Premium bonds - likelihood of achieving the 1.4% (soon to be 1.3%) headline rate in prizes

ratechaser

Morning all. Mrs RC and I are higher and additional rate taxpayers, and we're seriously looking at premium bonds as an option for cash savings, because even at 1.3%, that would gross up to way beyond anything else we could get around instant access savings (which I believe these now operate effectively as). 

Obviously there's an element of risk that you won't achieve the headline rate that is used to fund the prize pool, but are there any tools/calculators that assess the probability? For example, if we each put the full 50k in, how could I work out probability that we would achieve at least 1.2%, 1.25%, 1.3% etc?

thanks
RC

MrMorgan

The is a tool on this forum (Premium bond calculator) i tried to post it.. but sadly the forum wont let me post links - use the lookup function (sorry best i could do)

ColdIron

You could have a look at this

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

And have a read of this

https://www.moneysavingexpert.com/savings/premium-bonds/

ratechaser

Thanks - interesting that 1% is considered to be the most likely return at £50k. In net terms, still better than cash savings rates (excluding ISAs, already maxed...) but that's a fair hit to take for the sake of 'having a flutter' - I was trying to look at this entirely aside from the fun/gambling perspective.

It still doesn't really answer the question of what the probability is of achieving a higher rate, it only gives the most likely scenario. But sounds like even that isn't a simple calculation!

redux

Wikipedia shows a table of distribution of prizes. It adds up to about £70 million for all the £25 prizes and £10 million for the rest.

I'd take a rough guess at assuming you only win the £25 prizes on averaged out odds, anything else a lucky bonus. So count about one eighth off the declared percentage.

ratechaser

redux said:

Wikipedia shows a table of distribution of prizes. It adds up to about £70 million for all the £25 prizes and £10 million for the rest.

I'd take a rough guess at assuming you only win the £25 prizes on averaged out odds, anything else a lucky bonus. So count about one eighth off the declared percentage.

Ok, that's an interesting way of looking at it, and certainly one that I can get my head around - suggests that just under 1.15% is more likely, and anything greater would be a bonus...

Of course there's the additional point that no compounding would be possible if 50k was invested, but can live with that...

eskbanker

I worked this out about 18 months ago - the exact prize fund distribution will have changed marginally but unlikely to be significantly different from:

98.20% of the prizes (the £25s) would return 1.20%
98.98% return 1.22%
99.77% return 1.26%
99.94% return 1.30%
99.99% return 1.33%
and then progressively smaller increments up to 100% = 1.4%