I've already spoken that I keep my emergency funds in premium bonds for two reasons. Firstly is the fact when I started building my emergency funds the savings rates in bank were around 0.1-0.3%, which is just ridiculously low. I worked it out that when I eventually had £3,000 in this account it would be earning £30 per year. But I was starting off at £0 so right now it would be even less.
Secondly after watching Damien Talks Money on them he pretty summed up my feelings. Missing out on potentially £30 interest in a year was worth it if there was a chance I could win some money - that was a much greater amount than £30.
If you look at the table here you can see all the prizes available and the odds of winning them.
So each month there is a prize draw with the amounts available on the left. Now the way I look at it I am betting £30 a year with the hope of winning a decent amount of money, so it's ultimately my lottery tickets I don't need to worry about.
I started investing in NS&I premium bonds in April 2021. In May 2022 I received the email I had been waiting for - "You have won a prize".
As you can see the premium bonds prizes go from £25 at one end of the spectrum and £1million for the jackpot. No surprise here which end of the spectrum my prize was.
That's right, I won £25. But I was so so happy. Logic and hope paid off.
My Premium Bonds/Emergency funds in May 2022 was at £2400.
If I had put this into a savings account during that time it would have accrued roughly £3.30.
So the £25 I had earnt was an absolutely win.
But I was also in the chance every month to win more. Every month since I've continued to be in with a chance to win a sizeable life changing amount of money.
Even if I won 'just' £10,000, which is roughly halfway on the scale of available amounts, this could set me up nicely. I'd have my emergency fund sorted and could then move the direct debit across to my S+S ISA.
I have thought of what I would do with every eventuality of win.
£10,000 and less goes straight back into Premium Bonds to boost my emergency funds up to the ideally 6 months buffer - although I will be content if my circumstances stay the same with having just 3 months.
£25,000 - £50,000 I would put away for the 6 month emergency fund and then max out my S+S for the next 1-2 years.
£100,000 I would do the same as above but also max out my SIPP for 1 - 2 years.
£1,000,000 I would do all the above, pay off my mortgage and then take both mine and my wife's family on holiday - separate family holiday.....
I've had a lot of time to think about it.
As you get more premium bonds your odds of winning increase - just like getting more lottery tickets for the draw. Money Saving Expert (MSE) website has a great little calculator where it tells you the odds for how much you have invested in them.
From this calculator it tells me:
You are lucky - only 21.1% of people who have put £2,400 in premium bonds over 1 year win more than £25
So what will I do now with interest rates slowly increasing with banks. A quick search shows that Chase bank are offering 1.5% with no fixed term, which for an emergency fund is key.
If I continue to put in £200 a month over a year I would have built up £52.82.
If I then use that calculator on MSE with a max value of £4800 over a year they reckon "if you have average luck you would expect to win roughly £50". So pretty similar even as the interest rates increase.
This is a breakdown of odds for each prize:
The optimism and dreamer in me looks far down the table......
So I think I'll still use premium bonds for my emergency funds. I reckon as the value of my funds increase and the odds increase it will mirror what the banks offer as their interest rates also increase.
Perhaps a time will come where actually having cash in a savings account will make more mathematical sense.
This has been a nice little review for me, but hopefully you found it beneficial too!
Have you used Premium Bonds? If not, would you now?!
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