Bond index fund vs savings account

btcp

HansOndabush said:

If you are invested in a SIPP or IS A, then premium bonds is not an option. That leaves cash, bonds, or maybe a gold ETF as the only alternatives to equities. Of those I think gold will protect best against inflation but with more short term volatility than one ideally would like.

why Premium bonds are not an option if I have ISA? Looks like I am missing something fundamental. 
Gold as an alternative for emergency cash? How can you have instant access to the money invested in gold?

masonic

ChilliBob said:

I think I must be missing the *point* of this instrument in ones portfolio.. I get the low risk, but savings are even lower risk, and returns seem similar or even better. 

If either of you, or anyone else can point me to an article or give me some further info I'd find that both helpful and interesting

The main point is to reduce volatility. If you can tolerate the risk of 100% equities in your investment accounts they may be of no benefit at all. Another reason is to generate some sort of return within an investment account wrapper where interest is not paid at all on cash. Historically, a third reason is to get a nice capital boost in a falling interest rate environment, but it is hard to see how that could continue.

btcp

ChilliBob said:

Ive skimmed parts of this discussion, which were pretty interesting, but in the current climate I'm struggling see why somebody would choose to invest in bonds vs either (v low risk) savings sccounts/premium bonds, or (higher risk) equities in a lower risk fund likd World index tracker. 

I think I must be missing the *point* of this instrument in ones portfolio.. I get the low risk, but savings are even lower risk, and returns seem similar or even better. 

If either of you, or anyone else can point me to an article or give me some further info I'd find that both helpful and interesting

Cheers

My original question was about the location for my emergency money. The question is not about investment portfolio structure. After 5 pages of discussion I realized that bond fund is not a good instrument for this purpose.
Where can one put 20K in savings to have a better return? I have 123 Santander, and it's £120 a year on 20K, deduct £5 account fee and it leaves you with £60k. Not worth an effort. 

masonic

btcp said:

HansOndabush said:

If you are invested in a SIPP or IS A, then premium bonds is not an option. That leaves cash, bonds, or maybe a gold ETF as the only alternatives to equities. Of those I think gold will protect best against inflation but with more short term volatility than one ideally would like.

why Premium bonds are not an option if I have ISA? Looks like I am missing something fundamental. 
Gold as an alternative for emergency cash? How can you have instant access to the money invested in gold?

Premium bonds cannot be held inside an ISA. A gold ETF can. Gold ETFs are traded on the London Stock Exchange and can be bought and sold whenever markets are open, but it would take a few days for the trade to settle. Gold is not an appropriate substitute for cash!

btcp

masonic said:

btcp said:

HansOndabush said:

If you are invested in a SIPP or IS A, then premium bonds is not an option. That leaves cash, bonds, or maybe a gold ETF as the only alternatives to equities. Of those I think gold will protect best against inflation but with more short term volatility than one ideally would like.

why Premium bonds are not an option if I have ISA? Looks like I am missing something fundamental. 
Gold as an alternative for emergency cash? How can you have instant access to the money invested in gold?

Premium bonds cannot be held inside an ISA. A gold ETF can. Gold ETFs are traded on the London Stock Exchange and can be bought and sold whenever markets are open, but it would take a few days for the trade to settle. Gold is not an appropriate substitute for cash!

Can I have premium bonds outside ISA? Not sure I follow the connection. 

masonic

btcp said:

masonic said:

btcp said:

HansOndabush said:

If you are invested in a SIPP or IS A, then premium bonds is not an option. That leaves cash, bonds, or maybe a gold ETF as the only alternatives to equities. Of those I think gold will protect best against inflation but with more short term volatility than one ideally would like.

why Premium bonds are not an option if I have ISA? Looks like I am missing something fundamental. 
Gold as an alternative for emergency cash? How can you have instant access to the money invested in gold?

Premium bonds cannot be held inside an ISA. A gold ETF can. Gold ETFs are traded on the London Stock Exchange and can be bought and sold whenever markets are open, but it would take a few days for the trade to settle. Gold is not an appropriate substitute for cash!

Can I have premium bonds outside ISA? Not sure I follow the connection. 

