Put Rainy Day Fund into Premium Bonds?

Adamc

I wonder if it is worth putting funds for a rainy day (£10,000) in to premium bonds rather than keep them in my cash ISA?

MX5huggy

Yes, (but it depends on the rate on the ISA). 

PB’s pay on average 0.9% £10k over year os should average this. 

All my cash savings are in PB’s you can withdraw with 3 days notice or set it to withdraw the day after the prize draw.

Adamc

MX5huggy said:

Yes, (but it depends on the rate on the ISA). 

PB’s pay on average 0.9% £10k over year os should average this. 

All my cash savings are in PB’s you can withdraw with 3 days notice or set it to withdraw the day after the prize draw.

The rate is under >0.5%

Stubod

...why not? ..seems like a reasonable option to me?

ZeroSum

The expected return on £10k is about 0.6%.

So if you fancy the punt of scooping the big prizes but understand you also risk getting nowt, go for it.

Personally, I'd just chuck it in Marcus

ZeroSum

MX5huggy said:

Yes, (but it depends on the rate on the ISA). 

PB’s pay on average 0.9% £10k over year os should average this. 

All my cash savings are in PB’s you can withdraw with 3 days notice or set it to withdraw the day after the prize draw.

They don't. 0.9% is for the full £50k

The less you have, the smaller the expected returns 

eskbanker

ZeroSum said:

The expected return on £10k is about 0.6%.

Where are you getting that from?  The MSE calculator shows a 68.4% chance of at least 0.75% and 47.8% of 1%, so the average expected return is the same 0.9% as it is for any other holding size.

ZeroSum said:

MX5huggy said:

Yes, (but it depends on the rate on the ISA). 

PB’s pay on average 0.9% £10k over year os should average this. 

All my cash savings are in PB’s you can withdraw with 3 days notice or set it to withdraw the day after the prize draw.

They don't. 0.9% is for the full £50k

The less you have, the smaller the expected returns 

Nonsense - in percentage terms the expected return for any holding for any duration averages 0.9%, but greater volatility (higher standard deviation) should be expected for smaller holdings or shorter timeframes.  In case you'd missed it, every bond has an equal chance of winning, so the average expected returns are a fixed percentage of the size of the holding, whereas your rather odd theory would have some bonds having better odds than others, which is patently not the case....

bd10

What's the risk tolerance? Does it have to be a savings product that does not beat or at least match a current rate of inflation of 5%? Personally, I do not hold than £500 in cash across some 0.25-0.6% interest accounts, all else (rainy day and amounts ear marked for the risk investment opportunity) is tugged away in low risk funds that I can sell anytime if I really had to. So far so good, breaking even against inflation.

tomla

bd10 said:

What's the risk tolerance? Does it have to be a savings product that does not beat or at least match a current rate of inflation of 5%? Personally, I do not hold than £500 in cash across some 0.25-0.6% interest accounts, all else (rainy day and amounts ear marked for the risk investment opportunity) is tugged away in low risk funds that I can sell anytime if I really had to. So far so good, breaking even against inflation.

Would you list your low risk funds please?

tomla

Adamc said:

I wonder if it is worth putting funds for a rainy day (£10,000) in to premium bonds rather than keep them in my cash ISA?

+1 vote for Marcus. Instant access (back in your account upon request not 3 days) and the interest rate doesn't make any noticeable difference on that amount between a guaranteed 0.6 and a hopeful 0.9%.  You are unlikely to win big, that's a mathematical fact.

ZeroSum

eskbanker said:

ZeroSum said:

The expected return on £10k is about 0.6%.

Where are you getting that from?  The MSE calculator shows a 68.4% chance of at least 0.75% and 47.8% of 1%, so the average expected return is the same 0.9% as it is for any other holding size.

ZeroSum said:

MX5huggy said:

Yes, (but it depends on the rate on the ISA). 

PB’s pay on average 0.9% £10k over year os should average this. 

All my cash savings are in PB’s you can withdraw with 3 days notice or set it to withdraw the day after the prize draw.

They don't. 0.9% is for the full £50k

The less you have, the smaller the expected returns 

Nonsense - in percentage terms the expected return for any holding for any duration averages 0.9%, but greater volatility (higher standard deviation) should be expected for smaller holdings or shorter timeframes.  In case you'd missed it, every bond has an equal chance of winning, so the average expected returns are a fixed percentage of the size of the holding, whereas your rather odd theory would have some bonds having better odds than others, which is patently not the case....

There's a chart on mse showing expected returns of 0.5% for £5k & 0.83% for £30k