Wondering whether you should put your emergency fund in Premium Bonds?
Premium bonds are the largest saving product in the UK, however, over the years they have become less and less desirable.
Before making any financial decision it's important you understand the process and functionality (read this to learn more about Premium Bonds) especially when it comes to an entirely different financial service like Premium Bonds.
In this post, we'll be looking at the reasons for and against putting your emergency fund in premium bonds.
As always I am not a financial advisor. This is merely my opinion based on the data available.
Benefits To Using Premium Bonds
These are what I believe to be the benefits to putting your emergency fund in Premium Bonds.
Your Money Is VERY Safe
There is no risk to your capital being stored in Premium Bonds.
Premium Bonds are operated by NS&I which is backed by the government Treasury rather than a bank.
All this makes your money as safe as it can get!
When Premium Bonds were first released in the 1950's this was a big draw as you didn't get the same level of safety with other savings accounts.
Today, however, all UK regulated savings accounts are protected by the Financial Services Compensation Scheme (FSC) for up to £85,000 per person.
An the maximum you can put into Premium Bonds is £50,000 per person.
There Is A Chance You Could Win BIG!
Percentages and numbers aside, there is still a chance with some luck that you could win big on the premium bonds.
Every month two people win one million pounds from Premium Bonds.
An while the odds of doing so is slim (42,673,184,853 to 1 – at the time of writing, this will be adjusted depending on how many Premium Bonds are bought and sold each month), many still enjoy being in with that chance, especially when there's no risk involved.
Drawbacks To Using Premium Bonds
These are what I believe to be the drawbacks to putting your emergency fund in Premium Bonds.
There's A Delay In Getting Access To The Money
Emergency Funds are designed on the basis that you can get to the money quickly in the case of an emergency.
What that looks like exactly will vary person to person it could include things such as; job loss, a car breakdown or the boiler needing to be replaced urgently.
However, it takes up to eight working days for the money to be withdrawn from Premium Bonds according to NS&I.
This delay could cause you serious problems if and when you come to need the cash.
There's A Limit To How Much You Can Save
Depending on the size of your emergency fund Premium Bonds may simply not have the allowance.
Right now, each person is permitted up to £50,000 in Premium Bonds.
The Savings Rate Is Just 1.3%
The savings rate has been dropping on Premium Bonds rapidly over the years, the latest in May 2020 when it dropped from 1.4% to 1.3%
This is based on the percentage of what you're likely to win rather than a dedicated percentage that you'd see from a savings account.
A 1.3% rate offered by Premium Bonds is lower than most savings accounts. If you're planning on saving the full £50,000 that Premium Bonds offer then the difference in a 0.1% is £5 per month.