living off interest or withdraw funda

Waterfall18

Hi,

I inherited a lump sum from my husband’s estate. I put this into a few different savings accounts each with around 5% interest. I have been using the interest to subsidise my income, but having the money coming in at different times is making monthly budgeting tricky for me with 2 young kids. Maths isn’t my strong suit but i just did a quick calculation if i were to withdraw a monthly amount from 1 of the account and leave the interest in the others accounts I would actually be better off at the end of the year with the interest from the other accounts covering my withdrawal and more.  That can’t be right can it ?(like I say maths is not my strong suit). Thanks in advance.

eskbanker

If the accounts all have exactly the same interest rate, and no withdrawal penalties or bonuses apply, then there won't be any difference between withdrawing the same total amount from one, some or all of them.  

EthicsGradient

Since you say the interest in each is "around 5%", then it could be correct. If you withdraw from the one with the lowest rate, then the others should get you slightly more interest overall - though I'd think the difference would be small.

Are these all standard accounts, or have you put any into ISAs? It's probably worth using your ISA allowance for this year if you haven't. If you can be sure that you won't need part of the lump sum for some time, you could also look at putting part of it in a fixed term account, if that gets you a better rate (or, given the likelihood of interest rates going down in the next year or so, if it locks in a rate at the moment that might fall later).

Beddie

Yes, it's a good idea.

Bostonerimus1

It's generally a good idea to have 6 months' to a year's cash in a bank account that you draw from regularly. You pay pensions, interest, dividends and any other investment gains into it when they become available so you don't have to worry about the timing of the deposits for your day to day spending.

tacpot12

Would it be easier to budget if you had a seperate bank account that all the interest was paid to, and then have one monthly standing order to pay money from that account to your main account where you make all your payments from? 

poppystar

It depends on the monthly amount you choose to withdraw. If it’s less than total monthly interest from all accounts then yes you will be better off at the end of the year. 

phillw

I would put all your outgoings on direct debit and ask them to take it as close to the first of the month as possible.
Do all other spending on a credit card (again where the direct debit comes out on the first of the month).
Have an overdraft large enough to cover your direct debits.

Then withdraw the money from the account with the lowest interest rate to pay the direct debits. If you have multiple accounts to avoid going over £85,000 FSCS limit then you could consider moving the interest on the day it's paid.

Depending on your circumstances, you could consider having some 1/2/3 year fixed rate savings. Some regular savers pay much more than 5%, but it depends on how much admin you want to do for an extra couple of pounds per account each month.

You do have to budget responsibly when using a credit card, I personally use 0% purchase cards and just pay the minimum balance every month. Just don't treat it as free cash.