Do Premium Bonds make sense?

strawb_shortcake

I'm a basic rate tax payer and have PB's I enjoy the checking each month and have been relatively lucky. I think there is probably a tipping point of when it's worthwhile and not. For example £10k of holdings could go a year or more without a win whereas £50k is likely to see quite regular wins. Where that line falls I wouldn't like to guess.

Albermarle

The chance of winning a premium bond prize with a single bond each month is 24,500 to 1.
The prize you win is 98% likely to be the lowest £25 prize and only 0.25% likely to be greater than £100.
So in simple terms if you have the max £50K , you should receive on average two prizes per month . Perhaps once a year you will get a £50 or £100 prize and something bigger every five years .
If you held £10K in bonds, on average you would get approx. five  prizes a year.
However the chance of winning a Million Pounds with one bond in one month is one in 43 Billion.
Even if you have the max £50K and you had average luck you would have to wait 42,000 years to win a Million.

bowlhead99

annabanana82 said:

I'm a basic rate tax payer and have PB's I enjoy the checking each month and have been relatively lucky. I think there is probably a tipping point of when it's worthwhile and not. For example £10k of holdings could go a year or more without a win whereas £50k is likely to see quite regular wins. Where that line falls I wouldn't like to guess.

Though the rate of return is a bit volatile, if you can afford to max them out, the return will 'on average' be reasonable (especially if you are a higher rate taxpayer who has maxed out their personal savings allowance and ISA allowance and would have to pay 40% tax if they had the money earning interest somewhere.

When maxed out at £50k the rule of thumb would be getting a couple of prizes a month, though of course it may be nothing and then four the next month. As Albermarle says, it's incredibly likely that any prize would only be £25, though after getting two prizes a month for a couple of years you would be due to get one that was better than £25. You won't necessarily get it, but you could at least feel it was 'due'

If you only had £2000 invested, then you would 24000 chances of winning over the course of the year. As there is only a 1-in-24500 chance of winning, you shouldn't expect that 24000 entries into the draw is enough to win anything. You would have to go another month before you expected to win, because then you'd have entered 26000 times into something with a 1-in-24500 chance of getting a prize, so you could legitimately say you expect a prize after 13 months.

So one way of looking at it, if you only have £2000 to put in, is that over the course of the year you expect to win nothing from it. A zero percent return.  Therefore the fact that the NS&I website say they have a prize fund of 1.4% is no good to you, because your personal rate of return is literally 0%. Your expected rate of return for the second year, and every other year, would be 0% as well, even though every 13 months there might be a 'nice surprise' payout.

You could do all the maths on the various 'tipping points' but I would say if you don't have enough invested to generally get monthly prizes (£25kish) it is probably not worth it. It would be quite depressing to look at your account regularly 'just in case' and see literally nothing being paid into it when in the back of your mind you are thinking there might be something coming 'with a bit of luck'.

For £50k as a high rate taxpayer, not a bad wheeze. For £1k, better to put it in a regular bank account, make about a tenner on it, buy a lotto ticket on a rollover week for that 'extremely small chance of winning a lifechanging amount', and spend the rest of the tenner on some fun little treat.

strawb_shortcake

bowlhead99 said:

annabanana82 said:

I'm a basic rate tax payer and have PB's I enjoy the checking each month and have been relatively lucky. I think there is probably a tipping point of when it's worthwhile and not. For example £10k of holdings could go a year or more without a win whereas £50k is likely to see quite regular wins. Where that line falls I wouldn't like to guess.

Though the rate of return is a bit volatile, if you can afford to max them out, the return will 'on average' be reasonable (especially if you are a higher rate taxpayer who has maxed out their personal savings allowance and ISA allowance and would have to pay 40% tax if they had the money earning interest somewhere.

