Why is everyone so down on Premium bonds on this site.

benbenandme

Well, yesterday was ds 4th birthday and when anyone asked me what he would like I asked for some money. Today I took him to the Post Office and bought £100 Premium Bonds for him. Yes its a gamble, yes he'd (probably) earn more money in a avings account BUT .... I reckon even if he never wins anything he'll still be better off in 10 years time than if he'd been given another load of plastic toys;) I'll keep you all updated if he gets any wins

tomstickland

I'm down on them because they are, on average, a mid range savings account. I prefer to use high rate savings accounts.

Milarky

A few points:

The odds on a single prize have dropped from 24000:1 to to 21000:1 in a single month. The overall 'interest rate' has gone from 3.80% to 4.00%. The smallest prizes fund has gone from 70% (by value) to 80%.. In other words National Savings can shake up the prize distribution any time it pleases - and they appear to have got into the swing changing things more often.

The calculator projects forward only on the current prize distribution - so clearly could be 'wrong' this time next month. But then National Savings does the same in effect. Thus neither the promoters of PBs nor the unofficial 'detractors' (MSE) can be considered particularly reliable in their statements....of how much YOU will or might win...

Finally MILLFALLFC's current run of luck - based on the experience of just six months - is always in danger of running out. The longer you hold PBs the more likely it is that your 'luck' to date will resemble everyone else's (the 'average'). This is just your basic law of averages asserting itself over time. Yes, you could always win a large prize (the 'lottery' aspsect of PBs) at any time but in the process you can't exclude the 'trend' towards the average. The same principle is true of playing the National Lottery - I always think of that very first Jackpot winner in 1994 and whether they continued to play or not (because either they thought they enjoyed more 'luck' than others or because of a little bit of guilt)

beingjdc

Yes, not everyone is down on them - I own rather a lot, but that's because the utility of an extra £50 a month to me (what I'd get from the same in a savings account) is very small, and I'm maxed out (or annually maxed out at least) on my ISA allowance, so I'm happy to take the risk of getting nothing.

As to the increase in the chance of winning, for my holding (on my maths, haven't checked it against Martin's) my chances of winning anything at all each month have risen from 31% to 34% - not amazing, but every little helps.

Not that I've won in ages or anything, though did come up this month on a £100 my mother holds that we actually share. Surreal.

susanjfp

dunstonh wrote: »

I would also add to that spot on response that saving/investing doesn't just consist of cash or stockmarket. There are other other investment classes such as fixed interest funds and property funds. Plus there are other tax wrappers available and ways to invest to reduce or negate higher rate tax liability. Such as putting you low/no yield funds in unit trusts but keeping higher yield funds in the ISA. Use of onshore/offshore investment bonds. Zero yield investment trusts.

Premium bonds, if you get the average, lose you money in real terms. So, its not some safe haven. Its a Govt sponsored lottery with your returns. £20k in premium bonds is worth around £14000 after 10 years. So, you better hope you won more than £6000 otherwise you going backwards.

Agree with lot of what said but would not touch unit trusts with barge pole!!! why on earth would i want to use them when fees can be as much as 5%. Again with property funds cheaper for example just to go out and buy shares in BLND or LAND for example or equivalents abroad and at home where trading at substantial discount to net assets if one believes property to be good investment currently? personally i dont but that is down to what one believes market likely to do. With bonds already have exposure and not looking to increase it. Back to the topic though with P.B being less than 5% of my net assets i will continue holding as the % return has minimal impact on the overall return on my assets.

dunstonh

why on earth would i want to use them when fees can be as much as 5%.

You are buying from the wrong places if you think they cost that much.

Again with property funds cheaper for example just to go out and buy shares in BLND or LAND for example

Property funds are bricks and mortar. Not shares. There is a big risk difference. Bricks and Mortar funds are returning around 4-6% year to date. Property shares are down about 15% YTD.

susanjfp

dunstonh wrote: »

You are buying from the wrong places if you think they cost that much.



Property funds are bricks and mortar. Not shares. There is a big risk difference. Bricks and Mortar funds are returning around 4-6% year to date. Property shares are down about 15% YTD.

As a high rate tax payer with no capital gains or isa allowance left at a 4% return for a property fund and falling where the return is taxable you are actually making P.B attractive!!

Re Unit trusts i said upto 5% and well documented fact that vast majority of unit trusts underperform although often pushed by financial advisors due to commissions earned. Investment trusts though i agree have a positive contribution to make.

dunstonh

As a high rate tax payer with no capital gains or isa allowance left at a 4% return for a property fund and falling where the return is taxable you are actually making P.B attractive!!

Just over 6 months of the year gone, the 4-6% performance is double that of the average of the PB.

Ss a higher rate taxpayer with CG allowance used up, you also have the investment bond tax wrapper available.

Re Unit trusts i said upto 5% and well documented fact that vast majority of unit trusts underperform although often pushed by financial advisors due to commissions earned. Investment trusts though i agree have a positive contribution to make.

Equally well documented that information is incorrect or more commonly used out of context making it incorrect.

susanjfp

Last thing i have to say on the topic as started on P.B and sidetracked to unit trusts. Hopefully the links below will prove useful and if it stops just one person buying a unit trust from an I.F.A will be well worth the time it took.

There is an adage in the personal finance world that “IFAs put their clients into unit trusts, but buy investment trusts for themselves"

http://www.moneyweek.com/file/3148/investment-trust.html

http://www.thisismoney.co.uk/help-and-advice/advice-banks/article.html?in_advicepage_id=105&in_article_id=394293&in_page_id=90

http://www.ft.com/cms/s/2b7bf2b4-c34d-11db-9047-000b5df10621.html

http://www.moneyweek.com/file/15784/forget-funds---its-picking-markets-that-matters.html

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/08/08/cmtrust08.xml

dunstonh

There is an adage in the personal finance world that “IFAs put their clients into unit trusts, but buy investment trusts for themselves"

IFAs are mostly not authorised to put clients into investment trusts. Tied agents certainly not so. It would be a breach of their permissions. If you are trying to score commission bias points then you are wasting your time as I charge the same regardless of tax wrapper.

Investment trusts are also higher up the risk scale like for like against a similar unit trust.