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Personal finance

NS&I, premium bonds or savings accounts – where’s best for your emergency fund in 2024?

With this year chucking up plenty of surprises so far, we look at where’s the best place for your emergency cash fund in 2024.
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Important information - This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

When you’re hit by the unexpected, you need an emergency cash fund to fall back on.

Lots of people choose National Savings & Investments (NS&I) to home their emergency fund.

However, while there are some benefits to this, you need to be aware of the price you’ll be paying, and just how much harder your money could be working elsewhere.

This article isn’t personal advice. If you’re not sure if an investment is right for you, ask for advice.

NS&I – backed by the government

One of the biggest attractions of NS&I is that what you save, regardless of size, is fully protected by the Treasury.

In the case of the direct saver, you can put up to £2 million away safe in the knowledge the Treasury has your back.

If you save elsewhere, usually the first £85,000 with each institution (per banking licence) is protected by the Financial Services Compensation Scheme (FSCS).

If you’re retired and holding cash to cover one to three years’ worth of essential spending, it may mean you’ll need several different accounts. Spreading your money across lots of different banking licences means more of your money will be covered.

Fortunately, this doesn’t have to be as much hassle as it sounds.

Using cash savings platforms, like Active Savings, means you can hold several accounts on the platform, see all your savings together in one place, and switch between them and your current account easily.

If you opt for a savings product with NS&I, the easy-access options are the direct saver and income bonds, which both currently pay 4%, and the direct Cash ISA, at 3%.

All are reasonable rates, but you can do better elsewhere.

There’s a handful of accounts in both markets offering over 5%, and plenty more offering almost as much, so you don’t have to settle for less.

The gap is bigger for Cash ISAs, where 3% is well off the pace. It’s worth checking out the rates with online banks and cash savings platforms, which normally offer a better return.

Premium bonds – the chance to win big?

Another option for emergency funds with NS&I is premium bonds.

These are incredibly popular, because savers stand an outside chance of winning a life-changing sum of money as part of the bargain.

However, the odds are stacked dramatically against you, and this comes at a cost.

In an average year, the average saver with £1,000 of bonds and average luck will win nothing. These bonds don’t pay any interest, so without above-average luck, your savings will be losing spending power when you take inflation into account. Of course, the larger your pot, the higher the chance of winning as its more likely NS&I will pick your bond number.

If you’re working age and have three to six months’ worth of essential expenses in these bonds for a long period, it can erode the spending power significantly – it means you could end up having to top it up.

For example, if you put £15,000 into the bonds three years ago, it would need to have grown by almost £4,000 to have kept pace with inflation.

That’s an awful lot of savings to top up if you don’t get unusually lucky. If the purpose of your emergency savings is to be solid and dependable, you must ask whether you want to risk it being eroded so badly it leaves you short when you need it most.

Is there a better option?

For more savvy savers, the right home for their emergency fund is a competitive savings account. And right now, a number of them are still offering returns well ahead of inflation, so you know your money will be there when you need it.

An online savings platform, like Active Savings, brings some of the best rates on the market from different banks through one account

It means you can switch banks to find better rates, without wasting time completing lots of paperwork for new accounts. Bear in mind that rates could be added and withdrawn at any time.

If you want your cash to work harder? Take a look at Active Savings.

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

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Written by
Sarah Coles
Sarah Coles
Head of Personal Finance

Sarah provides insight and analysis to the media on topics such as savings and financial planning, and co-presents HL's ‘Switch Your Money On' podcast.

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Article history
Published: 20th June 2024