Family Building Society - Windfall Bonds

The_Bleurk

Hi, has anyone else looked at this or have any experience of it.

I like to think I am capable of doing the necessary sums but this looks too good to be true. There's nothing wrong with their statistical analysis but the implications of that are quite dramatic.

Setting aside the initial two months wait there's "1 in 64" chance of winning a prize in 12 months per £10000 bond. Means to be sure of winning you'd need to hold for 64 years on average.

Having won then it's 1in 13 chance of being £5000; 2 in 13 chance of being £10000 and 10 in 13 chance of being £1000.

Mathematically that gives an expectation value of £96 overall per annum. But working it through the likelihood of winning £50000 is 1 in 833 years!!! Or 1 in 83 years for £1000

They're claiming way better odds than premium bonds which may well be accurate but clearly the way this is set up it's more miss than hit. With a £10000 PB holding it is 1 in 71 years to win £1000 (and of course you'd be winning the lesser prizes every couple of months or so - typically the £25 minimum or about £100 per annum which easily beats the calculated expectation value above)

Or am I missing something.....

eskbanker

The_Bleurk wrote: »

I like to think I am capable of doing the necessary sums but this looks too good to be true.

:huh:

Not sure how you reach the conclusion that it's too good to be true when your own analysis suggests otherwise - an average annual return of 0.96% doesn't seem too good to be true to me?

This was discussed in another thread: https://forums.moneysavingexpert.com/discussion/5182646/family-building-society-windfall-bond-is-it-fair

Fingerbobs

I'm actually tempted to give this a try.

I've read the other thread and the comments about "ghost" tickets, but it all seems totally fair and above board to me, and the chance of winning a big amount is much greater than with premium bonds for the same investment, and you get paid 0.75% (at the time of writing) interest on your investment as well., and, of course, as with premium bonds, your stake is not at risk and can be withdrawn whenever you like (with a month's notice).

More research needed, but on the face of it, it looks interesting to me.

pafpcg

The_Bleurk wrote: »

.....
I like to think I am capable of doing the necessary sums but this looks too good to be true. There's nothing wrong with their statistical analysis but the implications of that are quite dramatic.

Setting aside the initial two months wait there's "1 in 64" chance of winning a prize in 12 months per £10000 bond. Means to be sure of winning you'd need to hold for 64 years on average.

Having won then it's 1in 13 chance of being £5000; 2 in 13 chance of being £10000 and 10 in 13 chance of being £1000.

Mathematically that gives an expectation value of £96 overall per annum. But working it through the likelihood of winning £50000 is 1 in 833 years!!! Or 1 in 83 years for £1000
.......

Assuming that the selection of the winners in each round is truly random, then you can't be sure that you'll ever win a prize. Expectation - yes, but no certainty!

EdGasketTheSecond

If the OP's calculations are correct then the expected return is a lot worse than premium bonds which currently have a 1.4% prize fund.

Malthusian

Their website is also silent on the matter of tax. The 0.75% interest is clearly taxable income but it's not clear if the same is true of any winnings. Lottery wins are generally tax free (as are any gambling winnings) but Family Building Society don't make it clear on their website whether winnings from the Windfall Bond are tax free. Premium Bond wins are of course definitely tax free.

Fingerbobs

EdGasketTheSecond wrote: »

If the OP's calculations are correct then the expected return is a lot worse than premium bonds which currently have a 1.4% prize fund.

The prize fund doesn't equate to the expected return for an individual investor with average luck, because a chunk of the fund is allocated to the large prizes which most of us never win.
I've had a maximum holding of Premium Bonds for 4 years, and my average return per annum is running at 1.06%.
I'm happy to take a hit of 0.31% to be in with a better chance of winning a decent prize.

Malthusian

Fingerbobs wrote: »

The prize fund doesn't equate to the expected return for an individual investor with average luck, because a chunk of the fund is allocated to the large prizes which most of us never win.

Depends if you define "average luck" as the mean or median.

For the median investor you are correct that the observed return will be less than the prize fund rate. Lots of people have to earn less than the average for a tiny number to earn many times more than the average.

In the statistical sense of "expected", the prize fund rate does equate to the expected return by definition.

couriervanman

Now closed but will reintroduce in late 2020

Dan29

Now reintroduced for existing holders; reopening to others next month.

"As the Windfall Bond is very popular with customers, we’ve added extra capacity by increasing the fixed number of tickets in each draw from 10,000 to 15,000. We’ve also added eight more prizes, bringing the total to 21 prizes in each monthly draw. The changes we’ve made increases the likelihood of winning a prize in 12 successive monthly free draws from 1 in 64 to 1 in 60."