Property or savings account to generate income from £200k

[Optionsmaybe]

I need to top up my income so need something low risk and accessible. I would like some of the £200 to buy property to live in in the future. (10 years away.)
If I use the interest from the savings the sum would lose value (I think?) but I have no experience of managing a rental.

Start looking here Top savings accounts here.

Property is neither low risk or accessible. Most of the gains/profits made by small scale landlords are due to increases in property values which are not guaranteed.

Your £200k in a savings account will generate nearly £10k pa before tax but the value will be affected by inflation.

Another option would be to put the money in an investment fund, which should beat cash over time but carries a risk although this should be small if you can avoid having to take the money out at any time when returns have fallen.

Property isn't an easy way to make money anymore, the few people I know who still are have HMO's/student properties.

£20k in a stock and shares ISA every year.

The rest in a high interest account until you can move it across.

How old are you, and how old will you be when you will need to buy a property to live in? What are your pension arrangements?
Is there a particular reason you haven't considered investing part, or all, of the lump sum?

Another way to make your money go further is to check you're getting the best price for everything you pay for.

Lots of people don't do this and could be spending hundreds of pounds a month more for similar things than someone who always shops around, uses discount codes, waits for sales/buys second hand and carefully considers whether purchases are worth the money.

I need the money to live off. Roughly need £10k a year. My income doesn’t cover my living costs but I don’t have enough to buy.
pension not big but manageable - won’t be any worse than now.
i think £150 would buy a studio bedsit that I would get £800 a month for.
i thought property was fairly low risk - always seems to be increasing where I am but I can look into that more. I think it I spend the interest of any savings - in ten years I will be priced out

Would you be happy to share your current career OP? Could you invest in training to up your salary?

The rest spread across at least three savings accounts with different banks.

(to stay within the £85k FSCS protection limit)

With £200k and no clear plan, it could be worth paying for advice. The Meaningful Money podcast is by a financial adviser who spends a lot of time telling people they don't need advice but this generally applies to people with smaller sums (up to around £50/100k or so) but above that, it could be well worth it.

https://meaningfulmoney.tv/2024/04/03/big-ideas-do-you-need-advice/

meaningfulmoney.tv/2022/11/14/financial-advice-checklist-find-adviser/

Studio bedsits are risky! First to drop in a crisis.

So you will be taxed on that £800. You will also need to have relevant insurances and pay for Gas safe and electrical checks annually. You need to put away 10% for upkeep.
So you could realistically be losing £300 of the £800 every month, leaving you with £500
In a high interest acc you could get £750.

Don’t buy a property until you’ve researched it thoroughly. Rental income is just part of the story - you have to pay for upkeep / maintenance / go through lengthy legal processes to evict clients who don’t pay and it’s possible for you to lose money every year. That’s why landlords rarely use lump sums to buy property outright - they use btl mortgages and keep cash to do things up / pay agencies.

In your position as you need the money, I’d research cash savings accounts that pay you monthly interest into your account. Look up stocks and shares isas too (Hargreaves Lansdown is a good option for newbies) - as a pp said you should be paying 20k into one each year to maximise long term growth.

If you are buying a place that you intend to eventually move into, then its just a way to get on the ladder now, while you can afford it and generate a little income before you eventually take residence. But you wont be getting £10k a year from it.
You need to consider income tax on the rental amount. Landlord insurance, rental management fees, yearly gas and electricity safety and service costs,repairs and maintenance, what you would do if you got a tenant who stops paying rent or trashes the place. (that can easily wipe out a whole years profit)
If you sell without ever moving in then any gains are liable for Capital gains tax.

I would keep £50k as back up for missed rent or another 2/2.5k annual interest. I thought even if a flat is empty at times it would still be increasing in value. But maybe the interest on savings would be better. Certainly less effort. It’s the worry about pricing myself out in the future.
I had thought of the associated costs of a landlord but hadn’t realised about capital gains tax so thanks.
Someone asked about investing in career, I wont realistically increase my income much it’s a good idea.

Do you think you'd manage to get a property you'd like to live in in 10 years time with that sum?

I'd not go into property its certainly not low risk nor is it a magic money tree when taking into account CGT, rent gaps, risk of bad tenants, cost of maintaining property.
id look at a portfolio of investments and speak to an IFA for fund advice.

There’s a reason landlords are exiting the market en masse… You also won’t be able to rent anything that doesn’t have an EPC of at least a C.

Where are you living at the moment? Are you in a rented property. It's just if you are, then a great way to save money would be to buy whatever 200K gets you. Live there (doesn't have to be your forever home) and save on your rent as you will have no rent or mortgage to pay. Also you wont have to deal with the insecurity of the rental market.

Would this work - how much would you save on your rent (which would be extra income in your pocket instead. So not increasing your income but lowering your costs).

If you are living at home and want to stay there for the next 10 years then don't become a landlord. It's lots of work, problem tenants and when you sell you will pay GCT (the tax free allowance for this has been reduced dramatically in recent years)

Do what others have said - stocks and shares ISA each year 20K (although this might change with upcoming budget). Rest in best rate of savings account you can find. They are always changing so try money saving expert for best rates.
An example for you - I have put £20,000 into a stocks and shares ISA about 2 weeks ago plus £8,000 into a GIA (general investment account) and the value of £28K two weeks ago is now £28650 ish. (I reckon people are piling money in before the budget) However you do need to accept it can go up and down and not lose your nerve and sell in a panic if it drops for a while.
You don't want to make any more than £3K in gains per tax year at the moment on any GIA's as you will get taxed (also this tax free allowance subject to change in this years budget).

If you don't want to buy a property to save on rent (no reason why you can't live in a bedsit if that is all you can afford) then I'd use up my ISA allowance each year. Put say £10K into a GIA so any gains are tax free. The rest put into savings accounts and transfer them to ISA when the tax year refreshes.

I recently put 75K into various pots. 28K as mentioned above. 20K into a 1 year fixed bond with a bs at 4.5% interest and 17K into a BOE tracker at 4.55%, 4K set aside for unexpected vet fees in an easy access bank account with 3.9% interest and the rest into my pension (2 years worth at £2880). Obviously pension would not be relevant for you by sounds of it. I'm retired so max I can put in is £2880 pa. The figure is much higher if you are working.

Anyway it's a nice problem to have. Good luck

P.S. So the funds are invested so they all have different flexibility and availably. The pension is not available till I'm 55 (I'm retired already but under 55). The BOE tracker is an instant access account so I can freely use up this money as I need it. The 1 year fixed is as it sounds - not accessible for the year but as rates are predicted to drop I wanted to lock this in. The ISA's/GIA's can be sold at any time although it takes about a week for funds to come through but you want to do this at a good time in terms of financial planning so you shouldn't be relying on this money as instant access. Also be aware that some bank/bs accounts won't let you get money out at weekends for example and some will let you take them out 7 days per week. I learned that when my dog got sick at the weekend and needed emergency surgery.

Sorry in case that was not clear you will make a better return using ISA's/GIA's over the longer term, than investing in BTL property but with far less effort.