Premium Bonds Article Discussion Area

webwiz

polymaff said:

Phil3822 said:

Just reading through some of this and got me thinking. I have had £10000 in premium bonds for the past 14 months, during that time I have won £25 five times. £125 over the 14 months. Not sure if that’s ok or not and would benefit from any advise.  Thanks all,

The present effective rate of return on a large holding is 1.26%. Your £125 on £10,000 is bang on that figure.  OK, it took you just over the year, but you have somewhat less than a full holding.  All in all, a pretty typical performance.

That's not quite right. The effective rate on a large holding is a proportionate share of the total of the small prizes. A little of the 1.26% total prize money goes towards paying for the large prizes which nobody is likely to get. For a large holding the best way to think about is that your investment is in two parts. most of it will earn you just over 1% and the rest in in a lottery. for small holdings it's all in a lottery.

ColdIron

webwiz said:

polymaff said:

Phil3822 said:

Just reading through some of this and got me thinking. I have had £10000 in premium bonds for the past 14 months, during that time I have won £25 five times. £125 over the 14 months. Not sure if that’s ok or not and would benefit from any advise.  Thanks all,

The present effective rate of return on a large holding is 1.26%. Your £125 on £10,000 is bang on that figure.  OK, it took you just over the year, but you have somewhat less than a full holding.  All in all, a pretty typical performance.

That's not quite right. The effective rate on a large holding is a proportionate share of the total of the small prizes. A little of the 1.26% total prize money goes towards paying for the large prizes which nobody is likely to get. For a large holding the best way to think about is that your investment is in two parts. most of it will earn you just over 1% and the rest in in a lottery. for small holdings it's all in a lottery.

That's not quite right. polymaff has already taken this into account and reduced the headline 'rate' of 1.40% to 1.26%. You have just repeated the exercise. You can read about it here
https://www.moneysavingexpert.com/savings/premium-bonds/#tips-3

webwiz

ColdIron said:

webwiz said:

polymaff said:

Phil3822 said:

Just reading through some of this and got me thinking. I have had £10000 in premium bonds for the past 14 months, during that time I have won £25 five times. £125 over the 14 months. Not sure if that’s ok or not and would benefit from any advise.  Thanks all,

The present effective rate of return on a large holding is 1.26%. Your £125 on £10,000 is bang on that figure.  OK, it took you just over the year, but you have somewhat less than a full holding.  All in all, a pretty typical performance.

That's not quite right. The effective rate on a large holding is a proportionate share of the total of the small prizes. A little of the 1.26% total prize money goes towards paying for the large prizes which nobody is likely to get. For a large holding the best way to think about is that your investment is in two parts. most of it will earn you just over 1% and the rest in in a lottery. for small holdings it's all in a lottery.

That's not quite right. polymaff has already taken this into account and reduced the headline 'rate' of 1.40% to 1.26%. You have just repeated the exercise. You can read about it here
https://www.moneysavingexpert.com/savings/premium-bonds/#tips-3

OK you got me on the numbers, but I think his figure of 1.26% is too precise because of the smallish prizes over £25 which you will get occasionally. I still think my may of regarding it as a two separate investments is right.

bigadaj

webwiz said:

ColdIron said:

webwiz said:

polymaff said:

Phil3822 said:

Just reading through some of this and got me thinking. I have had £10000 in premium bonds for the past 14 months, during that time I have won £25 five times. £125 over the 14 months. Not sure if that’s ok or not and would benefit from any advise.  Thanks all,

The present effective rate of return on a large holding is 1.26%. Your £125 on £10,000 is bang on that figure.  OK, it took you just over the year, but you have somewhat less than a full holding.  All in all, a pretty typical performance.

That's not quite right. The effective rate on a large holding is a proportionate share of the total of the small prizes. A little of the 1.26% total prize money goes towards paying for the large prizes which nobody is likely to get. For a large holding the best way to think about is that your investment is in two parts. most of it will earn you just over 1% and the rest in in a lottery. for small holdings it's all in a lottery.

