Premium Bonds - Investing or gambling

Gorgeous_George

Good morning all

The interest rate on Premium Bonds is a paltry 3.15% compared to around 5% that can be achieved at a Building Society. Effectively. this means that someone holding £30,000 of PBs is gambling £215 per year even allowing for tax.

Now, that may not seem too bad to some but, due to there being a number of large prizes, most 'investors' will not achieve 3.15%.

Surely, Premium Bonds are a form of gambling, much the same as betting on horses or the National lottery and therefore have no place on a MoneySaving website.



GG

Hereward

Whilst it is true that holding Premium Bonds is a type of gambling (you are betting on winning at least one of the prizes in given month), they differ from other forms of gambling (for example, National Lottery or betting on horse racing) in that even if you do not win, you can at least get your original stake back.

Gorgeous_George

I disagree. you do not get your initial stake back.

Your initial stake is the interest and you do not get this back.

Whether it makes people feel better about gambling or not I am not sure. It's a clever advertising ploy though because many people believe that they get their stake back.



GG

ariba10

As a holder myself I think they are a very poor gamble. (not so bad for a higher rate tax payer)

The introduction of a second million pound prize has cut the chance of winning. I shall not be buying any more.

Hereward

Gorgeous_George wrote:

I disagree. you do not get your initial stake back.

Your initial stake is the interest and you do not get this back.

Whether it makes people feel better about gambling or not I am not sure. It's a clever advertising ploy though because many people believe that they get their stake back.



GG

If I place a £1 bet on a horse to win the 15.30 at Newmarket and it wins with odds of 2-1, then I get back £3: £2 winnings and my £1 stake. Now if I buy £1 worth of Premium bonds and I win the jackpot I get £1m and then get my £1 back as well (if I sell them). If I do not win anything, at least I can sell my Premium Bonds and get my £1 back, they same cannot be said if my horse does not win. The only problem with Premium Bonds is that if you do not win any prizes, then you do not get any interest on them: this means that over time inflation will eat into my "investment".

InMyDreams

Hereward wrote:

If I place a £1 bet on a horse to win the 15.30 at Newmarket and it wins with odds of 2-1, then I get back £3: £2 winnings and my £1 stake. Now if I buy £1 worth of Premium bonds and I win the jackpot I get £1m and then get my £1 back as well (if I sell them). If I do not win anything, at least I can sell my Premium Bonds and get my £1 back, they same cannot be said if my horse does not win. The only problem with Premium Bonds is that if you do not win any prizes, then you do not get any interest on them: this means that over time inflation will eat into my "investment".

I'm with GG on this. Hereward I think you're looking at it wrong. If you buy £1 of premium bonds, your stake that your are risking (over a year) is only the 5p interest you would have earned had you put your £1 elsewhere. So your examples are not comparable. If you don't win with your pb, you have effectively lost this interest. No stake return. With premium bonds, you are not staking your investment, you are staking your potential interest. As GG says, clever advertising ploy to make you think differently. To compare pb with betting £1 on the horses you need to have an investment that would produce £1 in interest elsewhere. So say we're talking £20 of pb tied up for a year. Are you better putting such a miserly amount in pb and almost certainly winning nothing at that level? Or taking out your £1 interest and having a flutter on a horse at whatever odds you're comfortable with. It's your choice, but you're gambling which ever way whether you like it or not. Personally I'd prefer to just keep the £1.

PB work like a 'savings' account that effectively forces you to put all your interest 'on the horses'. No stake/interest returned if you don't win. If you are a gambling person, you'd be better off putting your money in a high interest account, and withdrawing the interest each month and going down the casino with it... or spend it on the national lottery. I think I worked out once that you'd average a better return with the lottery too, but can't find the figures now. And your 'investment' would be just as safe as your premium bond. But for some reason this doesn't appeal to people

IMD

PS I do actually hold £10 of pb that were a gift from my great aunt when I was born. Would have been worth a considerable amount of money back then. Never won a thing. I really only hold onto the certificate now for sentimental value. Just think how many horses I could have bet on with all the interest over the years though!

Pobby

We have had ``average luck`` on a $54k holding but I am thinking of moving out of these.I am seriously looking at building an investment portfolio and using this momey plus more.

I see it as a bit of fun until I do something a little more serious.

Hereward

InMyDreams wrote:

I'm with GG on this. Hereward I think you're looking at it wrong. If you buy £1 of premium bonds, your stake that your are risking (over a year) is only the 5p interest you would have earned had you put your £1 elsewhere. So your examples are not comparable. If you don't win with your pb, you have effectively lost this interest. No stake return. With premium bonds, you are not staking your investment, you are staking your potential interest. As GG says, clever advertising ploy to make you think differently.

PB work like a 'savings' account that effectively forces you to put all your interest 'on the horses'. No stake/interest returned if you don't win. If you are a gambling person, you'd be better off putting your money in a high interest account, and withdrawing the interest each month and going down the casino with it... or spend it on the national lottery. I think I worked out once that you'd average a better return with the lottery too, but can't find the figures now. And your 'investment' would be just as safe as your premium bond. But for some reason this doesn't appeal to people

IMD

I don't think I have. It is not possible to gamble with something you do not have or haven't earned yet; therefore, my £1 could earn 5% per annum (5p), I could risk it on a horse with 2-1 odds (£2) or I could try my luck with Premium Bonds (£1m). The opportunity cost of my Premium Bonds purchase is 5p (or £2 if you use the horse racing bet), as that is what could have gained through the savings account, but my stake is the original £1. I have not gambled the 5p; I have forgone receiving it because I believe my £1 will generate a better return with Premium Bonds. Alternatively I could use it to buy some excitement and place it on a horse, but then I have lost my stake if it does not win, the same is not true for Premium Bonds. I do, however, think that Premium Bonds are not a good vehicle for "investment" unless you are a higher rate taxpayer, as the return on your investment is too low.

InMyDreams

Hereward wrote:

I have not gambled the 5p; I have forgone receiving it

Which is surely even worse? I'd prefer to at least gamble something than simply kiss goodbye to it without question



Ps - I think I must have edited and added to my last post as you were replying... sorry!

Gorgeous_George

It's not 5p, tht's just delusional. Perhaps you are a gambler in denial.

The minimum spend is £100. You are not entered until after one full month. Therefore, in month two's draw, you have gambled about 30p in a lottery. That's 30p for every £100 of PBs that you own. With £30,000 that's about £90 each month that you have 'invested' (or more correctly termed, gambled). The Government is having a laugh.

There must be better places to invest. There may not be better places to gamble.

I wonder if those religions that ban gambling turn a blind eye to investing in Premium Bonds.

BTW, I hold 500 premium bonds. Never won. I could have saved £26.25 over the last year by using the £500 to pay my mortgage off. Effectively, I have gambled £26.25. If I had £30,000 'invested', I would have gambled £1,525. If I spent over £100 per month on gambling I would be worried.



``GG