Premium Bonds v Savings Accounts

FOREVER21

So on this cold wet winters day having nothing better to do (yes sad I admit), I have been looking at how my returns from PB compares with what my instant access account would have paid

This is for the last 9 years on a holding of £30k in PB, I have calculated the difference between what I have won and the amount of interest I could have earned in an easy access account.

Over the time I am £1810, worse off keeping PBs going. I know we all hold PBs in the hope of winning the £1 million, but should I keep them?
Has anyone else kept records of their nett position with their PBs v notional savings?.

Perhaps the best thing I can do is stop keeping the records or spend the money!

tocsin

Well, I've just moved a chunk into premium bonds, given the lack of interest from all 'savings' accounts.
A fixed rate bond just matured - was 5%, than renewed at 2.25%, this time they offered me 0.85% and the best 1yr alternative was around 1%.
Will review when rates go up - or PB notional goes down!

singhini

I don't hold PB but have often thought about it. if you don't need the money and don't rely on interest as a for of income perhaps don't worry (your in a nice place: you've got £30k and its in a safe/secure place).

what I have often heard but have no proof is that newly brought PB's tend to do better that older PB. If this is the case, could you sell your bonds and buy back (in essence buy new bits of paper for old bits of paper), thus potentially increasing your chance of getting a win?

I spend £9 per week on lottery tickets in a hope I'm one of the lucky people who wins one of the £20k prices or the guaranteed £1m (atleast your £30k remains £30k

I'm thinking of buying £10,000 worth of PB and holding them for upto a year and see what happens. if nothing then transfer the money into an ISA

Eco_Miser

singhini wrote: »

what I have often heard but have no proof is that newly brought PB's tend to do better that older PB. If this is the case, could you sell your bonds and buy back (in essence buy new bits of paper for old bits of paper), thus potentially increasing your chance of getting a win?

A fallacy based on a misunderstanding.
The majority of winning bonds have been issued fairly recently.
This is because the majority of bonds in existence have been issued fairly recently - because current holding limits are much higher than they were 50 years ago, and because most of the old bonds have been cashed in.

However, each individual £1 bond still in the draw has the same chance of being drawn, and of winning the million, whether it was bought on the first day of issue or two months ago.

ERNIE just makes up numbers, some are of bonds that have been cashed in, some are of bonds that haven't been issued yet, these are just ignored at the next stage, allocating prizes.
It's not like a raffle where someone draws the winning ticket out of a hat.

Anyone who sells and re-buys is going to miss at least one monthly draw, and over two million chances of winning a prize.

ColdIron

singhini wrote: »

I'm thinking of buying £10,000 worth of PB and holding them for upto a year and see what happens.

Why wait, you'll probably win £100

http://www.moneysavingexpert.com/savings/premium-bonds-calculator/

FOREVER21

Eco Miser. Totally agree it is a random selection, but what I can say with certainty is that all my prizes over the years come from 2 batches of bonds which have a run of consecutive numbers.

I have over the years amassed single bonds of various denominations, and others with a small consecutive range, of numbers but it is always without fail the 2 high value bonds that win.
Coincidence or what?

redpete

FOREVER21 wrote: »

Coincidence or what?

Statistics and probability.

Apodemus

FOREVER21 wrote: »

Eco Miser. Totally agree it is a random selection, but what I can say with certainty is that all my prizes over the years come from 2 batches of bonds which have a run of consecutive numbers.

I have over the years amassed single bonds of various denominations, and others with a small consecutive range, of numbers but it is always without fail the 2 high value bonds that win.
Coincidence or what?

Or statistical probability! Surely you don't actually have high value bonds? Every numbered bond is the same value, it is just that when you buy a big chunk of them at once, you have a bigger group of individual bonds. While the chance of any single bond being drawn is the same, the number of individually numbered bonds in the big groups is greater, so the chances of a single number being drawn out of your big group is higher.

Tuesday_Tenor

The following is not my total savings strategy; I do have some savings in higher-interest accounts.

PBs are a part of my long-term thinking.

In response to OP, I've kept details of my PB winnings over a similar period. Started buying in 2008 and have had holding of 30k since 2011. Average return has worked out as 1.5% p.a. But a couple of years have included individual prizes of £500 and £100 so a much better return, and some years I've had virtually nothing.

So my experience has been the same as that of my parents: PBs work out fine on a long-term basis. Over the decades they each had a £1000 prize, on a much lower holding.

So, I wouldn't think like this:

singhini wrote: »

I'm thinking of buying £10,000 worth of PB and holding them for upto a year and see what happens. if nothing then transfer the money into an ISA

For me, PBs are a safe, adequately-rewarding place to keep funds for a long time, not for a year. They are also my Serious Emergency fund, as they can be redeemed quickly, unlike most long-term investments.

Over the long-term, PB returns seem pretty much on a par with both
A) Most High St. Savings accounts
And
My investment in my local community-owned windturbine. This paid nothing at all for several years, due to a whole catalogue of teething problems, but for the last 3 years has paid between 3.5% and 5%. Very pleased with current performance! [Forgive the pun!]. Again, average over 8 years is about 1.5%.

I expect the windturbine average to increase over the next few years.
I don't expect the PB average to change much, BUT there is always the tiny chance of a bigger win.

For some things you have to think long term: I definitely include PBs in that category.

jdw2000

Why not invest in equities?

bigadaj

Wind turbine returns are primarily politically determined, so long as it's expedient to subsidise uneconomic 'green' forms of energy then all may well be fine. At least until maintenance costs start adding up as parts start to fail.

Premium bonds are fine in their place, after an emergency fund in current accounts and regular savers then equities are really the way to go. PBs won't give a great return but they are capital protected in nominal terms, which can't be said for gilts or similar bonds.