NS&I to cut premium bond rate and other accounts

RG2015

eskbanker said:

RG2015 said:

polymaff said:

Deru said:

I'll stick with PB and continue to invest there.  1% is not guaranteed as you may win nothing of course. I've only got a fifth of the pot full and won 3x £25 this year so not been too bad for me anyway.  It's cheaper than playing the lottery for a chance at some prizes.

0.9% p.a. is pretty much guaranteed for big holders.  This may look attractive - particularly for savings income tax payers - now, and even more so before long.  To do an Income-bond-job on PBs would generate a lot of bad publicity.

Does £10,000 qualify as a big holder?

@Deru above, has £10k and has won £75 in nine draws, hence 1% pa average.

You're at cross purposes!

The £75 from £10K over nine draws is looking retrospectively, and that 1% annualised return is below the current median average.

polymaff's 0.9% refers to the future 'average luck' expectations after the November changes, despite the notional 1% published figure that's distorted by large prizes....

Thanks.

@polymaff said 0.9% is pretty much guaranteed for big holders, not will be, so I had not inferred that this was after the November changes.

I am also unsure what holding makes a big holder, albeit that this is a subjective view. 

eskbanker

RG2015 said:

eskbanker said:

RG2015 said:

polymaff said:

Deru said:

I'll stick with PB and continue to invest there.  1% is not guaranteed as you may win nothing of course. I've only got a fifth of the pot full and won 3x £25 this year so not been too bad for me anyway.  It's cheaper than playing the lottery for a chance at some prizes.

0.9% p.a. is pretty much guaranteed for big holders.  This may look attractive - particularly for savings income tax payers - now, and even more so before long.  To do an Income-bond-job on PBs would generate a lot of bad publicity.

Does £10,000 qualify as a big holder?

@Deru above, has £10k and has won £75 in nine draws, hence 1% pa average.

You're at cross purposes!

The £75 from £10K over nine draws is looking retrospectively, and that 1% annualised return is below the current median average.

polymaff's 0.9% refers to the future 'average luck' expectations after the November changes, despite the notional 1% published figure that's distorted by large prizes....

Thanks.

@polymaff said 0.9% is pretty much guaranteed for big holders, not will be, so I had not inferred that this was after the November changes.

I am also unsure what holding makes a big holder, albeit that this is a subjective view. 

Nothing is guaranteed with premium bonds, but variability of returns decreases with larger holdings and longer periods held - the point is that it's a continuum so there's no magic point at which a given holding can be classed as 'big'.

As I recall from previous threads on this, someone with a £10K holding over five years has something like a 75% chance of the median return plus or minus 20%, i.e. between 1% and 1.5% in the current model, so in the new world a £10K holder should have a 75% expectation of an annual return of between 0.7% and 1.1% over five years, but for a £50K holder it would be a higher chance (maybe more like 95%) of a return in that range.

polymaff

RG2015 said:

Does £10,000 qualify as a big holder?
@Deru above, has £10k and has won £75 in nine draws, hence 1% pa average.

I tend to regard "big" as a five-figure holding - so, statisics-wise, the sum is right at the worst end of the "big" range.

When looking for "per annum" return data, extrapolation from significantly less than a year degrades the statistical value of that data.

So, worst data case and from significantly less than the reference period.

bowlhead99

Before the November changes, if you had the maximum £50k holding, with average luck you would get 2 prizes a month, and it's most likely that all those prizes would be £25, so you can probably set yourself an expectation of getting £600 a year, which is 1.2% of £50k. Not as good as the headline rate of 1.4% because that rate includes all the people who get the million pound prizes, and with average luck you need to play for thousands of years to get those prizes. 

You do need a large-ish holding to get that expectation of 1.2% at the moment because if you only had, say, £2000 of bonds, you would only be entering into 24000 draws over the twelve months of the year, and as the odds of winning a prize are one in 24500 while you are only entering 24000 draws, you would expect with average luck to not win any prizes at all (expected win 0% over the year). However by month 13 you would have entered 26000 draws so would expect one prize, which would most likely be £25, giving you a practical expectation of getting 1.25% of your money in 13 months, which is about 1.15% a year

The odds worsen from December onwards because the win rate drops from 1 in 24500 to 1 in 34500.  So a holder with £50,000 entering 600,000 draws would expect 17 prizes.  If you assume that all those prizes are very likely to be £25, you would get £425. That's 0.85% on £50,000, so if you round it off (rounding up rather than down because its 17 point something prizes and some of the prizes (though hardly any in the grand scheme of things) are worth more than £25, you would get to polymaff's expectation of about 0.9% if you have a big holding. 

