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Poor return on Premium Bonds
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eskbanker said:polymaff said:Whenever MSE discusses Premium Bonds, the posts become so dogmatic / extreme, e.g." ... premium bonds are for people who want to join a club where you give your money to another member on a random basis."Premium Bonds make sense for some and not for others. The issues are easily understood.
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polymaff said:
For PBs, I blame MSE for its "nutty professor" approach. I think that, even you accept my "fit-for-purpose" but far less mysterious approach to understanding how non-gamblers can relate PBs to other saving products.1 -
WaywardDriver said:Probability of no wins with £1000 over 27 years is about 1 in 700,000. But you say some early wins so not quite as bad as that. With your holding today you'd expect 1 win every 2 years.
It's a game of chance.
You can calculate likelihood of a win.
But that shouldn't be interpreted as expectation of a win.
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Zanderman said:WaywardDriver said:Probability of no wins with £1000 over 27 years is about 1 in 700,000. But you say some early wins so not quite as bad as that. With your holding today you'd expect 1 win every 2 years.
It's a game of chance.
You can calculate likelihood of a win.
But that shouldn't be interpreted as expectation of a win.
However, it's quite normal for people to set an expectation based on probability of something happening. The term 'expected value' (https://en.wikipedia.org/wiki/Expected_value) is a key part of probability and statistical theory, and is covered in A-level maths, so is generally fine for adults to use it when discussing the expected returns from an investment or other account.
If you have the max allowed amount of premium bonds, you'd 'expect' to win 23 prizes in a year (based on 600,000 entries at 26,000:1 chance). If that happened, it's most likely that they'd all be the minimum £25 prize, but some years you might be lucky and get something better (statistically, you'd expect that they wouldn't all be £25 prizes if you were doing it year in year out). When I had the max amount of premium bonds I did end up with roughly what I expected, but I have less in there now so the prizes are less frequent which can make it seem less likely that I'll get what I 'expect'...0 -
bowlhead99 said:Zanderman said:WaywardDriver said:Probability of no wins with £1000 over 27 years is about 1 in 700,000. But you say some early wins so not quite as bad as that. With your holding today you'd expect 1 win every 2 years.
It's a game of chance.
You can calculate likelihood of a win.
But that shouldn't be interpreted as expectation of a win.
However, it's quite normal for people to set an expectation based on probability of something happening. The term 'expected value' (https://en.wikipedia.org/wiki/Expected_value) is a key part of probability and statistical theory, and is covered in A-level maths, so is generally fine for adults to use it when discussing the expected returns from an investment or other account.
If you have the max allowed amount of premium bonds, you'd 'expect' to win 23 prizes in a year (based on 600,000 entries at 26,000:1 chance). If that happened, it's most likely that they'd all be the minimum £25 prize, but some years you might be lucky and get something better (statistically, you'd expect that they wouldn't all be £25 prizes if you were doing it year in year out). When I had the max amount of premium bonds I did end up with roughly what I expected, but I have less in there now so the prizes are less frequent which can make it seem less likely that I'll get what I 'expect'...
In this context - general chat (particularly in the context of the original OP's post!) about premium bond likelihoods - it shouldn't be used so freely, as many people using it are not thinking mathematically, and they seem, often, to equate it in their heads to certainty. Which it isn't, obviously.
People don't - in general - use the term 'expect' for bad things - for instance likelihood of getting run over by a bus.
If you told people the likelihood of them getting run over by a bus was, say, 1 in 1000, they wouldn't then 'expect' to be run over once every 1000 road crossings. They'd be really surprised if they were.
But if you told them the likelihood of winning on the premium bonds was 1 in 1000 many of them would then 'expect' to win every 1000th time. They'd be really surprised when they don't.
People (when not thinking mathematically - and most don't) optimistically misinterpret the mathematical term 'expect' without realising it.1 -
If the chance of being run over by a bus on any given day is 1 in 1000 then I'd absolutely expect to die within 3 years due to the ongoing bus related carnage. Or stay inside.1
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Zanderman said:WaywardDriver said:Probability of no wins with £1000 over 27 years is about 1 in 700,000. But you say some early wins so not quite as bad as that. With your holding today you'd expect 1 win every 2 years.
It's a game of chance.
You can calculate likelihood of a win.
But that shouldn't be interpreted as expectation of a win.
To put this another way, if a large number of people (say 1000) had £1000 then we would expect 380 to have 0 wins over 2 years, 370 to have 1 win etc. with the average number of wins over the 1000 people being close to 0.96.
Disregarding higher prizes, this equates to prize money of 0.96*25 = £24.96 = £12.48 per year equivalent to an annual return of 1.248%. Taking account of higher prizes the annual return is actually 1.4%.
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Thrugelmir said:I was given a £2 of premium bonds as a christening gift. Never won a prize in more decades than I care to mention.
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ColdIron said:polymaff said:EDIT: Here's the real issue - how do you make this B awful new MSE software single-space paragraphs which show as single-spaced in Preview but as double-spaced when posted - as above?Finally found a work-around. Don't use Preview.Thenit looksjust like it should!Carp Software1
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