How many Lloyds shares would I need to target £1,250 annual passive income?
In 2025, Lloyds Banking Group (LSE:LLOY) raised the annual dividend paid on its shares by a massive 15.2%. This inflation-busting hike was possible due to a 6.9% year-on-year increase in revenue and a 11.1% rise in earnings per share (EPS).
But how many of the bankâs shares would be needed to beat the highest rate of interest paid on one of its savings accounts? Letâs find out.
Monthly saver
Currently (2 April), itâs possible to earn interest of 6.25% on the bankâs âClub Lloyds Monthly Saverâ product. This is likely to be extremely attractive to those with a bit of spare cash. After all, the Bank of Englandâs base rate is 3.75%.
However, unlike someone wanting to buy the bankâs shares, thereâs a monthly £400 limit on how much can be put into the account. Also, the rate quoted is only available for 12 months. After a year, the account reverts back to a âStandard Saverâ and pays 1% a year.
And at the risk of being accused of being a bit of a killjoy, it has to be remembered that for many people the interest earned will be taxed. In contrast, dividend income in a Stocks and Shares ISA remains tax free.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
However, leaving these details to one side, the 6.25% rate is higher than the stockâs current yield of 3.8%.
Based on the bankâs 2025 dividend, it would need 34,123 Lloyds shares costing £32,895 to match the £1,250 of interest earned on a £20,000 deposit.
An alternative approach
However, history shows that the stock market has outperformed cash. Indeed, Lloydsâ share price has increased by an average of 16.2% a year since April 2021. This excludes the impact of the dividends received over this period. Of course, there can never be any certainty when it comes to payouts.
Admittedly, a 16.2% annual return is exceptional. Over the same period, the FTSE 350‘s increased by 6.4% a year.
Even so, high-interest savings accounts are often time limited. In contrast, thereâs no restriction (other than an individualâs personal circumstances) on the amount that can be invested in the stock market. And by taking a long-term approach, itâs possible to build impressive wealth.
By way of example, the table below shows how much £400 a month will grow over 25 years depending on the rate of return achieved.
| Annual rate of return | Contribution (£) | Investment growth (£) | Total value (£) |
|---|---|---|---|
| 5% | 120,000 | 115,248 | 235,248 |
| 6% | 120,000 | 151,832 | 271,832 |
| 7% | 120,000 | 194,987 | 314,987 |
| 8% | 120,000 | 245,935 | 365,935 |
A good run
With its strong track record of generous dividends, I can see why Lloyds has more shareholders than any other UK company.
And since the pandemic, it has performed strongly. In 2025, it beat analysts’ earnings expectations. It also improved its net interest margin and return on tangible equity. Â
This has played a major part in driving the bankâs share price higher. Since the start of 2025, itâs risen nearly 80%.
My view
However, in my opinion, Lloydsâ shares no longer look so attractive after their amazing 2025 rally.
Relative to earnings, they are the most expensive of the FTSE 100âs five banks.
And while I acknowledge that analysts are forecasting impressive growth through until 2028, they appear a little too optimistic to me given the bankâs near-total reliance on a subdued British economy that could be badly affected by another round of inflation.
Fortunately, there are lots of other brilliant high-yielding stocks to consider at the moment, ones whose share prices appear to me to offer better value than Lloyds.
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James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
