Which Is Better for Safe Saving: Prize Bonds or Bank Deposits?

Regarding savings, it seems that the vast majority of the people have no choice but to pick one between the two leading modes of safe saving: prize bonds or banking accounts. These are equally widespread, these are equally regarded as relatively safe, but these operate under fundamentally distinct principles.

In this article, we will take a look at some practical facts regarding these two competing methods of safe saving.

Understanding Prize Bonds

Prize bonds are offered by National Savings Pakistan and are among the most widely used investment means in Pakistan. You do not earn any fixed rate of interest but rather enter yourself into a lucky draw process, referred to as prize bond draw, and if your number wins then you receive the reward.

A large number of people always stay in the loop about the status regarding prize bond result or check prize bond to find out if they have won something.

The Working of Prize Bonds

Although when purchasing national saving prize bond, your money is secured due to the backing of the government, however, nothing is assured, and your earnings depend entirely upon luck.

There is also a choice of purchasing premium prize bond for which more profit and benefits can be obtained, but they entail a higher investment.

• You invest a certain sum of money (Rs. 100, Rs. 750, Rs. 1500, etc.)
• You wait for the scheduled prize bond draw
• Your number comes up and you win
• You don’t win and your initial sum of money stays the same

Advantages of Prize Bonds

Prize bonds are very popular due to their simplicity and versatility. They do not need to be surrendered at a certain period and come with no penalties.

Secondly, they maintain their value over time. They remain the same regardless of whether the holder keeps them for 1 or 10 years.

Third, it is common to check the status of your prize bonds online or with other available online resources.

Disadvantages of Prize Bonds

Firstly, there is no guarantee of success. It is possible that you will never be able to win anything despite having invested in prize bonds for several years.

Secondly, there is no income stream attached to these bonds. This differs from bank accounts where you earn monthly or annual interest.

Finally, your investments are subject to inflation which lowers their value.

Understanding Bank Savings Deposit

Another form of safe investment is through banks. You invest your funds through a savings account or fixed deposit, and the bank earns an interest at the rate of bank deposit interest rate.

This type of deposit guarantees consistent returns because of the savings interest.

Types of Bank Deposits

The banking institutions in Pakistan give various forms of deposit facilities to customers.

• Regular savings account
• Fixed deposit
• Islamic savings account
• Term deposits

All these accounts have varying savings interest rates and the best account depends on the objective of the savings.

Advantages of Bank Deposit

The most important aspect is that the returns are always predictable because the savings interest rate is always known.

The banks ensure liquidity by allowing withdrawal whenever you want to withdraw; cheque deposit also ensures easy transactions.

Furthermore, due to stiff competition in the banking sector, banks have come up with various top savings accounts which earn good profits.

Disadvantages of Bank Deposits

Interest rate might be variable depending on economic factors hence uncertain return.

Some accounts such as term deposits have requirements and conditions that must be met.

Besides, there is the problem of high inflation rate.

Comparison Between Prize Bonds and Savings Account

We can see some differences between both in terms of their advantages and disadvantages.

• Benefit: Prize bonds give unpredictable benefits because of prize bond draw, and bank deposits are paid interest.
• Risk: Both are low risk, but prize bonds rely on chance.
• Liquidity: Both are liquid, but there can be some conditions for bank deposits.
• Salary: Bank deposits generate regular salary; prize bonds are not guaranteed to earn anything.
• Influence of Inflation: Bank deposits may change due to inflation, while prize bonds do not earn anything extra.

Which One Should You Choose?

The decision about which option is more convenient for you relies solely on you and your financial situation.

If you are someone who loves to gamble and take risks, then prize bonds might be right for you. People who find themselves looking forward to the result of the prize bonds draw are most likely to prefer prize bonds.

However, if you value stability, prize bonds may not work out for you. The best option for people who require certainty would be bank deposits. Savings accounts allow investors to know beforehand what their benefits will be.

There are also people who choose both options at once.

When Should You Go For Prize Bonds?

Prize bonds work best in some scenarios.

They are good if you are not concerned about earning money regularly and do not mind being patient. They also suit individuals who seek to invest in the government without involving any banks in the process.

Moreover, those individuals who actively track the prize bond list and engage with online prize bond applications also tend to favor this investment mode.

When Should You Opt for Savings in Banks?

If you require stability in your finances, then bank deposits are perfect for you.

They are also preferred by those people who depend on their earnings either on a monthly or annual basis. With thorough research, you can select the best savings account that gives the most profitable bank rates interest.

Bank savings are also much easier for day-to-day financial management as they offer facilities like cheque deposit and online banking.

Conclusion

Ultimately, everything comes down to individual preferences.

While prize bonds give an opportunity to earn huge rewards, they carry risks associated with uncertainties. Bank deposits guarantee the regular earnings with no risks involved; however, the returns on investment can be moderate.

In case you value safety along with guaranteed growth, go with bank deposits.