That's not quite right. polymaff has already taken this into account and reduced the headline 'rate' of 1.40% to 1.26%. You have just repeated the exercise. You can read about it here
https://www.moneysavingexpert.com/savings/premium-bonds/#tips-3

OK you got me on the numbers, but I think his figure of 1.26% is too precise because of the smallish prizes over £25 which you will get occasionally. I still think my may of regarding it as a two separate investments is right.

You think wrong.

The_Bleurk

Not sure about webwiz's numbers I'll have a look later but I do like the interpretation large chunk simple return plus small chunk as stake in a lottery.

Actually I had the numbers at hand anyway in my tracking spreadsheet - my current rate of return for last 12 month is £575 on £50k - 1.15% so 0.25% is the amount going to the big prizes.

eskbanker

The_Bleurk said:

Not sure about webwiz's numbers I'll have a look later but I do like the interpretation large chunk simple return plus small chunk as stake in a lottery.

Actually I had the numbers at hand anyway in my tracking spreadsheet - my current rate of return for last 12 month is £575 on £50k - 1.15% so 0.25% is the amount going to the big prizes.

Another illogical and unsupported conclusion to join all the others on this thread!

It's a matter of published fact that prizes of £500 or over make up 10% of the prize fund (but only 0.235% of the prizes), and hence the derivation of 1.26% (90% of the headline 1.4%) as a reasonable, but not exact, estimate of likely return, with the residual 0.14% therefore representing the big prizes.  The fact that your bonds only achieved a return of 1.15% doesn't in any way mean that "0.25% is the amount going to the big prizes"!

The_Bleurk

Not illogical. Actual fact. In the last 12 months my share of the 1.4% foregone to others is precisely 0.25 of the 1.4.
My best ever return in a 12 month was the other way round I obtained a 'rate' of 4.67% when the prize rate was 3.2%.

eskbanker

The_Bleurk said:

Not illogical. Actual fact. In the last 12 months my share of the 1.4% foregone to others is precisely 0.25 of the 1.4.

That's not what you said though, you were claiming that 0.25% went to big prizes.  You don't have an actual 1.4% to share as such, but even if you did, the 0.25% bit you didn't win would still be 0.14% to big prizes and 0.11% to other people's small prizes, but arbitrary allocation of something you didn't win is such an abstract concept that it's realistically meaningless!

The_Bleurk

OK so a good chunk to the big prizes and the rest to others small prizes. Not abstract at all. 

polymaff

webwiz said:

polymaff said:

Phil3822 said:

Just reading through some of this and got me thinking. I have had £10000 in premium bonds for the past 14 months, during that time I have won £25 five times. £125 over the 14 months. Not sure if that’s ok or not and would benefit from any advise.  Thanks all,

The present effective rate of return on a large holding is 1.26%. Your £125 on £10,000 is bang on that figure.  OK, it took you just over the year, but you have somewhat less than a full holding.  All in all, a pretty typical performance.

That's not quite right. The effective rate on a large holding is a proportionate share of the total of the small prizes. A little of the 1.26% total prize money goes towards paying for the large prizes which nobody is likely to get. For a large holding the best way to think about is that your investment is in two parts. most of it will earn you just over 1% and the rest in in a lottery. for small holdings it's all in a lottery.

Very gratifying to see so much support for my approach.To those who've no recollection of it, I'll flesh out the matter.

There are two certainties about the current Premium Bond regime. One is that the prize fund rate is declared as 1.40%. The other is that the prize fund is split 5%-5%-90%.

The simplification I make - as an investor - about the split is that you die before you win anything out of the 5% tranches, so a reasonable assumption is that your yield is best thought of as 90% of the current prize fund rate.

I also addressed the issue of why smaller holdings get a worse deal - but that doesn't seem to be part of the issue - at this moment.

[ Still can't get single-line paragraph spacing to work!  Shift-Enter didn't fix it. EDIT: but re-re-editing did]