Premium Bonds: Are they worth it? Discussion Area

fayew_2

I very recently invested £1,000 in premuim bonds (prompted I have to admit, by the cunning advertisement of the extra £1million prizes), so I was fascinated to read this article and the discussion thread - thank you.
I do think however, that the lottery is still a worse bet than the premium bonds. You mention using the £52 in interest from top savings to buy a lottery ticket once a week, with an average return of £26.This leaves you with the initial figure (£1250), plus £26. Premium bonds over the same time span leave you with the initial figure (£1250) plus £40. So the bonds are better than the lottery, aren't they?I guess really I just want to be in with a chance of winning a million, and if I can keep my money while gambling on hopeless odds, that sounds great to me :-)

jordan_gibson

Well just stuck £100 in for my first lot!! We will see what happens!!

How do you set up a standing order for them? Is it through their site??

Blue_splat

I was made redundant a couple of years ago and invested £15k in PBs. I won £50 a few times, but then the frequency dropped off. I remember a friend telling me that this happens with PBs. Even though ERNIE is supposed to be random, the draw seems to favour newer bonds. He had invested a similar amount and observed a similar pattern to me. He then cashed them in and bought a new £15k worth and lo and behold he enjoyed a few months of £50 and it tailed off again.

Anyone else notice this or am I a statistical anomaly?

TiTi_3

Quite agree with Whambamboo. If you are going to compare rates of return you must include all aspects; it is a nonsense to arbitrarily ignore some of the prizes. I am very surprised that Martin has put his name to this.

whambamboo wrote:

meh, the nerdy stuff at the bottom is pretty much worthless.

It's the same as anything else: if there is a big payout it inflates the mean.

Just the same as if there are 10000 rich bankers earning £10m a year, they make the mean wage higher than the median.

But I don't quite see the point of the maths. The mean is the mean: you can't exclude half the prizes!

You might as well say if we took the top 20% richest people in the country away, we'd be poorer than Romania, it's just meaningless.

There is no reason to exclude part of the return, just because it's unlikely to happen. If we did this, we might just as well say we should take all the safety devices out of aeroplanes beause they are unlikely to crash.

The return is the return, and it's not great, so the first part of the article is good, and it is worth saying that most people will win less than the mean (it's just like a slot machine in this respect), but the stuff at the end about effective interest rates is very misleading.

LOST

agree with don9999

PB cannot be an investment - pure and simple gamble!

the 3.15% is just a statistical average of what you should be getting back in return - but the possibility of getting no return on your investment is very apparent!

also if I'm not mistaken - there's no inflation proofing of your capital - so in fact you could actually lose the value of your money over time!


i'm a risk taker- so they may be worth a punt - but not worth putting in substantial amounts of money when they could be better chances of better returns elsewhere

Kavanne

lavenderblue777 wrote:

I bought 30k worth of PB's last November and have won almost every month, total in so far this year i have won over 2k and there are 2 months of the year left to go. The excitement factor is great & if i had the money in a savings account i know i would only keep dipping into it until it was gone, so for me the PB's are great..... so far

Of course if you have 30k you will win every month, the odds are 27000 to 1!

I also have 30k invested and yes, I usually only win £50 a month (an anomaly this month with £150 but I am young so I will keep it invested and hope one day when I am very old that I will get lucky!

5 million pound ones this Dec and next June.

oly2c

I'm afraid Martin missed the point. Millions loose money on the lottery every week. Premium Bonds are a better flutter. At least you don't lose your stake.

bennyvdb

Just got a cheque for £1000:00 and £50:00 last time.:p

tarquincat

I have to disagree with Martins' statistical analysis on why Premium Bonds are a bad investment.

Taking Martins' sums into account for 2 High rate tax payers who have Maxed their cash ISA, and like a little bet, Person A on Premium Bonds, Person B on the Lottory.

Note: The numbers given are based on Martins' sums, & for illustration although the exact amounts cannot be won (i.e. a £25 premium bond prize & a 50p Lottery win).

Person A puts £30,000 in Premium Bonds for a likely return of 2.75 % (Excluding the big prizes)
Person B puts £30,000 in a savings account paying 5% NET.

Person A has a likely return of £825 per year
Person B gets 3% gross = £900

Person B gambles £75 per year on the Lottery for a likely return of £37.50

Person B is likely to be £37.50 per year better off or 0.125 % of the original investment.

Taking into account these people have £30,000 saved plus at least a further £3,000 in an ISA & that they earn aroung £35-40k plus in salary to be high rate tax payers, I do not think you can seriously say £37.50 per year is enough of a difference to determine that one is a bad investment & the other is not, although , I do agree a low rate tax payer is better off with the savings/Lottery option.

bulltraderpt

Although Martin's analysis is correct where it comes to one single bond, I would like to have seen an analysis of the maximum holding i.e. £30k.

Any maths heads want to have a go btw?

As for us, my family has just topped up to £90k.

Although it will be moved out in nine months time, I'm happy to gamble the interest.;)

Good Luck everyone.