Savers to lose out as Premium Bond prizes are slashed

priorslee wrote: »

It's totally wrong that so much of the prize fund is allocated to the top prizes. The top 6 tiers give 4.6% of the prize fund to just 89 winners out of 2.2m (0.004%!), of which 2.9% of the total is scooped by the 2 lucky top prize winners.
Why wasn't the top tier reduced back to just 1 winner?

When you buy the product you are taking a perfectly good risk free interest rate and deliberately exchanging it for a chance to "hit the jackpot" with a life-changing amount of money. The reality is that only a tiny tiny tiny proportion of investors will ever get into those top six tiers where they win something genuinely meaningful. And you want to reduce that to a smaller proportion?

One jackpot-level prize a month was OK many decades ago when there weren't so many bonds in issue. Now there are 60 billion of them. You will never be one of the winners anyway, but it's even less likely if you reduce the number of big prizes given away.

So, for example, there are £64 million of prizes of which £2m are the two jackpots. If we stopped paying a jackpot, the jackpots only cost £1m a month ; we could give a million to everyone else. So, your expected win in a typical week would increase by 1/64th.

As an example, if you are one of the "normal people" who are only getting the £25-100 prizes over the course of the next decade, getting 90% of the expected 1.15% interest rate, that's an effective rate of about 1.035%. If you could stop paying two jackpots, and only do one, and make it twice as hard to get the jackpot, you'll increase your interest by 1/64th of the 1.035% interest rate. So on your £1000 invested, you don't get just £10.35 average interest a year, you get £10.50.

OK, so now you're getting 1.05% instead of 1.035%, but it's still naff all, and now instead of being on course to win the jackpot once every two point seven seven million years, you're now only likely to get that jackpot once per 66.5 million months or once every five point five five million years.

So, in your quest to get an extra penny a year interest on your £1000, you have added nearly three million years to the timescale it could take to get your life-changing prize, assuming normal luck.

priorslee wrote: »

I blame Steve Owen, acting chief executive of NS&I

If you are the CEO of NS&I, you might reasonably presume that a thousand pound investor would prefer to get his jackpot three million years earlier, rather than taking an extra 15p of interest a year on their thousand pounds. After all, surely the customer is only playing this sort of game for the life-changing jackpot. If the customer wanted to get a higher level of income instead of the chance of jackpots, they would probably invest their £0-£50k on something that didn't gamble the return for jackpots.

As such, your complaint is misguided. :beer: