The interest generated by your high interest savings account may not be enough to allow you to take early retirement, but it can fund some nice treats.
Ask people over the age of 25 what they’d do if they won the Lotto and most would reply, “Put it in the bank and live off the interest.” Such a response just goes to show that people willing to invest hundreds of dollars a year on the very, very off chance of winning a fortune aren’t necessarily any less financially responsible than those who think gambling is a waste of money.
How much do you need?
So how much money is necessary to be able to live off the interest it generates, without needing any other sources of income? Let’s say you’ve won $1 million. Money invested in a high interest savings account will currently attract around a 5 per cent interest rate, which translates to $50,000 a year. That’s less than the average full-time wage, but certainly enough for a single person to live off.
Living off the interest for non-Lotto winners
The only problem with this scenario is that hardly any of us are suddenly going to find ourselves coming into a large sum of money. That’s the bad news. The good news is that even more modest sums parked in a high interest savings account can make your life more pleasant. In the interest of encouraging the nation to improve its dismal approach to saving, here are some suggestions on how you can live the high life if you invest in a high interest savings account earning interest of 5%p.a.:
- $10,000 will earn $500 a year, enough for a weekend away or a couple of slap-up meals in a nice restaurant.
- $50,000 gets you $2500, enough for a budget overseas holiday or a new computer.
- $100,000 generates $5000, enough to cover all the utility bills or get one of those flat screen TVs that takes up half the lounge room wall.
Most people who end up with a million dollars in their bank account do so by steadily saving rather than having a windfall. If you’re prepared to do likewise, you’ll discover that the more you save, the more you ultimately have available to spend.