You can have premium bonds outside an ISA, but if your cash is inside an ISA it would require you to withdraw it and potentially lose ISA status (unless you transfer to a flexible cash ISA and forego a couple of prize draws per year as discussed earlier).

Eco_Miser

MDMD said:

Eco_Miser said:

MDMD said:

btcp said: 

Looks like premium bonds carry no risk of losing money, plus a potential to get extra. You can also instantly access it the same as cash. A better option than having cash with zero interest, if you are lucky enough.

The nominal capital put into premium bonds won’t decrease, however adjusting for inflation, the real-terms value of that original amount will not buy as much when you redeem them, so that inflation loss is your risk.

The inflation loss is offset by any prizes, so in the unlikely event you win £1m you will be comfortably ahead of inflation.

This is true. It is equally true for cash in a bank account, or under the mattress, or for money invested in bonds or stocks, or funds thereof.

Like winning the £1m, interest or dividends or capital growth may offset the loss to inflation, but only interest is guaranteed to happen.

Agreed, but I was commenting on the specific point that PBs carry no risk of losing money.

Ultimately nothing carries “no risk”, you need to choose the risk you are happy with, whether that is inflation, shortfall, liquidity, FX etc, or (better still) have a sufficiently diverse portfolio.

The only risk of PBs losing money is if the UK Treasury defaults - a truly miniscule risk since they can re-finance at negative interest rates.

There is of course a risk certainty of them losing value to inflation, but that is shared with all cash-like assets.

btcp

masonic said:

btcp said:

masonic said:

btcp said:

HansOndabush said:

If you are invested in a SIPP or IS A, then premium bonds is not an option. That leaves cash, bonds, or maybe a gold ETF as the only alternatives to equities. Of those I think gold will protect best against inflation but with more short term volatility than one ideally would like.

why Premium bonds are not an option if I have ISA? Looks like I am missing something fundamental. 
Gold as an alternative for emergency cash? How can you have instant access to the money invested in gold?

Premium bonds cannot be held inside an ISA. A gold ETF can. Gold ETFs are traded on the London Stock Exchange and can be bought and sold whenever markets are open, but it would take a few days for the trade to settle. Gold is not an appropriate substitute for cash!

Can I have premium bonds outside ISA? Not sure I follow the connection. 

You can have premium bonds outside an ISA, but if your cash is inside an ISA it would require you to withdraw it and potentially lose ISA status (unless you transfer to a flexible cash ISA and forego a couple of prize draws per year as discussed earlier).

My cash that I need to move is inside Santander 123. ISA is a different account, maxed out for the year, and I am not planning to touch it. 

masonic

btcp said:

masonic said:

btcp said:

masonic said:

btcp said:

HansOndabush said:

If you are invested in a SIPP or IS A, then premium bonds is not an option. That leaves cash, bonds, or maybe a gold ETF as the only alternatives to equities. Of those I think gold will protect best against inflation but with more short term volatility than one ideally would like.

why Premium bonds are not an option if I have ISA? Looks like I am missing something fundamental. 
Gold as an alternative for emergency cash? How can you have instant access to the money invested in gold?

Premium bonds cannot be held inside an ISA. A gold ETF can. Gold ETFs are traded on the London Stock Exchange and can be bought and sold whenever markets are open, but it would take a few days for the trade to settle. Gold is not an appropriate substitute for cash!

Can I have premium bonds outside ISA? Not sure I follow the connection. 

You can have premium bonds outside an ISA, but if your cash is inside an ISA it would require you to withdraw it and potentially lose ISA status (unless you transfer to a flexible cash ISA and forego a couple of prize draws per year as discussed earlier).

My cash that I need to move is inside Santander 123. ISA is a different account, maxed out for the year, and I am not planning to touch it. 

I don't think HansOndabush's comments were in relation to your specific situation.

btcp

masonic said:

You can have premium bonds outside an ISA, but if your cash is inside an ISA it would require you to withdraw it and potentially lose ISA status (unless you transfer to a flexible cash ISA and forego a couple of prize draws per year as discussed earlier).

My cash that I need to move is inside Santander 123. ISA is a different account, maxed out for the year, and I am not planning to touch it. 

I don't think HansOndabush's comments were in relation to your specific situation.

I don't think so either, but who knows. There are obviously more experienced people here than myself. And they are answering in the thread I created.