NS&I increase Premium Bond prize fund...

Kazza242

NS&I are increasing the amount it pays out from the Premium Bond prize fund by 0.20%, from 3.6% to 3.8% from July 2007. This will boost the value of prizes from £104 million to £112 million. The extra money will mean there will be more prizes of £500 and over.

However, the number of £100 prizes will be cut dramatically, from 237,000 to 122,000. The £50 prizes will increase by 129,000 to 1.3 million. The total number of tax free prizes will increase by 25,000, with the number of £100,000 prizes almost doubling from 17 to 30 a month and the number of £50,000 prizes rises from 33 (May 2007) to 58 (July 2007). The number of £500 prizes will also go up by almost 8,000 and prizes of £1,000 will go up from 4,164 to 6,706. The odd of winning a prize will remain unchanged at 24,000 to 1.

The 50th Anniversary Premium Bond draw in June, when five millionaires are created, will have a 3.95% prize fund.

More details here.

nrsql

>> The £50 prizes will increase from 129,000 to 1.3 million.
?

Kazza242

nrsql wrote: »

>> The £50 prizes will increase from 129,000 to 1.3 million.
?

Yes, according to the Money Mail (Daily Mail money supplement), it is the number of £100 prizes which is being cut dramatically, from 237,000 to 122,000. The article states that the number of £50 prizes is increasing by 129,000 to 1.3 million.

EDIT: The £50 prizes are going up by 129,000 to 1.3 million.

Milarky

So, after a period of (I speculate here), responding to negative comments about the difference between 'headline' rates of interest (remember Martin's article on Premium Bonds a while back?) and what large bondholders actually see themselves winning (in the way of £50 and £100 prizes) by increasing the value of the small prizes fund toward 90% in the recent past (it was 75% in 1997, when headline rates stood at '5.2'%) it appears that National Savings wants to bleed the small prizes fund again in order to pay for larger prizes (it will fall back to 70% of th total)

This is the equivalent of taking slithers off of coins in bank vaults. The way to pay for more larger prizes is simply to raise the global interest rate by more than 0.2% each time. 0.2% is only the 'net' equivalent of a full 0.25% increase for BR taxpayers. The claim that Premium Bonds are 'tax free' is thus pretty hollow - the Gov is borrowing at 'net' rates and making people believe that they are getting for free something they have already been 'taxed' on via that lower rate (of 3.95%)

obsessed_saver

I've held £1500 premium bonds since Oct 2006. Not won anything yet.

Milarky

obsessed_saver wrote: »

I've held £1500 premium bonds since Oct 2006. Not won anything yet.

At 1 in 24000, you have 6.25% chance (1500/24000) of winning each draw - and therefore 93.75% of not winning on a particular draw. After 7 draws (Nov - May) the chance of not having won a prize are therefore

0.9375 x 0.9375 x 0.9375 x 0.9375 x 0.9375 x 0.9375 x 0.9375 = 63.6%

In other words, it is about twice as much likely (64% : 36%) that you won't have won than that you will in that time

[HTH]

nrsql

Milarky wrote: »

At 1 in 24000, you have 6.25% chance (1500/24000) of winning each draw - and therefore 93.75% of not winning on a particular draw. After 7 draws (Nov - May) the chance of not having won a prize are therefore

0.9375 x 0.9375 x 0.9375 x 0.9375 x 0.9375 x 0.9375 x 0.9375 = 63.6%

In other words, it is about twice as much likely (64% : 36%) that you won't have won than that you will in that time

[HTH]

Be nice if that were true but unfortunately probbaility doesn't work like that.
At 1 in 24000, you have 6.25% chance (1500/24000)
so with 24000 you have 100% chance (24000/24000) ?

Probability of winning isn't accumulative.
try the product of each bond not winning

1 - (23999/24000) to the power of 1500

In this case it doesn't make a lot of difference but for more bonds it would.

baby_boomer

Milarky wrote: »

0.2% is only the 'net' equivalent of a full 0.25% increase for BR taxpayers.

What other, fairer, benchmark can you expect them to apply?

This increases the relative value of the fund to higher rate taxpayers (compared to a cash holding) faster than the base rate increase.

And yet this is supposed to be a Labour government.

Milarky

baby_boomer wrote: »

What other, fairer, benchmark can you expect them to apply?

By calling it 'tax free' of course. Businesses do this all the time (''Save 25% when spending more than £100'' when the goods are overpriced by that amount already)...

This increases the relative value of the fund to higher rate taxpayers (compared to a cash holding) faster than the base rate increase. And yet this is supposed to be a Labour government.

..sorry I missed your irony

nrsql wrote:

Be nice if that were true but unfortunately probability doesn't work like that.
At 1 in 24000, you have 6.25% chance (1500/24000)
so with 24000 you have 100% chance (24000/24000) ?

Probability of winning isn't accumulative.
try the product of each bond not winning

1 - (23999/24000) to the power of 1500

Interesting and subtle. Yes I've simplified the picture by assuming that '1 in 24000' equates to each block of £24000 held in premium bonds automatically being allocated one (and only one!) prize. This is not what happens of course. Do we know if ERNIE does 'selection without replacement' (a winning bond number gets removed in other words)? That should not happen strictly speaking. The chances of the same bond winning twice?
(1 - [23999/24000])x(1 - [23999/24000]) = 1.736 x 10^[- 9]

About 1 in 576 million. Which means that it must happen several times each draw in practice given the huge value staked on Premium Bonds

baby_boomer

At least the 0.2% tax free rise is better than the 0.15% increase to given to those in the National Savings Investment account . But give them time. They don't want to spoil the celebrations of Ernie's anniversary just yet.

On the wider issue, if NSI kept increasing their tax free rates along with the bank of England then the banks and building societies would soon moan about unfair competition, and rightly IMHO. It's not the Treasury's job to set the leading rates in a free market. It's there to raise money for taxpayers as cheaply as possible.

heckmondwike06

I have held £100 worth of premium bonds, however, I was thinking of investing around £70,000 in bonds, what are my chances of winning a prize (even a tenner)? Is it worth it over 11 months as I am looking to settle my mortgage or should I seek some alternative savings (please point me in right direction).

Many thanks

:money: