Every day, people look for new ways to save. From ISAs to piggy banks, it’s imperative that you find a way to save that suits you because even on a comfortable income, saving can be difficult. There are always temptations and unexpected payments that crop up throughout the year, and sometimes just managing your money from day to day causes enough to stress as it is. Despite the challenges, saving is something we should aim to be doing, so much so that the government have even launched a Help to Save scheme for people on low incomes, to encourage even minimal savings.
One popular way for people to grow their savings is by investing. From vintage cars, to property and even just plain stocks: it’s been going on for decades and some people have made their fortunes from clever investments. On the contrary, some people have lost their financial assets doing the same practice. After all, investing can sometimes be like gambling. However, there is a type of investment, which doesn’t risk any financial loss, called premium bonds. You won’t be guaranteed a return on your investment, but people find it a good way to save money for a rainy day because there’s little temptation to spend the savings as you can’t see them in your normal bank account.
Premium bonds are run by National Savings & Investment (NS&I). The concept is simple: you buy bonds with cash and then each month your bonds are automatically entered into a prize draw where you could win up to £1million. It’s similar to the lottery, but you needn’t purchase a new ticket for each draw, and even if you don’t win, the money you have in premium bonds remains yours. You can sell the bonds at any time and the money will be transferred back into your bank account for normal, everyday spending access.
You only need £25 to get started as you need to buy a minimum of 25 bonds (at £1 each). There are no account running fees or transaction fees, so you can buy and sell your premium bonds as often as suits your cashflow needs and at no extra cost. Even putting £25 into premium bonds could mean you win some money.
While winning a prize is not a guarantee, if you do win, it’s likely you’ll have earned more on your savings than you would in a standard savings account. You don’t need to pay tax on any money you do win, and the winning funds can be transferred directly into your bank account, or back into premium bonds to increase your chances of winning again.
Unlike a locked savings account or ISA, if you need access to the money you have saved in premium bonds, you can withdraw them at any time. Withdrawing and selling your bonds is the same thing and can be done online via the NS&I website.
The money saved in premium bonds is protected under the Financial Services Compensation Scheme. The FSCS covers up to £85,000 in a single bank account, and as you can have a maximum of £50,000 in premium bonds, your money is safe.
A lot of people struggle to save money because it’s so easy to transfer between accounts these days. With premium bonds, although your money is not locked away, the additional process of having to log in to your online account and sell the bonds might just give you enough time to rethink your decision and the necessity of your intended purchase. If you can’t see the cash every time you log into your bank account, it will tempt you less to spend it.
Premium bonds operate on a prize draw basis which is a bit like a raffle. Although your bonds are entered automatically, there’s no guarantee you will win, even if you have premium bonds for years.
If you have a lot of money in savings, then even a standard savings account could earn you more in interest than the lowest win of £25. For most people though, the current rate won’t make much of a difference to your savings. As the bank rate changes however, the interest rates on savings accounts could increase so it’s worth watching out as it might be beneficial to put your premium bonds into a guaranteed interest rate savings account for a more certain return on investment.
The odds of winning a prize with your premium bonds is 34,500 to 1 for every £1 bond. It sounds like low odds, but it is actually much higher than your odds of winning the lottery. And of course, the more bonds you have, the higher your chances of winning, but you must remember that even high odds do not guarantee success.
If you are thinking of investing in premium bonds, either to assist with your current saving goals or just because you’ve got a bit of spare cash and you fancy the chance of potentially winning £1million, you can buy bonds on the NS&I website. This is the only place you can buy premium bonds, so don’t trust any other sites claiming to sell them.
We have loads of information articles about different financial products, how to manage your money and credit lines over on the Polar Credit Info Hub.