Premium Bonds: Are they worth it? Discussion Area

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 £29,975 in a savings account paying 5% NET & keeps £75 cash for playing the lottery, total investment £30,000

Person A has a likely return of £825 per year
Person B gets 3% gross = £897.75

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

Person B is likely to be £35.25 per year better off or 0.1175 % 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 £35.25 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.

stewartjrl

38% of my premium bonds have come from winnings and I don't think that's a bad investment at all although the smaller ones have been there since I was very small and I'm, well, a rather more indefinable age now !

I shall always try to put in a little for my own children as the unexpected windfall can come at the best of times - one I remember fondly was when I was an impoverished student and desperate for money to buy Christmas presents with: never has a piece of Christmas post been so exciting ! My young son already has a return of 10%, admittedly not as good as one might have through a well-chosen unit trust but still pretty good.

My only complaint now would be that this has really become another depositing ground for the very wealthy who with £ 30,000 worth (how may can afford that amount, for goodness' sake ?) pick up even more in winnings. They are no longer a fair flutter "for all" so it's always great to see a bigger win picked up by someone with a mere handful from long ago.

lovefool

I've been playing with an xl sheet on this for far too long..

Have discovered that if you had a 30k holding there's only a 1 in 10 chance of winning £1m prize over 4600 years.

Formula I am using is:

1 - ( (1-(1/16bn) ^ (number of years x 12 x number of bonds) )

i.e. 1 - (the chances of not winning 1m)

Of course, it's still fun to dream. Just good to be aware of the odds you are dealing with!

MJay

Thanks Martin......... The current ad HAS been tempting me but having read your article, I'll stick to scratch cards for my 'bit of fun'. The delight of doubling your money is great even if it does mean I've only won a pound!!!!!

dazzles

I held a block of £20k (then maximum holding) from july2002 until july 2005,my total return for 3years was £1250 about 2.1% per year. Chances of winning the bigger prizes are slim very slim.Nowadays I am happy to receive a prize of £55-£60 every month ...without fail...no luck needed..from a savings account...it feels so much better and my cash is growing nicely.Everyone needs to face the truth...you ain' gonna win the jackpot!!

SheepLady_2

stewartjrl wrote:

38% of my premium bonds have come from winnings and I don't think that's a bad investment at all although the smaller ones have been there since I was very small and I'm, well, a rather more indefinable age now !

I shall always try to put in a little for my own children as the unexpected windfall can come at the best of times - one I remember fondly was when I was an impoverished student and desperate for money to buy Christmas presents with: never has a piece of Christmas post been so exciting ! My young son already has a return of 10%, admittedly not as good as one might have through a well-chosen unit trust but still pretty good.

My only complaint now would be that this has really become another depositing ground for the very wealthy who with £ 30,000 worth (how may can afford that amount, for goodness' sake ?) pick up even more in winnings. They are no longer a fair flutter "for all" so it's always great to see a bigger win picked up by someone with a mere handful from long ago.

I dont have any complaints about anyone having £30,000 spare cash! And... isnt it the case that the more £ in there, the more prizes? What's fairer than that?

Paul_Smith_4

Martin a very interesting read on Premium Bonds, which makes me think I am seriously wasting my investment. My wife and I have £60,000 investment between us, which we have had since May 2006. My wife's numbers have not come up once and Iv'e only won a total of £350. Pretty poor, considering I could have invested into a 5% savings account doubling my gain. I think I will change my invetsment after Christmas as I believe there are 4 million jackpots to win, you never know my wife maybe lucky...

markie76_2

lovefool wrote:

I've been playing with an xl sheet on this for far too long..

Have discovered that if you had a 30k holding there's only a 1 in 10 chance of winning £1m prize over 4600 years.

Formula I am using is:

1 - ( (1-(1/16bn) ^ (number of years x 12 x number of bonds) )

i.e. 1 - (the chances of not winning 1m)

Of course, it's still fun to dream. Just good to be aware of the odds you are dealing with!

Hmm, can't help thinking you haven't accounted for the periodic rise and fall in holdings.

Fingers crossed Martins article has persuaded the masses premium bonds are rubbish and millions will cash them in so I'm the only person left holding any. I get the feeling the top prize would end up being something like £4.99.

kah22

OK we all understand that premium bonds are not a great 'investment', 'gamble' call it what you like. Here is the BUT

I'm unwaged due mainly to a long term medical condition. For me that means that my income directly from the State in the form of benefits and at the end of the week there is little left.

What I'm inclined to do is save up two or three hundred pounds in my local credit union (I'm a great believer in the Credit Union) and then buy Premium Bonds with them - don't worry I keep enough in the CU for that unexpect event.

Now my arguement is this I'll never get rich on the small amount of interest I'll receive in interest from a savings account no matter what rate it pays. On the other hand I might, just might win a decent prize from the premium bonds.

As a matter of fact I hold about £4000 worth and about £1500 of that has come from 'winnings' over the years. One of the ways I operate is if I win £50 or £100 pound then I'll take that and add the equilivent from my own savings and buy say £200 pounds. My biggest win was £750.

So while it is not a great return on my capital, it is a handy way to save and however small the chanch is there is always the possibility of winning a larger prize - I don't think everything can be judged in bare percentages.

Kevin

awayday_2

Remember also that your bonds are not even entered into the draw for at least the first month so that's losing you even more interest and so the calculations should be ammended for that.

And Who exactly audits ERNIE for heavens sake? Can this computer be trusted to be fair and honest considering PB are a way for the Government to raise extra funds from the public at an interest rate even lower than the Bank of England base rate! ( Oh and BTW Government IT projects don't have such a good reputation do they ????)

I wouldn't be surprised if the system is skewed to reward the bigger investors in a bid to induce them to keep their money in for longer. And after a few wins people are more likely to keep them in the game for longer even when they havn't won for while.

Remember they have been running this system for many years and they know how to pull in the punters! If you want to be in it I'd advise putting in the minimum of a hundred quid and withdraw and reinvest it at least annually.

You might then have a chance of winning something !! :rolleyes:

Otherwise stick to safer investments which offer a competitive return!