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Are Premium Bonds a good way to save?

So what exactly are Premium Bonds and how do they compare to regular savings accounts?

So what exactly are Premium Bonds? Essentially, you buy bonds from National Savings and Investments which is backed by HM Treasury, and instead of receiving regular interest payments on your investment, your bond numbers get entered into a monthly draw that gives you the chance of winning a tax free cash prize. You essentially give up the guaranteed interest you’d make by putting your money into a savings account, for the chance of winning a cash prize. The top prize is £1 millionevery month and other prizes vary between £25 and £100,000.

You have to buy Premium Bonds in blocks of £100 at a time and the maximum holding is £30,000.  So what are your chances of winning? Well from October 2009 onwards, there is a 24,000 to 1 chance of winning a prize per bond.  It is still a long shot, but there is always the chance to win a million without losing any of your investment.

As a Premium Bond holder, I was pleased to see that National Savings and Investments had increased the rate of return on prizes from 1% to 1.5%.  It’s not a drastic improvement, but it is a sign that things are heading up and maybe, just maybe, my luck is in!  I am not a gambler, I play the lottery occasionally but I have to say I am partial to buying a block of Premium Bonds now and again.

But is there a better way of investing your hard earned savings? The answer is yes. Even though people are saying that interest rates are dismal, there are deals to be had if you shop around and make sure you switch away from an account if it isn’t performing.  Make sure you check the best rates on current savings accounts, and for a tax free way of saving, make sure you check the top rate cash ISA’s available, many of which only require an initial investment of £1.   Fixed rate accounts are another option, but they usually require a longer term investment and don’t allow you access to your money during that term.

Personally, I like to mix and match. I always take advantage of tax free savings with a cash ISA but now and again, I top up my instant access savings account when I am saving for something special.  If I can, I will occasionally buy some Premium Bonds, because you never know when your luck could change!