Premium Bonds: Are they worth it? Discussion Area

Dan29

Paul_Herring wrote:

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

Last night's Lottery draw:

Jackpot £1,916,504. Shared by 4 people = £479,126 each.

Paul_Herring

Dan29 wrote:

Last night's Lottery draw:

Jackpot £1,916,504. Shared by 4 people = £479,126 each.

Is that typical? I don't really follow the lottery.

nibs

I put £26,000 in premium bonds in june this year, just until i found a better investment. so far i have won £450 in just 4 draws. Ok i could do better elsewhere but theres always the chance to win a big prize. Its fun and i'm happy with my returns so far.

Former_MSE_Dan

penniesmakepounds wrote:

In the article it mentions that a chance of a £1 bond winning a £50 prize is 27,000 to 1. I thought it was 24,000 to 1 for winning a prize .... or am I on the wrong planet?? Not good at stats...never was, never will be!

Hi penniesmakepounds,

You are right that the odds of winning any prize is 24000 to 1, the stat your quoting from the article is a more specific one, the chance of winning specifically a £50 prize.

Great discussion folks

Dan29

Paul_Herring wrote:

Is that typical? I don't really follow the lottery.

Does seem quite low - but the jackpot amounts have been steadily coming down, especially for the Wednesday draw.

This page shows how much jackpot winners have received recently.

patrea

Once, they were a good investment: but Gordon Brown deliberately lowered the pay-out when no one was looking. It was another stealth tax, and quite appalling that it should be actually now be worse as an investment than commercial alternatives

Former_MSE_Dan

Also, one thing people seem interested in is the returns at higher amounts.

Obviously we can't do all of these, but just for interest sake, here are the rough chances of winning various amounts with £30,000 invested, over 12 months (DONE VERY QUICKLY, so please let me know if you disagree )

Chance of winning in a year with £100 in premium bonds

Chance of winning

£50 plus 15 to 1 ON
£100 plus 1.6 to 1 ON
£500 plus 10 to 1
£1,000 plus 40 to 1
£5,000 plus 300 to 1
£10,000 plus 650 to 1
£25,000 plus 1,560 to 1
£50,000 plus 3,555 to 1
£100,000 plus 8,888 to 1
£1,000,000 44,444 to 1

Still not quite guaranteed is it

keith_longden

Why not invest the max 30,000 before the end of october -- this will put you into the ( so called ) christmas monster prize draw . As soon as the draw has been completed , cash in your bonds and re-invest them in your original premium account . In effect you lose 2 months interest from your premium account , but have the gamble of winning an amount ,without risking your capital . Worth considering or not ??

Geoff_W

Clearly, from reading these posts, some people are luckier than others. I am one of the unlucky ones.

Back in 2000 I bought £10,000 of Premium Bonds (at the suggestion of a Financial Advisor!) at a time when the 'interest rate' was probably nearer 4.5%. To be fair, I did have some small wins, but when I finally gave up on them in 2003 and cashed them in, my return worked out at about 2.1% per year; very below average.

The money was put into Cash ISA's which have performed better than the Premium Bonds.

Geoff

cynic

I swear I wrote Martin an email about premium bonds about 6months ago, pointing out that the mode interest rate was much lower than the mean interest rate so they weren't arguably that good a deal.

Say u have 30k of bonds, to get 3.15% you are supposed to win £945 a year, this works out as £79 a month. But the prizes are lumpy - ok fine- i guess I would expect to get a mixture of £50 and £100 wins each month over the year. Say I only win £50 every month - that would leave me earning £600 in year or just 2% a year i.e. £345 short

Now each month you have two geezers winning a cool £1m, so this £24m a year can be "paid for" by 69,565 players only getting £50 every month for that year!
But these lot would have to have the maximum holding of £30k. There are actually 23million bondholders owning about £26bn of bonds - the actual average holding is £1130. This means to pay for the million pound prizes we have 1.85m bond holders only getting £50 prizes i.e. only earning 2% in a year

This simple example illustrates that to pay big prizes lotsa people have to lose out - I haven't even gone through the other value prizes