We’re big fans of Premium Bonds and often recommend them, especially as an emergency fund.
In an era when interest rates are historically low we think they make a lot of sense.
Here’s our thinking:
- £50,000 in an instant access bank savings account is going to generate about £500 – £750 pa of interest, at the time of writing.
- Not an insignificant amount of money, but not a life changer.
- Premium Bonds average return will be about £700 pa, but you could could get anywhere between £0 and £1m pa.
- So, you are “risking” up to £750 pa for the chance to win £1m, which is a life changing amount.
- And, on average, you should expect Premium Bonds to return £700 pa.
- Premium Bonds are tax-free, easily accessed and 100% capital secure to boot.
So the question becomes is that a “gamble” worth taking?
In contrast, if interest rates were 4% pa, £2,000 pa in interest really does pay for something, like a holiday. In those circumstances a savings account becomes more attractive. And remember, 4%, although becoming a distant memory, was pretty commonplace for decades.
future proofing your finances
advice@townclosefp.co.uk
Town Close are expert financial planners. Our goal is the same as yours – to help you do the things that are important to you in the time you have remaining.