Apart from an investment portfolio, I also have other assets that contribute to my overall wealth:
– Property (family home)
– Cash Savings
– Premium Bonds
I have this mix of assets to diversify and because they fit with my overall life. The top 3 are pretty self explanatory, but premium bonds are not as universally loved.
I first bought premium bonds in August 2015, and have in total purchased 10,000. The total equates to about 3 months salary after tax. I consider them to be easy access and they would be the first savings I utilise if I lost my job or didn’t have an income for a period.
What are premium bonds?
Premium Bonds are an investment product issued by National Savings and Investment (NS&I). Unlike other investments, where you earn interest or a regular dividend income, you are entered into a monthly prize draw where you can win prizes between £25 and £1 million tax free.
The best part of owning premium bonds is checking the app at the beginning of the month to see if you have won any prizes. With the top prize being £1million, there is always hope but the chances are slim.
However, in reality some months you don’t win anything, and the prize fund equates to a 1.4% return, so in some years you may earn more, or less than 1.4%. The prize rates are:
– 1 in 24,500 chance of winning a prize each month – 1 in 36 billion chance of winning £1million each month
Advantages & Disadvantages
– Easy access
– Minimal management required
– Prizes are tax free
– Potential to win big
– 100% safe, government backed
– Annual return is less than inflation
– Return not guaranteed
I am currently averaging an annual return of 1.25%. This is disappointing as it is below the prize rate but probably equal to a cash savings account, with the best rates currently being 1.45% before tax. I intend to continue holding the premium bonds as I don’t see any great alternatives at the moment, but I will not be increasing my holding anytime soon.