The month of November marks the 65th anniversary of the launch of NS&I Premium Bonds and the momentous moment Shadow Chancellor Harold Wilson called them a “sordid raffle”.
This has not, however, discouraged savers. £ 5million of bonds were bought on day one alone – that’s over £ 130million in cash today.
We take a look at how NS&I has shaped our savings and how we can try to maximize our future returns.
While this article can provide you with helpful advice, it is not personal advice. If you’re not sure whether something is right for you, seek financial advice.
Shaping the future of savings
Over the years, premium bonds have become something of a national treasure. Liked by over 21 million savers, and over the past 18 months, they have become more popular.
When drawn before the first foreclosure in March 2020, there was just over £ 86bn in bonds, and as of October 2021, there was more than £ 113bn – nearly a third of more. But with the odds growing and the prices coming down, it’s worth thinking about how to make them work for you.
When we asked people to name the biggest attraction in premium bonds, the most popular answer was the chance to win a big prize.
But there is a price to pay for the price.
Each bond now has a one in 34,500 chance of winning any kind of prize and the chance of winning one of two monthly prizes of £ 1million is approximately one in 57 billion for every £ 1 bond held, by monthly draw.
Win little things too
But it’s not just your chances of winning big that you need to be thinking about.
It’s easy to look at the 1% earning rate and assume you’ll get something like that back on your savings. But, in an average year, someone with £ 1,000 in bonds would probably earn nothing. And you don’t earn any interest on premium bond money, so if you plan to hold large sums for long periods of time, your money may lose purchasing power after inflation.
This does not mean that there is no room for premium bonds. It makes sense to think of your savings as a portfolio, the same way you would your investments, and to find the right place for those bonds there.
How to build a savings portfolio
The first step in building your portfolio is having easy access to savings that you can access in an emergency.
If you are working, we usually suggest that you have at least three to six months of essential expenses on hand. This increases to one to three years in retirement, as it is more difficult to replace income at this point.
Some people see premium bonds as a useful place for your emergency fund because you can access short-term money. But, during the pandemic, the sheer number of people bringing money in and out of NS&I tested its systems to the limit. And even if he commits to making improvements, you should consider how you would be affected by any delays.
If your impending expenses include relatively large sums that you will hold for relatively short periods of time, you might be tempted to put them in premium bonds for a chance of winning a jackpot.
This may include the money you need to pay your tax bill or the money set aside for a security deposit. But you won’t get any interest, and your chances of winning are pretty slim.
You might be better off keeping that money in an easy-to-access account – that way, at least, you’ll get a more reliable return. And don’t forget that Premium Bonds are only entered into the raffle after they’ve been held for a full month, making them less suitable for short holding periods.
It can be difficult to know where to start when it comes to saving money. Especially if you are worried about the impact of inflation. But once you’ve saved more than you need to cover your emergency fund, you can tie some of your savings to fixed rate products and earn a higher interest rate in return. You don’t need to tie that money up for long periods of time, even six months could make a difference to your returns. But be aware that you usually can’t access your money in term products until they run out, so make sure the rate and term are right for you.
Having a lot of accounts can make it difficult to keep track of your savings and investments. This is where a cash savings platform, like Active Savings, can help. You can more easily invest money in a variety of savings products from different banks, but you can also keep an eye on everything in one place.
The Active Savings Service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorized by the Financial Conduct Authority under the Electronic Money Regulations 2011 with reference 901007 for the issuance of electronic money.
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