Premium bonds

shazkhan111

I was reading the Sun money section yesterday....and it said that if you buy £100 worth of Premium bonds you have 100 chances of winning a prize in a month thats 1200 chances a year.....it went on to say that the same chances on the lottery would cost £1200.

So I came home and bought £100 worth of Premium Bonds online.....even though I have never been a fan....as I know lots of people who have PBs worth £30000 and they get about £300 a month nothing more..

Is the Sun's article correct?? If it is we should all have £100 worth ....you never know!

caveat_emptor

What the Sun article failed to say, maybe, is that you have 1200 chances in millions. So the odds are pretty long. If you know lots of people with £30,000 of bonds who are getting £300 a month, find out what they're on and have some because returns like this are pretty rare and against all the odds.

Mr_Mumble

With £100 worth of premium bonds your chances of winning in any given month are 240-1. With "average" luck you'll win once every 20 years. When that day comes the chances of winning a million is roughly 700,000-1. So, 14 million years from now you can expect to become a millionaire

PBA

Comparing premium bonds to the lottery is slightly ridiculous, as you don't lose your stake with premium bonds. However neither is a particularly good investment unless you're a higher rate taxpayer.

dunstonh

Comparing premium bonds to the lottery is slightly ridiculous, as you don't lose your stake with premium bonds. However neither is a particularly good investment unless you're a higher rate taxpayer.

If you stuck the money into a high interest savings accounts and then bought lottery tickets with the interest, then it could be comparable. You may laugh at that idea but effectively, that is what you are doing with Premium Bonds.

kenshaz

dunstonh wrote:

If you stuck the money into a high interest savings accounts and then bought lottery tickets with the interest, then it could be comparable. You may laugh at that idea but effectively, that is what you are doing with Premium Bonds.

An excellent analogy,but the odds are greater with the lottery but the rewards are also greater,both gambling do they really deserve consideration

johnofhertford

Premium bonds are not gambling, because there's no way that you can lose your stake.

whambamboo

dunstonh wrote:

If you stuck the money into a high interest savings accounts and then bought lottery tickets with the interest, then it could be comparable. You may laugh at that idea but effectively, that is what you are doing with Premium Bonds.

That is incorrect.

Premium bonds are better than the lottery.

For a basic rate tax payer with £1000, after 1 year in the ICICI high-interest savings account you would have £1041.20

If you then bought £41 of lottery tickets, you would expect to get £20.50 back on average, as the lottery pays back 50% of ticket price as prizes.

This would leave you with on average
£1020.70

Premium bonds pay 3.15% as prizes, so you would expect to have on average
£1031.50 at the end of the year

For a higher rate tax payer, the picture is better still:
They would have only £30.90 interest on £1000 at 5.15% after higher rate tax - so the expected return from the premium bonds beats the high interest savings account.

Ignoring lottery tickets, which are for fools (you'd be much better off with a slot machine on the internet, paying 90%+, rather than a game paying only 50%), the return for higher rate tax payers on premium bonds actually beats the best high-interest savings account.

There is a place for premium bonds as part of an investment portfolio, and for higher rate taxpayers the expected returns are hard to beat.

whambamboo

Mr_Mumble wrote:

With £100 worth of premium bonds your chances of winning in any given month are 240-1. With "average" luck you'll win once every 20 years.

Or every 2 years with £1000 :-)

nigelF

Hi all,
The estimated tax free return of 3.15% with premium bonds against a taxable 5.25% in a high-interest account is a close call. I'm paying the higher rate of tax at the moment, but this will reduce at the end of the year and I like the idea of a 'safe' gamble. I'm going to try a £30,000 punt at premium bonds for 12 months and see what returns I actually get.

If it doesn't work out, I'll look at placing it in a more traditional savings account. I'll keep you posted on how things are going month by month if your interested. First payout should be early December.

Paul_Herring

johnofhertford wrote:

Premium bonds are not gambling, because there's no way that you can lose your stake.

PB's are gambling - you're gambling with the interest you would have had, if it was in a savings account.

Remember that the value of £100 put in PB's a year ago will not equal the value of £100 this year due to inflation. You do not get your original stake back (well, you get the same number of pounds, but not the same value.)