Premium Bonds: Are they worth it? Discussion Area

cynic

it's always better to be read than not & sir, you are a gent

Lewie

I have a few grand in premium bonds and have had a few £50 wins.
I prefer it that way, it is the chance of a decent win that keeps me 'investing', and yes it is an investment of sorts cause I may have spent that money by now on junk.
By crikey Hereward, I bet you could have an argument in an empty room.

Hereward

Lewie wrote:

By crikey Hereward, I bet you could have an argument in an empty room.

I find that those are the best kind...

Gorgeous_George

A coin is more likely to land 'tails' up because the 'heads' side is heavier.

However, PBs are a poor investment. They become bad, good or really good 'investment' when hindsight is applied.



GG

klondyke

Mr K and I have nearly 30k each in pbs and vie with each other. We do win £50 or £100 most months.

Still, apart from the possibility of winning, our excuse for holding the investment (for want of a better word) is that, should we shuffle off our mortal coil(s), our executors can very quickly get at this money without waiting for probate. That goes for all National Savings products, I think, and probably some others - but it's still a great excuse! And, of course, if executors aren't strapped for cash at the time, they can wait a year, still with the chance of winning cash for the estate. Not sure what happens on inheritance tax if executors won £1m though! I guess one spouse had better stay alive for that year, just in case!

ashm1

Hi,

-All bonds have the same odds including those which aren't in the draw yet ?
-Presumably winning bonds will also be distributed throughtout time aswell ? (else no new bonds would ever win)

Is there time distribution data available?

edit: "The more you invest the better your chances of winning, so it pays to invest as much as you can." http://www.nsandi.com/products/pb/howitworks.jsp



Kind regards,

Ashley.

George-Derek

Could someone please check my reasoning...

I had £10,000 sitting in my Nationwide e-savings account earning 4.80% before tax.

I took this £10,000 and used it to buy Premium Bonds, my reasoning was as follows...

As I've invested a large amount and I am prepared to hold for a long time, I can expect to win prizes whose total value will approximate the NS&I quoted interest rate of 3.15%.

If I had left my money in the Nationwide I would be sure of earning 80% of 4.80% after tax which is 3.84%.

The difference is 3.84% - 3.15% = 0.69%

This equates to £69 per year or £5.75 per month.

I think of this as my stake money for entry to the draw.

All prizes are taken and payed into my Nationwide e-saving account.

The sum of £5.75 per month is reasonable.

Have I made a mistake in my reasoning ?

morlandbanks

I really only got mine because I got kind of an inheritance of £2000 and didn't want to end up spending it. I'd already put a few hundred away for the children and just added some more. I generally put the childrens money into bonds because the interest isn't that good on their account (we're with Barclays because it's the only one we can walk to for them to put in thier pocket money. They love going along with thier money from Nanny).

Anyway. I know it won't make any money - we've won £50 twice. But it does mean that I never include it in our savings and we'll never spend it. But of course, there's always that slim chance that there will be a bigger win...You never know!! It's nice to know there's something there if it really hits the fan. But as an investment? No.

James_H

George-Derek wrote:

The difference is 3.84% - 3.15% = 0.69%
I think of this as my stake money for entry to the draw.
Have I made a mistake in my reasoning ?

Yes. Your stake is the entire 3.84% (all interest sacrificed). The 3.15% is your expected winnings, including a share of the million pounder. The 0.69% is your expected loss.

Another 'mistake' and on which a lot of the discussion in this thread has been based is that the PB prizes are very lumpy and no-one will ever hold enough bonds nor hold them long enough for the return to be a definite 3.15%. I haven't worked out the stats, so ignore the exact numbers, but all you could say is something like you can be 80% confident your return will be between 2.2% and 3.3% (maybe that's optimistic).

An alternative way of looking at the PBs is by separating your return from £50 and £100 prizes, which you would just about regularly expect to get (but still very uncertain and lumpy), from the bigger prizes. Not totally disregarding the big prizes as in the article, but treating it as a separate lottery.

Martin's expected return from £50s and £100s was only 2.75%, although again you can only be x% confident you get a return between two rates, but it will be a tighter interval (or higher %) than when comparing all prizes above.

Although still flawed (and I have made these numbers up too) the expected position could be this: In the long run, your annual 'big-prize stake' is 90% likely to be between 0.96%pa and 1.68%pa of the initial lump sum (i.e. difference between 3.84% interest sacrificed and made up ends of the low-prize confidence interval of 2.88% and 2.16%).

Then the big-prize stake is 90% likely to be £8 and £14 per month.

This means the overall PB position would be broadly the same as you keeping your £10k at Nationwide but spending what is likely to be somewhere between £8 and £14 a month on entry to a draw to possibly win prizes of between £500 and £1m.

This would be more use with the correct stats worked out, but gives a rough idea of what is happening.

James

casca

"yet actually the chance of winning the jackpot per £1 spent on the lottery is one in 14 million whereas it’s one in 16 billion per Premium Bond draw."

Should this not read "14 billion" rather than "14 million"?