I have a lump sum which I need to get a regular income from, to help cover my monthly outgoings – can you help point me in the right direction?
It is fairly common to use the interest you receive on your savings to supplement your income and it can be a good way to make the most of your lump sum without having to dip into your savings.
Fortunately, there are a number of accounts on the market that offer the option of monthly interest, which can then be paid into your current account (or another savings account).
These accounts pay a monthly amount, calculated using the monthly gross interest rate, directly into your account. The monthly gross rate is usually lower than the annual equivalent rate (AER), as the latter is based on the interest being added to the account monthly and compounding.
You choose the interest frequency required and where you would like the interest paid when applying for the account. You may even have the option to change this later or add it on your existing accounts - if the provider allows this.
However, not all accounts offer a monthly interest option; it is down to the individual provider and account and so, if you are looking for monthly interest, you may find that there is less choice and may even find the information less easy to come by.
A great place to start is our monthly income best buy table, which has a selection of top-paying accounts that each offers monthly interest.
In fact, as monthly interest can be offered on any type of account, a quick run through of each account that features in our best buy tables can prove a useful exercise when looking at your options. A summary of each account can be found in the ‘Facts’ section of the table and this will indicate how interest is paid on the account.
Having looked at all the accounts, you may find that, as not all the top rates offer a monthly interest option, there may need to be a compromise on your part – opting for a lower-paying account to produce a regular income.
You may also find that as savings rates are generally lower than they have been in the past, the actual amount you get is lower than you would ideally need. In which case, although it’s not ideal, you may wish to consider putting aside an amount of your savings to boost your income whilst waiting for rates to improve further.
The problem is that as you erode your capital by spending it, even when rates do rise, you’ll have less to deposit and therefore may still struggle to produce the amount needed.
If you need to consider an alternative investment, be very careful to understand what you are buying – as if the interest rate seems very generous, it’s likely to carry more risk.
Ultimately there may be a compromise in terms of the interest rates available and the choice of accounts, but there are plenty of competitive accounts that will pay you a regular amount to boost your income.
If you need any further help with finding the accounts that are most suitable for your needs, please call us on 0800 011 9705 to speak to one of our expert savings specialists.