More than three-quarters of city professionals (78%) expect to receive a larger bonus this year than in 2023, new research from Investec reveals. Our study of senior executives based in London and the South-East who have yearly earnings of at least £300,000 shows that 62% expect their annual bonus to be slightly bigger in 2024, while a further 16% expect the payment to be much bigger.

While none of the individuals we surveyed expect to see a decline in the size of their bonus in 2024, the remaining 22% think their bonus will be around the same level as in 2023.

Our survey also looked at how high-earning professionals plan to use their bonus payments.

Cash is king

Putting a sizeable chunk of any bonus into cash savings accounts looks set to be a very popular option in 2024, the research indicates. More than half of respondents (52%) intend to put a quarter or more of their bonus into a deposit account, while just over a quarter (26%) will save at least half of their bonus.

No doubt, recent increases in interest rates have made savings accounts a more attractive proposition than they have been in the previous decade. At the time the survey was carried out, the Bank of England base rate stood at 5.25% compared with a rate of 1% or less for the period between February 2009 and June 20221. Indeed, almost two-thirds of the professionals we spoke to (64%) plan to increase their portfolio cash weightings this year, with 22% intending to do so to a significant extent. By contrast, only 28% say they will increase their weighting of investments related to the stock market to any degree.

Investec Private Banker Will Chipperfield says it is important for individuals to ensure they maximise the interest paid on their cash savings – while also retaining access to their money if necessary. “Our private bank savings accounts have been created with the requirements of high-net-worth individuals in mind,” Will explains. “This means we pay higher rates of interest on higher balances, while also allowing account holders to make withdrawals with notice.”

The private bank team at Investec has two savings accounts: the Voyage Reserve account and the 3 Month Reserve account. The former has a notice period of 30 days, while the 3 Month Reserve account has a 90-day notice period, as its name suggests, but savers are rewarded with higher levels of interest. Both accounts offer greater returns on savings balances of £1m or more.

Will Chipperfield
Will Chipperfield, Private Banker, Investec

The decision of how to manage your money must be taken on a case-by-case basis. We understand that city professionals can be time-poor, so we aim to work efficiently and within short timeframes.

Overcoming mortgage challenges

While the study revealed eight in 10 respondents (80%) will dedicate at least 10% of their bonus to home loan repayments, a higher proportion intend to pay down debts that typically have higher rates of interest. The research shows that almost half (46%) intend to use at least 25% of their bonus cash to pay down the likes of outstanding credit card balances.

“Many high-net-worth individuals opt to have a mortgage rather than buy property outright, as this gives them greater flexibility in terms of managing their cash flow, particularly if they have a tailored repayment plan,” says Will. “It also allows them to leverage their earnings to buy a more expensive property.”

However, the Investec research indicates that, despite their high salaries, city professionals can still experience problems when trying to obtain mortgage finance, often as a result of their unconventional remuneration.

“One major challenge is that mainstream lenders tend to undervalue bonuses,” he adds. “At Investec, our focus is on developing close personal relationships with a small number of clients: this means we have a better, more holistic understanding of a borrower’s financial circumstances.” Will points out that Investec may be able to structure the mortgage to cater for discretionary income and adds that earnings in foreign currencies can also be considered in lending decisions.

Help with family property transactions

Using bonus payments to help family members with their finances is another popular option. More than half of the professionals surveyed plan to use at least 25% of their 2024 bonus to support children or other relatives – and 18% say they will use half of their bonus or more for this purpose. “This is another area where we can provide vital support to our clients,” says Will. “For example, if a parent wants to buy a property that their child can live in after university, we can assess income in a more holistic way, allowing clients to achieve a higher loan-to-value mortgage than might be the case through a mainstream bank.”

Will adds that Investec can develop solutions that suit their unique financial circumstances. “The decision of how to manage your money must be taken on a case-by-case basis. We understand that city professionals can be time-poor, so we aim to work efficiently and within short timeframes,” he explains. “And, as this research suggests, our responsiveness and adaptability can be particularly important at times when our clients might receive bonuses or profit distributions.”

 


1 Source: Bank of England https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp

 

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Important information:

Minimum eligibility criteria and terms and conditions apply. Your property may be repossessed if you do not keep up repayments on your mortgage. Investec residential mortgages are only available for residential properties in England or Wales and are primarily available to UK residents and subject to eligibility.