Premium Bonds may now be the best place for rainy day savings

Are Premium Bonds Now the Best Place for Your Easy-to-Access Savings?

NS&I announced this week that the Premium Bonds price fund rate will be raised again in February from 3 percent to 3.15 percent.

This average return on Premium Bonds has improved significantly over the past year. At the start of 2022, they paid just 1 percent, which rose to 1.4 percent in June and then to 2.2 percent in October, followed by 3 percent this month.

Compare that to the best easy-to-access deals in This is Money’s top savings interest rate charts and you’ll understand why Premium Bonds look attractive.

The current easily accessible savings table topper is the Yorkshire Building Society’s 3.35 per cent Rainy Day bill, but this rate is only paid on the first £5,000 and then drops to 2.85 per cent.

Plus, you can only withdraw cash on two days of the year: the opening anniversary or the day you close it.

Technically, this is easy access, as you can get the money whenever you want, but the restrictions are so strict that it’s not suitable for many.

On the next rung comes Shawbrook Bank’s easy-to-access bill, which pays 2.92 percent, which should be applauded because it doesn’t have any of the caveats that so many of these supposed easy-to-access deals do now.

Thus, the return on Premium Bonds exceeds the best no-obligation, easily accessible savings deal and comes within a whisker of the top.

But there are two questions to ask: are Premium Bonds easy to access and how likely am I to get that average return?

On the first point, I’d say Premium Bonds are as close as you can get without really having direct access. As Ed Magnus’ answer to a recent reader question explained, it can take a few days to get your money out of Premium Bonds.

Instant access savings accounts are the ideal place for your rainy day money, which you may need quickly if an emergency arises. However, many of us can get through a few days before we get our hands on our savings.

Ultimately, it is up to you and your circumstances to determine whether Premium Bonds pass the test.

I’ve decided they’ll do it for me and put my rainy day fund into the bonds.

The next question is more complicated: are you getting the average return? Of course, that depends on luck, and in a lucky year you might do much better than the said 3.15 percent, while in an unlucky year you could do much worse.

There is one other point to note, however, and that requires a recap of school math: the Premium Bond prize fund percentage is an average average and reflects the total amount of prizes paid out to everyone compared to the amount paid out for all bonds. is arrested.

The problem with this, as with any mean average, is that it can be biased by the large and small numbers at either end or by odd numbers. Since Premium Bonds pay out a selection of different sized prizes ranging from £25 to £1,000,000, any given individual will not get the average average return.

A fairer way of stating the percentage return would be to give the median, the middle of all holders, and the existence of a pair of £1 million jackpots, plus 59 x £100,000 prizes and 117 x £50,000 prizes, means the median should be less than the mean.

The odds of an individual £1 bond winning a prize are 1 in 24,000 and the more Premium Bonds you own, the more likely you are to do well.

But while I’m happy to keep my rainy day money there, I’d also argue that it’s not the best financial move to maximize Premium Bonds to the £50,000 limit, or keep tens of thousands in them.

That’s because for the vast majority, this goes well beyond the recommended rain day pot of three months’ salary and into longer-term savings.

It is likely that money that you are not likely to have access to for the foreseeable future should be spent in something that offers a better rate due to restrictions, such as a fixed-rate savings account, or invested for longer-term returns.

Nevertheless, I know there will be many of our readers who would disagree and have large sums of Premium Bonds. It may be worth less than it used to be, but that hope of a £1 million jackpot is holding on to us.

> See who has won major Premium Bond prizes in our monthly tables