MSE News: The seven deadly sins of premium bonds

littlemrtinkle

i for one am fed up of martin always picking on premium bonds and not saying anything about the lottery. At least with premium bonds you get your original stake back

lvader

sabretoothtigger wrote: »

If you want to gamble for more then get the premium bonds though its looking like normal savings plus national lottery once a week actually makes more sense and gives better odds

Does anyone actually do this? it seems a lot of faffing about over nothing. If you put any value on your time then surely this isn't a serious option.

dunstonh

littlemrtinkle wrote: »

i for one am fed up of martin always picking on premium bonds and not saying anything about the lottery. At least with premium bonds you get your original stake back

As you would if you used the interest on savings to buy the lottery tickets.

The principle is that you are giving up a return on premium bonds to be entered into Gordon Browns tombola.

The comparison example with lottery tickets is if you put your money in a savings account and use the interest it pays to buy lottery tickets. i.e. £20k at 4% is £800. So, you then buy £800 of lottery tickets. You still have your stake in the savings account but you are gambling with the return.

You could also put the interest on the Grand National, the boat race or the FA cup. Or you could buy premium bonds. With all these things you are gambling with the return.

Premium bonds may not have provider risk or investment risk but they do suffer inflation risk.

Jonbvn

Batchy wrote: »

I WILL be buying a huge amount of premium bonds very soon, as

1) I have maxed out my ISA's for last and this year already
2) My interest rate at the moment is about 1.25% or 0.85% on the whole balance If i decide to move £1 out of the account to somewhere else (weird on an instant access account).
3) I want to protect my capital investment as I've worked hard for it and want to keep it as I may need it for a house move at relatively short notice( 10 days for premium bonds is great for that purpose).
4) Am looking for a return higher than normal "potential" but overiding factor, don't want to lose money or my capital.

On average, you will do better with index linked certs. Of course, if you want to gamble......

Batchy

MSE_Martin wrote: »

I think you may've missed this from the article

"The chance of winning the jackpot is tiny.

With the National Lottery, your chance of bagging the jackpot is a decidedly rosy one in 14 million per pound, per draw. With Premium Bonds it's an eye-popping one in 40 billion.
Amount in bondsChance of winning monthly jackpot£1001 in 40.8 billion £2501 in 408 million
£5001 in 40.8 million£1,0001 in 4.1 million£1,5001 in 1.35 millionSource: www.premiumbondcalculator.com
Of course, though, with premium bonds you don't lose your capital. So for a fair comparison, put £2,900 in premium bonds and your jackpot odds are 1 in 14 million. Instead, put the same in a top savings account and you'd earn £5 interest after a month - enough "

Hi Martin,

Thanks for clarification, totally understand, but the fact there is a chance, then its worth taking. Its hassle free, and with lotterys maybe your keeping the same numbers, when you eventually stop (if you evr get the bottle to stop as you couldnt bear seeing the numbers you put on every week coming up... , imagine the numbers you kept using ... coming up ...youd be gutted. Premium bonds are just £1's, when you take them out, thats it. Your out the probabilities nothing to regret when you cash them in. Its all in the mind.

Im in it, just in case, its my turn (LUCK), with no premium bonds, it never will be.

Ive talked to my girlfriend ... about what we would do if we won the lottery, but the fact is, we don't play it... haven't played it for over 10 years. During that time I never felt lucky enough and never had the cash to spare historically.

At the moment, am saving for a deposit, im saving as much as I can, and will purchase premium bonds, to make a difference... it probably wont happen. But it might, many people WIN BIG each month.

Bank interest simply won't make a difference not after 40% tax. That much I might save or get in interest I can just offer less on a house or save using a cheaper solicitor etc. Yes, Im chancing my luck, and seeing if it moves the goal posts bigger house, who knows. Im not interested in the 1.5% at all to be honest, im just speculating what might happen.

Batchy

Jonbvn wrote: »

On average, you will do better with index linked certs. Of course, if you want to gamble......

Its a short term risk... say 12 months... 3 -5 years is just too long, if it was 6 months then maybe.... but not that long, savings for retirement then thats different... but for now, ill take a chance.

dunstonh

Batchy wrote: »

Its a short term risk... say 12 months... 3 -5 years is just too long, if it was 6 months then maybe.... but not that long, savings for retirement then thats different... but for now, ill take a chance.

