Premium Bonds - a wise investment???

cake_jake

Someone close to me has just invested £30k in Premium Bonds and I'm wondering whether this is a good use of this money.
Has Martin written anything about Premium Bonds on the site? (I can't find anything).

Do people think Premium Bonds are a good buy? Any better suggestions? (for low risk)

Many thanks.

zag2me

There are certainly better investment options at the moment, but it depends on what you want out of it I guess. There is a long thread on here about premium bond winners.

MickKnipfler

I think the main benefit is that higher rate tax payers don't pay tax on winnings. Maybe after they've maximised their ISA investment, PBs are then seen preferential to a savings account

Will.Power_2

Having used my ISA allowance, I bought some last September and calculated I'd need to win £265 in the year to match the after-tax return from a building society. Five wins to date total £300 so I'm ahead. For the paltry amount of interest I could get elsewhere, I thought it worth the risk as I'll need the money later in the year.
Work out how much you'll lose by not putting it elsewhere, and decide whether it's worth the risk. At least you're sure of getting your investment back...

Milarky

Personally I think they are poor investments. The 'average' return is just 3.00% and the distribution of prizes is rigged towards the infrequent larger winners. See the current odds here:

http://www.nsandi.com/products/pb/rates.jsp

Here's thread I posted a while back entitled: "Losing at Premium Bonds"

http://forums.moneysavingexpert.com/showthread.html?t=5117&page=1&pp=10

It is interesting to see (well, "interesting" to me!) how the analysis has changed since 2004:

Then: average prize: £56 target return: 2.8% odds of winning 1:24000

Now: average prize: £60 target return 3.0% odds of winning 1:24000

Then: 'below average' long term chances: 87%, 'average' (2.8% return): 9.7%, better than average: 3.3%

Now: 'below average' long term chances: 79.5%, 'average' (3.0% return): 18.6%, better than aveage: 2.0%

What this means is that National Savings has significantly rejigged the distrubution in the last 18 months with the result that it is now about twice as likely that you will attain the average return (of 3% - up slightly on the 2.8% previously) than you would have then. Good news!! Yes, but that is still only a one in five chance (compared the the old 1 in 10) You now have a slightly reduced chance of lagging this average return of just under 8 in 10 as compared with the previous 17 in 20 but this scenario is still highly likely. And, if you do then you fall even further behind in the process, because before you would have been getting '50/56th' of average winnings representing 2.8% - - or 2.5% in effect - today you would get only '50/60th' of 3% - exactly the same 2.5% as it turns out! So that although NS&I has raised the 'average' payout slightly overall, for the large majority of even those that win any prize they have not actually increased the amount they pay to these people. And the chances of doing 'better' (or 'significantly better') than 3% return are squeezed somewhat from 3.3% (1 in 30) to 2% (1 in 50)