd shares pay a health so if you own 10,000 shares and the bank pays total dividends of 2.8p for 2023, you will receive £280 in dividends for the year.
Building a portfolio of dividend stocks is an excellent investment because as well as receiving monthly income from dividend payments you can also make money when the share price of the companies you own goes up.
However, this is also one of the risks, share prices can, and often do go down.
Interested in dividend-paying stocks?
Top tip: Interactive Investor only charges a flat monthly fee for a stock brokerage account so your costs do not increase when your portfolio gets larger.
When you buy a fund you are investing in a wide selection of income-paying stocks and bonds. This is a great way to diversify and reduce your risk, while still receiving a monthly income. Funds are run buy professional investment managers who pick what stocks and bonds to include in them.
When you buy a fund you usually get the choice to choose between am “income” fund or an “accumulation” fund. Buying the income fund means that the dividends from stocks and coupons from bonds in the fund are paid directly to you. The accumulation version means that the coupon and bonds are re-invested (a better option if you are also after some capital growth).
Interested in income-paying funds?
Top tip: AJ Bell caps offers one of the cheapest accounts for investing in funds with fees starting at 0.25%, which then go down the larger your portfolio gets.