Premium Bonds: Are they worth it? Discussion Area

ooro

I'm a fan of the get rich slowly school of thought - slow and setady inflation beating but benefiting from compounding over time.

however my return of £50 from the £6 in bonds bought 35 years ago equates to a retun of about 7% comound which sounds quite good but I only need to go another 15 years without winning anything for my effective rate to be down about 4% - and remember the inflation we have had in the last 35 years!

ooro

Budget wrote:

As this is the 50th anniversary of the Premium Bonds, they are increasing the two £1 million prizes to FIVE x £1m in December and FIVE x £1m in June 2007 (not just £2m as stated by some). So my own strategy is to buy the minimum of £100 by the latest deadline of October 31st and sell these - to recoup my £100 - just 8 months later on July 1st 2007.

The extra millions in the anniversary draws are being paid for by temporary lifts in the rate of return - which will still paltry - but you are quite right for a small investment the lost income is small.

Honestly, if I had £30k to spare I'd buy lots of other investments before premium bonds - index tracker funds / cash ISA's etc
Incidentally, anyone know the rate of return on football pools - it might be that piking 11 draws in that most old fassioned of betting opportunities if much better than the lottery.

O

MiserlyMartin

I have £100 invested, its been there 20 years, and last year I had my first win of £50. Thats a low rate of return. I was thinking exactly the same thing as MSE Martin. I think I will close the premium bond and put the money in a higher paying account.

MartinRosen

One great advantage over the Lottery, is that if you win the jackpot prize .. you don't have to share it !

Milarky

webwiz wrote:

Your figures are different from Martin's. He says the 3.15% comes down to 3.06% (if you exclude the major prizes) and I find his calculations more convincing than yours. This difference of 0.09% is what we happy punters are willing to wager in the hope of landing the jackpot.

Curious (I said to exect Al Ad hominem, and he has arrived) Be nice to the posters please....

You will see that I quote the second exercise - that of excluding all prizes except £50 and £100 from consideration. But for the avoidance of doubt he said:

Yet we could take this further and say as 99.4% of the prizes are either £50 or £100[1], again the realistic chance of winning more than that is pretty slim. In fact even someone with £3,000 in Premium Bonds has less than a one in 100 chance[2] of winning any prize above £100 over a year.

And about this I said:

A less than 1% annual chance[2] is therefore being 'ruled out' here[1] - and the working assumption is that any prizes received (at an average rate of 1.5 prizes per year which is assumed ) will be either £50 OR £100. These prizes are in the ratio of about 9 (£50) to 1 (£100) so you work out an average from this of £55. Yet the 'average' prize currently is £63 (£83.4million divided by 1.339 million) So if '3.15%' comes from an average of £63 per prize - then at just £55 per prize it comes right down to '2.75%' - and the 'taxfree' equivalents directly follow.

And 2.75% = 3.15% x £55 / £63 (approximately)

So I don't have to check my maths because my figures only differ here in respect his first assumption (referred to in the first paragraph) whereas I talk about his other assumption also (in the second paragraph). I have not contradicted (in fact agreed) with anything in his account.

(I was actually trying to answer your question, believe it or not - since you also suggested that Martin was at 'sixs and sevens' - whereas I found his various remarks were not irreconcilable. Can't have it both ways I'm afraid - unless you've spotted something very unobvious here - you can't prefer Martin's logic to mine when it's clear we used the same logic and you can't query his logic in the first instance but then fall back on it later)

Pace

Leadplayer_2

crystaltips68 wrote:

interesting comments about premium bonds.
I work in a post office and we have been inundated with pb purchases.
Alot of people are having a flutter in December and then reinvesting elsewhere.
I agree with the comments about old £1 bonds, customers say they never win on them!
I think it is luck, but you can contact ns and i to reinvest old bonds back as new ones!! just to put minds at rest!!

Aren't the old single one's in the draw any longer then ?

Brian_Thompson

I bought a £1 bond in 1957 and it won £25 about 3 months later. That's a return of 10,000% at that point. After one year the return was of course 2500% It has never won in the 48 succeeding years! But the return is still 51% on my original investment. And I live in hope!!

mac48b

This is an excellant post, but i would like to know if the figures work out differently if you buy a block of bonds e.g. 10, 20 or the max 30 thousand, If you check the ceefax on BBC you get a list of the major winners (down to the £5,000.00) but it also show the value of the Bonds the winner holds.

What would have been a better idea to celebrate the 50th year, is to have a seperate draw for all those people who have had bonds for the 50 years say £50,000 then £49,000 for those that had had them for 49 years and so on

Rather than have someone by bonds before the end of the month and win one of the major prizes in December, and they could get their stake back before Christmas

anyone got £30,000 lying around I give it back before christmas with a bonus if I win

Ian

Dan29

panlane wrote:

People are incorrect in stating that you are gambling the interest you could earn in a savings account. You are not. You are gambling the change in value by inflation of your stake, i.e. in today's climate about 2% of your stake annually.

Only if you were planning to keep the money under the mattress if you hadn't put it in Premium Bonds.

I put £30,000 into Premium Bonds yesterday and reckon I'm losing £106.50 a month compared with the return I'd be getting in my Coventry First account (I'm not a higher rate taxpayer).

I don't expect to get a return of £1,278 per year from Premium Bonds, but I'm happy to gamble that amount for the chance of winning a big prize. At least one user of this site has had a £100,000 win; clearly someone has to win the big prizes.

What seems clear is that if you need the interest you'd be losing by putting your money into Premium Bonds, they aren't the best place to put your money.

Paul_Herring

MartinRosen wrote:

One great advantage over the Lottery, is that if you win the jackpot prize .. you don't have to share it !

Ah - but compare the jackpot for premium bonds with that that of the lottery.