When maxed out at £50k the rule of thumb would be getting a couple of prizes a month, though of course it may be nothing and then four the next month. As Albermarle says, it's incredibly likely that any prize would only be £25, though after getting two prizes a month for a couple of years you would be due to get one that was better than £25. You won't necessarily get it, but you could at least feel it was 'due'

If you only had £2000 invested, then you would 24000 chances of winning over the course of the year. As there is only a 1-in-24500 chance of winning, you shouldn't expect that 24000 entries into the draw is enough to win anything. You would have to go another month before you expected to win, because then you'd have entered 26000 times into something with a 1-in-24500 chance of getting a prize, so you could legitimately say you expect a prize after 13 months.

So one way of looking at it, if you only have £2000 to put in, is that over the course of the year you expect to win nothing from it. A zero percent return.  Therefore the fact that the NS&I website say they have a prize fund of 1.4% is no good to you, because your personal rate of return is literally 0%. Your expected rate of return for the second year, and every other year, would be 0% as well, even though every 13 months there might be a 'nice surprise' payout.

You could do all the maths on the various 'tipping points' but I would say if you don't have enough invested to generally get monthly prizes (£25kish) it is probably not worth it. It would be quite depressing to look at your account regularly 'just in case' and see literally nothing being paid into it when in the back of your mind you are thinking there might be something coming 'with a bit of luck'.

For £50k as a high rate taxpayer, not a bad wheeze. For £1k, better to put it in a regular bank account, make about a tenner on it, buy a lotto ticket on a rollover week for that 'extremely small chance of winning a lifechanging amount', and spend the rest of the tenner on some fun little treat.

We have been in a position to max out, and hold money elsewhere too. As we also get tax credits it makes sense for us to limit taxable interest on our money, especially as there has been a higher than expected increase to what we now get. 

AnotherJoe

tommyedinburgh said:

We love Premium Bonds in our household, we have had much greater than average luck and my wife is Irish and loves a cheeky wee lotto, euromillions, bet and when back in Ireland lots of GAA club lottos.

I think the attraction of being the elusive million pound winner plays a part for us, it gives us an a bit of excitement to check the app etc and leads to a monthly conversation about what we'd do if we won etc - all part of the dream I suppose.

That doesn't even cross my mind.

badger09

bowlhead99 said:

annabanana82 said:

I'm a basic rate tax payer and have PB's I enjoy the checking each month and have been relatively lucky. I think there is probably a tipping point of when it's worthwhile and not. For example £10k of holdings could go a year or more without a win whereas £50k is likely to see quite regular wins. Where that line falls I wouldn't like to guess.

...................................

You could do all the maths on the various 'tipping points' but I would say if you don't have enough invested to generally get monthly prizes (£25kish) it is probably not worth it. It would be quite depressing to look at your account regularly 'just in case' and see literally nothing being paid into it when in the back of your mind you are thinking there might be something coming 'with a bit of luck'.

..........................

I haven't won a single prize in the 63 years I've held PBs.

CBA doing the maths for the 'tipping point' on my £18 holding though

bowlhead99

badger09 said:

I haven't won a single prize in the 63 years I've held PBs.

CBA doing the maths for the 'tipping point' on my £18 holding though

Well with average luck based on the current odds you should expect to get a prize every 1341 months. If you've been waiting 63 years, only 50 more to go!

Of course, the odds have not always been 1 in 24500 and at some points they were better, so given you still didn't win then you have perhaps used up some bad luck and have better luck to come

Although, ERNIE doesn't remember which bonds he picked in the past so you're no more or less likely to win this week if you've never had a prize than if you had won every month to date.

If you get the million next month can I have your old car? It's my birthday next month...

ratechaser

I've been trying to persuade Mrs RC for a while now on PBs - all our unwrapped cash is in accounts in her name (because 40% tax is a bit better than 45%...), and she's getting no better than 0.6% net interest, whereas you'd realistically double that via PBs. 

But no. Because it's not a fixed/guaranteed rate. And "it's a bit like gambling isn't it". So on we plod... 

Albermarle

It is an unusual sort of gamble when you can get your money back if you lose !

AnotherJoe

ratechaser said:

But no. Because it's not a fixed/guaranteed rate. And "it's a bit like gambling isn't it". 

No.