Premium Bonds

Milarky

Sorry to be a nag, but Premium Bonds are really a waste of money [IMO]

The reason? Basically the cost of the larger prizes is borne by a reduction in the 'average' payout for anyone not winning a large prize. So the 'expected return' on a large holding would typically be 10% less than it might be if all prizes were of equal value.

This is why having a large holding (and so having a realisitic chance of regularly winning a prize) comes at a 'cost' - let's say about 10% of the 'interest' the same holding would achieve in one of National Savings alternative tax-free savings acounts.

It seems to me that 'investors' in Premium Bonds don't appreciate this (or it is never pointed out to them by NS&I) and think that Premium Bonds are almost a 'free bet'.

Assuming you can get 3.5% tax-free on £30,000 (£1050) then you will 'on average' get maybe £100 less than this in Premium Bond prizes. This is the real 'premium' in Premium Bonds >:(

[If you have to have any then my advice is only hold the minimum and forget about it]

DiggingOut

Well, it's a gamble. You gamble the interest you could earn on the hope of winning more. If you like to gamble, it is actually one of the safer ways to do it, because your principal is safe. But to call it investing is pretty questionable.

System

It looks like this months big winner only has £17 worth of premium bonds bought in 1950's ;D

David_E_Williams

I have had 10k invested for the past year, Have won £450 so far, all in £50 increments.
David.

MattLG

I've had a tenner's worth since my first birthday. I'm now almost 26 and I've won !!!!!! all. At least, not that my mother has told me. Hmmmmm.....maybe that's where she got the money for that Aston Martin......

MattLG

Leia_Stephens

Having just read http://www.thisismoney.com/20040819/si81600.html I am tempted to buy £100 of Premium Bonds each month and hope to reach the £30,000 limit eventually .

It will only take me 25 years:o:D;D. But, of course, I could add my expected £50 prizes now and again .

Leia

Gotabiscuit

Don't forget to buy them at the end of the month as they don't go into the draw until the month after you've bought them.

No point in them sitting on your money when you can leave it in a savings account for the best part of a month.

Gotabiscuit

They've got their fans and they've got their critics but I thought the following was worth a mention:

You can now pay into Premium Bonds monthly by standing order (min. £50 per month).

Details here or by calling NS&I on 0845 964 5000.

deemy2004

I invested £29,500 between Jan 04 and Aug 04 and won £300 in total, I cashed them in, in Sept 04 as they were just not worth it.

I've left £1500 behind for the 'chance' win.

Reaper

My parents have the maximum £30k holdings of Premium Bonds and I think they win £50 quite regularly ;D

This is what attracts people to premium bonds - hearing that other people win regularly. What you have to remember is that the average payout is now 3%. Furthermore since there is a heavy bias towards lots of small prizes and very few large ones that is roughly what you will get.

In the case of your parents with £30,000 at 3% return they ought to win £900 each year - so yes they would get £50 wins regualrly. Very regularly. But that doesn't mean it is a good bet as they may have been able to get a higher return than that elsewhere.

Having said that I'm not against them. At least you get your stake back with Premium Bonds unlike the National Lottery and they are more fun than a savings account.

I have one friend who uses money stoozed from credit cards on the basis it's not their money they are gambling (and the credit card can be repaid at any time). I know there are others on these boards who do the same thing.
Personally I prefer the guarenteed win of a cash ISA.