Premium Bonds: Are they worth it? Discussion Area

halloweenqueen_2

Not being a mathmatical genius whats the best way of working out the percentage rate of winnings?

Paul_Herring

halloweenqueen wrote: »

Not being a mathmatical genius whats the best way of working out the percentage rate of winnings?

for PB's? The most accurate method is:

Nothing saved x X% = 0.

Otherwise,

( (amount 'won') x (period saved in years) ) / (amount 'invested') = (% gain)

If you're a basic rate tax payer...

(gross rate) = (%gain) / 0.80

If (gross rate) is less than you'd get in a savings account (and you're after 'no risk savings',) you're paying for the excitement by the difference. (If you're a higher rater tax payer, use 0.60, instead of 0.80)

Edit - Corrected divisor per YB's post below.

McSaver

Premium Bonds are just a lottery really and at least now with premium bonds you dont need to check the results that often and you get as long as you want to claim prizes.

Compared to the National Lottery its good because if you win you going to get at least £50 rather than £10

I have played £1,000 for around 18 Months Now. Returns £0
(only supposed to win once every 2 years on average)

But at least I am being entered automatically into a draw i know i aint going to forget to buy lottery tickets.

halloweenqueen_2

Well I've won £100 I now have £4000 which I have gathered over a year, not held that much for a full year, started off with about £1000 through an inheritance. So for the sake of argument, I have them a year and woin nothing else I've got 0.025 return?

halloweenqueen_2

no I think its 0.03!!

YorkshireBoy

Paul_Herring wrote: »

(If you're a higher rater tax payer, use 0.40, instead of 0.78)

If you're 'grossing up', shouldn't you be using 0.60 and 0.80 Paul?

amcluesent

IMHO, people have a downer on premium bonds, which they disguise under a veneer of supra-rational investment strategies. On the plus side -

1) The odds are known in advance, as is the prize yield (3.6%)
2) More buyers just increases the total value of payout, not a reduction in the individual odds of winning
3) Your chances can't be affected by market rigging or imperfect information (insider dealing)
4) The winnings are tax free, excellent for 40% tax payers
5) The worst case opportunity cost = NPV (bond value + compound interest on a gilt edged bond) where the discount rate is your choice of inflation measure

All investment portfolios allow some 5%-10% for gold bullion as a safety net against socio-economic collapse. Why not set aside a similar amount for Lady Luck?

Paul_Herring

amcluesent wrote: »

All investment portfolios allow some 5%-10% for gold bullion as a safety net against socio-economic collapse.

Mine doesn't

victoriaplum1

I have just put 1k into premium bonds, Ive never had any before....my 1k is actually the start of our wedding fund but I thought rather than have it sit boringly in the bank (albeit getting some interest) why not have a bit of fun with it (knowing I am not actually losing it)...you gotta be in it to win it after all! I am hoping that this is the start of a lucky run but I don't expect to make money this way would just be nice if I got lucky.

ED

victoriaplum1 - Well done for starting your Wedding Fund. One way of looking at 'gains' could be :

a £50 win per year per £1,000 in Premium Bonds = about the same as typical savings account @ approx 6% minus Basic Rate tax (£48 net interest). Best wishes to you + O/H for x2 £50 wins on the opening deposit in a year. Your luck is bound to exceed that of my elderly relative who devoted part of his garden 25 years ago to a little plummery. Soaked soil + wind has resulted in his fruit tree inventory now being the same as your name : Victoria Plum 1 (curiously the penultimate survivor was flowering when felled by wind, & went on to produce fruit which is likely to ripen - if summer arrives!)