In your case that might be but you would be surprised by the number of people that say they dont want to tie their money up but for years or decades, they have just rolled the money over after each 12 month maturity or have money that has sat in the same account for that period. With index linked certs only needing 12 months to be in there to get past the effective penalty point then for many people it wont be a problem.

thelawnet

MSE_Martin wrote: »

I think you may've missed this from the article

"The chance of winning the jackpot is tiny.

With the National Lottery, your chance of bagging the jackpot is a decidedly rosy one in 14 million per pound, per draw. With Premium Bonds it's an eye-popping one in 40 billion.
Amount in bondsChance of winning monthly jackpot£1001 in 40.8 billion £2501 in 408 million
£5001 in 40.8 million£1,0001 in 4.1 million£1,5001 in 1.35 millionSource: www.premiumbondcalculator.com
Of course, though, with premium bonds you don't lose your capital. So for a fair comparison, put £2,900 in premium bonds and your jackpot odds are 1 in 14 million. Instead, put the same in a top savings account and you'd earn £5 interest after a month - enough "

As I mentioned above, all these figures (odds of winning) are out by a factor of 100.

And the comparison with the lottery only looks at the jackpot, not the overall prize. You have a better chance of winning a prize on Premium Bonds than you do playing the lottery.

Milarky

@thelawnet post #30

I think the '1 in 40 billion' (cf '1 in 14 million') statement is 'per pound' staked - not the 'cost' of staking £1. You are quite right to then say that £800 (£12 per annum @ 1.5% tax free) is needed to stake only £1 per month with a '1 in 14 million' chance of the jack pot and this equates as a '1 in 50 million' on PBs.

Not sure I take your point about only a proportion of the lottery being prize money however as this does not alter the above relative odds.

Yes, we could conceive of a 'peoples lottery' perhaps where no money is paid to third parties and could cut out all middlemen. This would allow either 'two' big prizes for the same long odds or some more small prizes overall. You could even conceive a hybridized 'bond-lottery' where (say) your initial investment falls at some predetermined rate - maybe 2% per month - so after 52 draws it's all gone but in the meantime you can 'cash-in' what remains if you want! Many, many possibilities...

thelawnet

Milarky wrote: »

@thelawnet post #30

I think the '1 in 40 billion' (cf '1 in 14 million') statement is 'per pound' staked - not the 'cost' of staking £1. You are quite right to then say that £800 (£12 per annum @ 1.5% tax free) is needed to stake only £1 per month with a '1 in 14 million' chance of the jack pot and this equates as a '1 in 50 million' on PBs.

Right, but in the text it says that 1 in 40 billion is the odds of winning with £100 of bonds. It is not, that is the chance of winning with £1.

And you do have to look at the 'cost' of staking, because that is what makes it a good bet or a bad one - if the odds of winning the jackpot were the same as the lottery, then it would be an absurdly good investment and everybody would put all their money in there and the government would go bust from paying out too many prizes.

Not sure I take your point about only a proportion of the lottery being prize money however as this does not alter the above relative odds.

The point is that looking at the odds of winning the jackpot alone is completely arbitrary. You might as well compare only the chance of winning a £1000 prize - it ignores all the other prizes. The relative odds of winning the jackpot are better for the lottery, but winning a small prize better for Premium Bonds.

You do have to look at the total payback because that's how you judge whether a bet is good or not. 45% is awful. Any fruit machine in a pub will payout better than that (although the problem there is that the same money goes through the machine several times over, whereas with a lottery ticket you just buy one and then wait).

Yes, we could conceive of a 'peoples lottery' perhaps where no money is paid to third parties and could cut out all middlemen. This would allow either 'two' big prizes for the same long odds or some more small prizes overall. You could even conceive a hybridized 'bond-lottery' where (say) your initial investment falls at some predetermined rate - maybe 2% per month - so after 52 draws it's all gone but in the meantime you can 'cash-in' what remains if you want! Many, many possibilities...

What for? There are already plenty of ways to gamble.

As for Premium Bonds the policy seems to be to payout lots of small prizes (£25) and have a much lower chance of winning anything £50 or £100 and then a very small chance of winning more than £100. It woud be possible to make it more of a jackpot-based prize, but I expect NS&I have already done their research and people like receiving the £25 'prizes', which is why they payout the number that they do. An extra £1m would be good for the one winner, but boring for everybody else - in practical terms it doesn't really make any difference whether the odds are 40 billion or 20 billion to 1 - you're still almost certainly not going to win.