Premium Bonds Article Discussion Area

DavidLaGuardia

thelawnet wrote: »

The idea is after all that you win a prize, that's the attraction, people WANT to gamble, and if Premium Bonds satisfy that desire, I would suggest in fact that they are extraordinarily cheap. They don't have roulette wheels without a zero on - there's ALWAYS a cost to gamble. If you don't want gambling you don't have to have it. But for those people that do they are great, and directing people into lottery tickets, or online gambling, is ludicrous.

I don't think anyone ever went broke from holding Premium Bonds instead of a market-leading savings account, but plenty of lives have been destroyed by casinos, slot machine, lottery tickets, etc..

You make a fair point that gambling can destroy lives and I would agree that such a temptation to overgamble is not inherent in PBs, but that's all I would agree on.

The alternative gambling analogy was not to encourage that route, but to demonstrate that they offer a gamble on interest lost that is longer odds than these methods.

For that specific reason, PBs cannot be said to be "extraordinarily cheap" by any stretch of the imagination.

If you want to continue doing them, be my guest, but if you really want to "be in it to win it" whould it not be better to have something that was more stacked in your favour and you had a statisically greater chance of a return at all levels from small prizes to becoming a millionaire?

thelawnet

DavidLaGuardia wrote: »

If you want to continue doing them, be my guest, but if you really want to "be in it to win it" whould it not be better to have something that was more stacked in your favour and you had a statisically greater chance of a return at all levels from small prizes to becoming a millionaire?

I don't do Premium Bonds.

I don't think people really think about the return distribution of these sorts of products. Certainly if you play roulete you will know that putting all your money on number 6 is an unlikely win, whereas 'red' is much less so.

But very few lottery players, say, know, or care, what the chance of winning £10 is. So it's hard for you or I to say what they want, whether it's to receive 'You won £25' letters in the post, or not to receive them but to have a much greater (but still tiny) chance of winning a jackpot.

Personally I think the problem with any kind of jackpot is that no matter how good a bet it is, it's going to be vanishingly unlikely that you will win. Obviously someone wins, but it's almost certainly not you. That being so, it's not particularly useful to sacrifice small 'wins' to say double the chance of winning £1 million.

Presumably a 'You won £25' letter is worth more than £25 in terms of making people feel better, whereas getting an interest statement from the bank showing £25 in interest is really rather dull, even if the result is the same.

Again, I don't hold them, but I don't think they are harmful or terrible.

DavidLaGuardia

thelawnet wrote: »

I don't do Premium Bonds.

That being so, it's not particularly useful to sacrifice small 'wins' to say double the chance of winning £1 million.

On that specific point, one does not have to "sacrifice" small wins


£30,000 PBs
At least (see Martin's calcualtor)
£25 £50 £100 £500 £1,000 £100,000 £1m
Odds per monthly draw
71.40%, 36.90%, 6.46%, 0.43%, 0.09%, 144k to 1, 1.437m to 1


£30,000 paying 2.9% net monthly interest (£72.50) not unrealistic especially in cash isas

10 lottery tickets on a single draw - and ignoring wins less than 100k average (5 balls + bonus)
Roulette (single zero non-American) single spin each month.
£9 on high column (25-36)
£17 on middle column (13-24)
£8.50 on "basket" (0,1,2)
£28 on number 6

Win £27, £51, £102, £1,008 £100,000 £2m
Individual odds 32.43% 32.43% 8.33% 2.70%
Chance of at least (aggregate) 75.90% 43.47% 11.04% 2.70% better* 1.398m to 1

*feeling fuzzy headed now, I'll let someone else do the exact number on the 5+bouns for 10 tickets, but it will be better.

Hence better odds and double the jackpot, of course it may be shared but sharing with 1 other is stil £1m and more people shatring gets to be very remote. And I have not included the smaller lottery wins from £10. You have less chance of getting £0 than on PBs

Is this realistic? perhaps not, perhaps it would be more of a fun event watching the wheel just once a month?
But this is really only about demonstrating the comparison of odds and gambling. Perhaps I'd rather keep most of the £72.50 and just buy a single lottery per week, I'd be more likely to be better off in the long run, and still have the distant hope of win every week!

Premium Bonds are not evil, they just aren't that good! So perhaps we can agree on that at least :beer:

thelawnet

DavidLaGuardia wrote: »

£30,000 paying 2.9% net monthly interest (£72.50) not unrealistic especially in cash isas

Actually I think the worst investing sin is failing to take your ISA allowance. It lasts for ever, so for example someone aged 40 can expect to live 40 years more and failing to invest £5k in a cash ISA will cost roughly 2% of the sum each year, on average, (this is an estimate, based on say 5% interest at 40% tax in the long run, which is higher than you can get now, but lower than you could get 4 years ago) so that's £100 per year for 40 years, or £4000 overall.

While it's true that the difference between the best and worst savings account over a lifetime would have a similar cost, the ISA allowance is gone forever if you don't use it, whereas there's always tomorrow to switch to a better savings account.

So I really would not compare Premium Bonds with ISAs, which IMO should be used before you do anything else.

Otherwise I don't particularly feel like looking at your numbers because it's quite obvious that an investment paying more than 1.5% net can be used to buy risk with other products while still guaranteeing the 1.5%.

DavidLaGuardia

thelawnet wrote: »

Actually I think the worst investing sin is failing to take your ISA allowance.

Agree 100%

thelawnet wrote: »

So I really would not compare Premium Bonds with ISAs, which IMO should be used before you do anything else.

ISAs were just an aside, you can stack up in other higher paying interest accounts before PBs look anywhaere near that good.

thelawnet wrote: »

it's quite obvious that an investment paying more than 1.5% net can be used to buy risk with other products while still guaranteeing the 1.5%.

This the essence of the point I was making.

The comapairson that should be made may be as follows:
1.5% is the whole prize fund so you you are likely to get less.
Let's say you "expect" £25 a month on £30,000 (About a quarter of the time you will get nothing but the occassional higher prize may make up for it), This is a return of 1%
You have the option of moving to a better interest account and specualting for higher prizes. If this is only another 1%, say £300 a year, if its 1.5% say £450 etc. then is this ok for you? If it is then fine.

Whether it is or not, if many typical premium bond holders considered this (this is the cash rather than invested part of their savings) would they be willing to do this?

I suspect many low risk people normally gambling-averse individuals would consider such a gamble beyond their normal range, but still persist with Premium Bonds. And it on this point why I view PBs as slightly pernicious. Unfortuanately, not everyone possesses the financial literacy as you do, to separate the likely return from the effective 'flutter' and they are in something entirely unsuitable.

2004nsnazir

hi.im not sure weaher to post this here.but please could you help me out. im 19 and a student and want to invest in the premium n s and l bonds.im just thinking if i put £100 and never put any money in the account and leave it up to luck and maybe i might win £25 or £50 by random is that ok.and wen i want to ever take money out i can.is this right. im confused in what to do.im not really good with these stuff but then again i dont want to be losing any money.please any help would be apreciated.
regards

innovate

There's a good Premium Bonds article on the main site, should answer all your questions.

roloman

I think its a case of the more you buy the more you win. like investing in a savings account the more you invest the more interest earned, from a personal view I have had my £300 bonds for 4 years now and not won a penny

Laurencek

It's a gamble but it's not bad if your talking smaller amounts I have about £4k worth I win. Every few months

roseitrixie

I'd like to know if anyone else has had problems cashing in their premium bonds? Twice my form has been 'lost' in the post and I've heard from two different people that the same happened to them.