Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

EARLIER this year I decided to forgo the tiny amount of interest I was getting on my cash savings and buy Premium Bonds instead.

My hope was that prizes from my bonds would give me a better return than the interest from deposit accounts.

In two previous articles - from March and August - I’ve explained that decision a bit more. In brief, the interest available on cash savings was so low that I wasn’t giving up all that much by taking a risk on Premium Bonds. Moreover, the sum I had meant that I had a decent chance of achieving Premium Bonds’ advertised 1% ‘annual prize fund rate’ - the average return from Premium Bonds once you factor all the prizes that are paid, big and small.

For those uninitiated in Premium Bonds, a key detail is that the more bonds you own, the higher the chance that you’ll win. That 1% prize fund rate is an average of all the prizes paid out divided by all the bonds in issuance. It includes the tiny number of £1m prizes, all the way down to the smallest £25 prizes that are paid.

Thanks to valiant number-crunching by, we know that you need something like £20,000 worth of bonds for you to win enough in prizes to achieve the 1% prize fund rate, provided you have the average level of luck. Bear in mind, however, that this is a prize draw, and that you can easily win nothing.

So - how did I do?

I can report that, nine months into my experiment, I have won ten £25 prizes. That represents a return of about 0.7% over nine months. If I continue to enjoy my current level of luck in the rest of the year (from when I bought the bonds), I should be closing in on that 1% return rate.

Looked at from that point of view, the experiment has been a success.

There are reasons, however, why I may not be continuing with my adventure into Premium Bonds beyond this year. The first is that rates on cash saving accounts have been improving. A year ago I could only find suitable accounts paying 0.51%. Now the best rates are more like 0.71%. If I’m willing to use a notice account where I need to give a few months’ warning before withdrawing my money, the rate jumps to 1.1%.

The other change from a year ago is the level of inflation. Back in February when I was making my decision, CPI inflation was running at just 0.4% - now it is 5.1%. When I bought my Premium Bonds, a 1% return looked enough to keep pace with prices - now it is badly lagging behind. I may get a better return with Premium Bonds than cash savings - but both look inadequate when compared to how quickly prices are rising.

That’s making me reassess the levels of cash I have saved, and wonder whether I could be putting it to better use in risk-assets - like stocks and shares. That means the risk of loss, but also the hope of keeping pace with inflation.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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