Premium bonds - are they worth it?

Pincher

It is maddening if you never get a prize. Just for that, I wouldn't do it for a small amount. With the maximum of £50,000, I get something every month, so it's OK.

eskbanker

oldfella wrote: »

logically the chance of a big win with a large holding is astronomically small. The chance of a big win with a small holding is a little less than astronomically small. So hold the minimum.

Presumably this is intended as a joke rather than serious advice?

oldfella

eskbanker wrote: »

Presumably this is intended as a joke rather than serious advice?

no I am serious, the only point in premium bonds is to get a big win, there is no point in treating it as an investment. So as the odds are vanishingly small, whats the point of increasing the odds to slightly less than vanishingly small.

kidmugsy

PBs would be a reasonably sensible investment in the following circs. You are a taxpayer and your high-interest accounts are already full, and pay the £1000/£500 p.a. that's tax-effective. You are familiar with the advice that long-dated bonds are an absurdly unappealing investment, but you don't want your portfolio to be entirely in the "risk investments" of (say) equities, property, and precious metals. You want something that could be used in rebalancing in and out of the risk investments. PBs might more or less fit the bill. If you held £50k they'd be paying you out, on average, a little more than 1% p.a. tax-free, with a chance of the pipe-dreamer's million pound win on top.

That might very well prove to be a much less risky investment than long-dated bonds. Or even short-dated bonds: have a look at Gilt yields.
http://dmo.gov.uk/reportView.aspx?rptCode=D3B.2&rptName=50145768&reportpage=Gilts/Daily_Prices

You'll see that to get a smidgen over 1%p.a. you'd buy the Treasury Gilt 2025. And if you wanted to sell it during the intervening 8 years you'd be at risk of a loss of capital value if general interest rates had increased in the meantime. Whereas with PBs if general interest rates increase in the meantime so will their payouts, and all with no risk to your capital, except for inflation risk. You hope to be protected from that by your equities, property, and precious metals.

In fact, I'd say that two of the advantages that the amateur investor has over the big investment houses is that he can use high-interest accounts and PBs when the professional manager is probably using the riskier, less attractive gilts. And yet the amateur investor is not at any real disadvantage when it comes to investing in equities and property since he can use tracker funds and REITs.

eskbanker

oldfella wrote: »

no I am serious, the only point in premium bonds is to get a big win, there is no point in treating it as an investment. So as the odds are vanishingly small, whats the point of increasing the odds to slightly less than vanishingly small.

I get that the odds are low but do you not get that twice as many bonds double your chances? Just like the more tickets you buy for a raffle the more chance you have of winning it.

You opine that there is no point in treating it as an investment but many disagree - if you're a higher rate taxpayer the average return on a large holding is better than most other options (obviously actual investment, as opposed to saving, would in the long term be expected to outperform PBs and any other cash-based products that don't involve capital risk, but that's a given).

AnotherJoe

eskbanker wrote: »

I get that the odds are low but do you not get that twice as many bonds double your chances? Just like the more tickets you buy for a raffle the more chance you have of winning it.

The poster makes the point that a (say) one in 15 million chance, whilst mathematically double a 1 in 30 million chance, is for all practical purposes, zero chance.

Try this for an explanation http://dilbert.com/strip/1994-04-08

TonyMMM

If you have used the other interest bearing accounts available then PBs can be an option.

As an investment - no, but I have some as part of a larger portfolio and I use them as an easy access savings account - which has paid me a return of 1.4% (tax-free) over the last few years and there is always the remote possibility of a big win !

oldfella

AnotherJoe wrote: »

The poster makes the point that a (say) one in 15 million chance, whilst mathematically double a 1 in 30 million chance, is for all practical purposes, zero chance.

Try this for an explanation http://dilbert.com/strip/1994-04-08

found this in the Telegraph (who I always believe!) I particularly like the inclusion of "still".

Customers will still have a one in 33.4bn chance of winning £1m and a one in 11.1bn chance of getting £50,000.

AnotherJoe

Billion? Wow that makes the Dilbert cartoon look like a certainty then

kidmugsy

oldfella wrote: »

found this in the Telegraph ...Customers will still have a one in 33.4bn chance of winning £1m and a one in 11.1bn chance of getting £50,000.

Dear me, the Tel gets more like the Grauniad every day.