£10,000 in the bank? That could turn into a yearly passive income of £29,834!

With returns on savings products falling, I think investing in a Stocks and Shares ISA could be the best route for me to create long-term wealth.

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Owning a savings account has proved more lucrative than normal in the past couple of years. A stream of Bank of England (BoE) interest rate increases has pushed savings rates far higher than we saw during the 2010s.

However, rates have been declining since the BoE’s cut on 1 August to 5%. I’ve already received several emails from my savings providers advising me that my returns will decrease. I anticipate more notifications too, as the central bank’s likely to lower interest rates further.

Placing money in a savings account can be a great way to manage risk. The specific amount to keep in cash versus investing in riskier assets like shares should be tailored to individual situations, investment goals, and risk tolerance.

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But with rates dropping, it could be a good idea to re-evaluate how much you hold in savings. Here’s what I’d do if I had £10,000 sitting in my account and could make additional monthly investments.

Choose an ISA

The first thing I’d do is open a tax-optimised product, like a Stocks and Shares ISA. Despite its name, I can invest in a wide assortment of assets like equities, funds, trusts and bonds. And I don’t have to pay a single penny to the taxman on any capital gains I make or dividends I receive.

I’d concentrate on filling my ISA with US and UK shares because of the exceptional returns I could make (more on this later).

While I’m at it, I’d also look at opening a Cash ISA. With other savings accounts, I’d pay tax on any interest above my personal allowance (this is set at £1,000 and £500 for basic- and higher-rate taxpayers respectively).

A Cash ISA, like its share investing equivalent, could therefore save me a fortune in tax over the long term.

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.

Diversify my holdings

With my ISA set up, I’d aim to pack it out with a diversified portfolio of shares. This gives me an opportunity to capitalise on an array of investment opportunities while helping me to spread risk.

The ideal number of stocks would be 15 to 20, although I could choose fewer if I also invest in exchange-traded funds (ETFs) which contain a basket of different shares. Alternatively, I could buy an investment trust. These are listed companies that also invest in other businesses.

Murray Income Trust (LSE:MUT) is one that could help me hit my investment goals. It has money invested in 52 companies such as AstraZeneca, Unilever, National Grid and Anglo American. This gives me excellent diversification by sector and geography.

Created with Highcharts 11.4.3Murray Income Trust Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

What’s more, most of its holdings are in FTSE 100 and FTSE 250 companies, which means I could make a near-double-digit return each year. These indices have produced an average annual return of 9.3% since the early 1990s.

Past performance is no guarantee of future returns. But if this performance were to continue, a £10,000 lump sum investment in Murray — combined with a regular £200 monthly top up — could turn into around £745,850 over 30 years. This could then give me an annual passive income of £29,834 if I drew down 4% each year.

High exposure to cyclical shares mean the trust’s returns could disappoint during economic downturns. But as a long-term investor, I still think it could be a top buy right now.

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc and Unilever. 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.

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