Premium Bonds: Are they worth it? Discussion Area

MSE_Martin

Sorry But i must take exception to that comment, yes best buy is best but not everyone will have best buy, if your talking average luck then its average everything... Its like saying a disposable camera takes a average photo and a top DSLR take an exceptional photo. you are not talking of the top 1 % of the population but an average proporttion with average income and average knowledge of financial products. There for average everthing.

ABSOLUTELY NOT!

This is about MoneySaving, this is about users of this site, this is about providing information.

The article is not some arcane piece on a generalist site - it's on MoneySavingExpert.com. Hopefully (and its linked to copiously) if they have savings they will have at or near the best buy - thats what MoneySaving is all about. If people are going to consider premium bonds by reading my premium bonds article then they should be considering the best buy savings account in the savings article as an alternative.

I have always written this way - and I certainly don't intend to compromise on it. MoneySaving is about doing things the best way - not the average way. I write like that in every article - it's quite deliberate - if people haven't got the top savings account - then they need to act on that - and that's the only comparison that's fair on here.

Unlike credit cards where credit scoring means I have to consider a much wider range of available products; in savings accounts that is less (though admittedly not toally negligible) issue.

Martin

Gorgeous_George

This has been a superb thread.

Many gamblers are in denial.

I wager that some of the pro-PBs MSE forum users (I cannot call them MSEers) invest in the horses too.



GG

InMyDreams

MSE_Martin wrote:

2. Premium bonds are a better gamble with your interest than the lottery, I agree so does the article.

I maintain that if you play the system right, in good MSE style, the lottery has *potential* to work out even better odds that PB. In *some* situations.

Scenario... You want to 'invest' £250 / month.

Case 1. Buy £250 of premium bonds per month for a year. Let's even ignore the fact that each month, the new bonds won't even be in the draw, as for longer term investments, that missing month becomes proportionately less significant. Month 1 gives you 250 entries, month 2 you'll have 500... over the year you will have 19500 entries over 12 months. Which would be equivalent to having 1625 (19500/12) for the whole year. This should give you an average return (even including all those 'negligible' chances of the big bucks) of £51.18. So with 'average' luck you could realistically expect to win one £50 prize.

Case 2. You open an A%L 12% regular saver and invest your £250 / month in that instead. At the end of the 12 months (for a non tax-payer) you've made £191.62 interest (according to http://www.fool.co.uk/savings/savings-calculator.aspx) Now pop down the post office and buy 191 lottery tickets. Your overall return should be almost double case 1 (again including all those 'negligible' big win chances). Even for a 40% tax payer, you could buy 115 lottery tickets.

The next statistic I'd be interested in, but not found the figures yet to do the sums, is what are your chances in each case of getting diddly squat back. (Except of course your original £3000 'stake', err, I mean 'investment'.) I strongly suspect there'll be much higher chance of nil-return with the PB than with the lottery, as the minimum prize is smaller. In case 1, any worse luck than 'average' will leave you with nothing as there are no prizes smaller than £50. With the lottery, you could still win a few tenners, even with worse-than-average luck.

To summarise; I'm afraid, Martin, that unless you condone gambling as moneysaving, I simply don't see how you can rubbish the lottery but consider PB acceptable. You can't have it both ways; they are simply variations on a theme. I simply don't see how the government can get away with this scam, any more than the lottery. In fact this is worse, because people trust NS&I and the propoganda and spin they spout. And even more, people trust you. I don't have a problem with people playing the lottery or PB (I have a £5 myself, given to me at birth by a great aunt) but I do have a problem with the idea that it's moneysaving.

With respect,
IMD.

OK, I’ve read and re-read the article, so edited to add (before anyone shoots me down)... I suppose my example was a bit extreme and wouldn’t be relevant for your higher-rate tax payer looking to stash away a large amount, which does seem to be the only situation that you would approve the use of PB. I think I’m also just re-hashing all your own sentiments anyway. But even so. It’s just the principle that NS&I can get away with selling a product that amounts to gambling (irrespective of your feelings on gambling) and trying to dress it up as savings with government backing. If you’re looking at much larger investments and looking to take risks anyway, surely you shouldn’t be comparing to savings interest rates anyway. People who are happy to take risks with their money should be aiming for potentially even higher returns, surely?

kitster_2

well i have the full amount and for last 2 years have won 20 x £50 and 1 x £100 so i think not.

Gorgeous_George

I hope people don't stop buying PBs.

The government would need to raise taxes to cover the lost revenue. While people are happy to pay for PBs, taxes can be kept low.

A lot of people refer to widely publicised taxes as 'stealth taxes'. In truth, PBs are a stealth tax because they are hyped as bonds rather than taxes.



GG

cheerfulcat

Gorgeous_George wrote:

In truth, PBs are a stealth tax because they are hyped as bonds rather than taxes.

Funny sort of tax when the Treasury gives it back on demand! No, they are bonds, that is, loans to the government at a very advantageous rate to them...

ReportInvestor

My dentist's wife was in the Sunday Telegraph this week extolling the virtues of premium bonds as she boasted of her winnings.

But she seems to have overlooked hubby's appalling return as her enthusiasm ran away with her ..

whambamboo

Gorgeous_George wrote:

I hope people don't stop buying PBs.

The government would need to raise taxes to cover the lost revenue. While people are happy to pay for PBs, taxes can be kept low.

A lot of people refer to widely publicised taxes as 'stealth taxes'. In truth, PBs are a stealth tax because they are hyped as bonds rather than taxes.



GG

Well the government doesn't make that much off them. They don't get taxes on them.

Personally I'd prefer it if people switched to the National Savings investment account, which is 3.15% AND is taxable, and probably has lower admin charges too.

ReportInvestor

Good point about the admin charges re the government's take [vis a vis PBs as opposed to National Savings ordinary accounts? ] Care to ask a question under the FoI Act?

I'd prefer people to save with Coventry BS's e-Bond fixed @ 5.8% gross = 4.64% for a basic rate taxpayer.

Will Gordon increase the Premium Bond rate in line with interest rates? Will he heck :mad: . He'll use future BofE interest rate rises to pay for the extra £million prizes involved in the Christmas promotional offer by increasing the Premium Bond rate by less than the interest rate :rolleyes:.

Martin knows this better than anyone because he's studied how the banks rip people off.

The government of this country - of whatever persuasion - is going to face a big squeeze on expenditure in the next decade (including the years which lead up to an election in ?2009?). And it will cut in those areas that are politically less harmful. That means PBs rather than the NHS.

But don't expect "expert" Alan Sugar to include that in his "business" risk assessment :rolleyes:. He's making too much on the tax free element of his fee that he donates to charity to mention it in public.

melissa2

I cannot see how anyone can put serious money here.Inflation runs at 2.2% so the money invested loses year on year. You will only hear of the few who win "every few months". I have a fair few quid deposited and have never won a bean...You never hear me talk about them....think about it, millions of us have them, but you only know of one or two bods who have won anything. I will be withdrawing mine this week, thanks Martin