Premium bonds are a great place to store your money because, in terms of security, it doesn’t get better. The reason for this is that each bond is backed by the UK government, which guarantees your money.
When it comes to where people store their Emergency Fund, premium bonds are a popular choice. Because whilst you’re highly unlikely to earn much profit, and certainly not on a regular basis, it is safe and easy as it comes when storing and accessing your cash, should you need it.
Another good use for premium bonds is storing a deposit for a house. If you are having to cash-out investments or withdraw from savings accounts, premium bonds can be a safe place to store a large pot of cash for a short period of time. Personally, I’ve used premium bonds for this in the past when my house purchase was delayed and I needed somewhere safe to store my funds. Plus, I got a few shots at winning the prize draws.
In addition, for higher-rate tax-payers who have maxed-out their ISA allowances, premium bonds make a great place to store up to £50,000 without being taxed.
In terms of returns, the ‘interest rate’ being put into the prize fund currently beats pretty much every high-street savings account out there. Where you can find higher rates, these are usually capped ie at £5,000. Of course, there is no guarantee on the returns via premium bonds, and this is a big difference.
For most people, certainly while interest rates are so low, premium bonds should be considered as a location for your Emergency Fund. If you’re not sure what an Emergency Fund is, check out these articles: How big should your Emergency Fund be? and Where should my Emergency Fund be?