Question of the week: Fixed rate savings and living off the interest

Former_MSE_Wendy

I live off my monthly savings interest; so my income's been slashed due to the rate cuts. Is there a way I can take advantage of the high interest from fixed rate savings?


With fixed savings you lock your money away and usually don't get paid monthly interest. Yet there's a work-around. Here's an example (ignoring tax for ease of explanation) based on a real-life scenario.

A couple have £100,000, and could get 5% in a year long fixed account or 3% in an instant access. They''d like roughly five grand of interest from these savings to supplement their income.

If they put £95,000 in the fixed account, and £5,000 in the instant access. Then spend the instant access money over the year, knowing the £4,750 interest earned in the fixed account will make up for it - they''re effectively getting the high rate and spending the interest.

See top fixed rate savings guide

If you'd like to discuss this click reply below.

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Mobeer

Are you advising to put £95,000 into a single bank account? Is this not a bad idea?

MSE_Martin

Sorry, my fault, wendy just posted it for me. In my head this was a couple (its based on a makeover i did the other day) I just hadn't written it down! Its now changed (been a 14 hour day so far and no end in sight!)