If you don't have a big holding (e.g. you have just a few thousand invested) its more likely that you will win nothing at all and get that 0% mentioned earlier. The smaller the holding, the more likely it is to fail to win anything over the year. Even a small holding held for a long term should eventually get the expected headline result but you are not going to be playing it for hundreds of lifetimes - so the way to get closer to the 'expected' result is simply to have a larger holding.

Although it's true that in the long term the ups and downs would average out no matter what size of holding you have, the smaller holdings will require a longer period to reach the average. Like if you only toss a coin twice while betting on heads, you 'should' get one head but you it's very possible that they are both tails and you might not win anything; whereas if you toss the coin 50 or 100 or 1000 times it's pretty unlikely you would not get any heads at all.

For a small holding you could be holding the product for a long time with low or zero returns and then eventually find some other more lucrative product  (higher AER) comes along before you actually hit a win, and so you move to that better product having received precisely no return at all from NS&I PBs - meaning the fact that the 'expected' win rate is 0.9% or 1% doesn't mean it's a great account. Someone putting £1000 in for a year would practically expect to win £0, even if the maths says the 'expected' return is £10.

Zorillo

Biggus_Dickus said:

Speedbird676 said:

I've only just received the email 

I got my email this morning at 10.32am;...it’s the first official customer notification I’ve had since this became public a full 3 working days ago.

Nice one NS&I... “When the rate is going down, we'll also contact you personally in advance to let you know.”

They have done exactly that. The rate doesnt change until November. 

RG2015

Re premium bonds.

I put in a nominal £100 to open the account last year and have already won £25.

I have therefore probably used up my luck for a few years  

I still intend to transfer a much larger sum from my income bond at the end of September and will see how I get on.

strawb_shortcake

For 14 years I had £300 in PB's i won £50. A year at max I've had £650 fingers crossed for a bumper two months before the drop

Laurence_Harvey

Zorillo said:

Biggus_Dickus said:

Speedbird676 said:

I've only just received the email 

I got my email this morning at 10.32am;...it’s the first official customer notification I’ve had since this became public a full 3 working days ago.

Nice one NS&I... “When the rate is going down, we'll also contact you personally in advance to let you know.”

They have done exactly that. The rate doesnt change until November. 

Depends how you interpret ‘in advance’. Although they issue advance notices to newspapers etc I see no reason why it should be a further 3 working days before they get round to advising their investors directly__you know, the people  who it actually affects!

Things are very time-critical  at the moment with issues being pulled at the drop of a hat. Those extra few days notice may, and probably have been, very important to some NS&I investors. E.g. me for one!

cooldude255220

Laurence_Harvey said:

Zorillo said:

Biggus_Dickus said:

Speedbird676 said:

I've only just received the email 

I got my email this morning at 10.32am;...it’s the first official customer notification I’ve had since this became public a full 3 working days ago.

Nice one NS&I... “When the rate is going down, we'll also contact you personally in advance to let you know.”

They have done exactly that. The rate doesnt change until November. 

Depends how you interpret ‘in advance’. Although they issue advance notices to newspapers etc I see no reason why it should be a further 3 working days before they get round to advising their investors directly__you know, the people  who it actually affects!

Things are very time-critical  at the moment with issues being pulled at the drop of a hat. Those extra few days notice may, and probably have been, very important to some NS&I investors. E.g. me for one!

"If the rate for your account changes, we will give you advance notice by publishing adverts in a range of newspapers and by updating our website before the change is made to your account. If the interest rate change is to your disadvantage, we’ll write to you personally at least two months before it takes effect."

Laurence_Harvey

bowlhead99 said:

Before the November changes, if you had the maximum £50k holding, with average luck you would get 2 prizes a month, and it's most likely that all those prizes would be £25, so you can probably set yourself an expectation of getting £600 a year, which is 1.2% of £50k. Not as good as the headline rate of 1.4% because that rate includes all the people who get the million pound prizes, and with average luck you need to play for thousands of years to get those prizes. 

You do need a large-ish holding to get that expectation of 1.2% at the moment because if you only had, say, £2000 of bonds, you would only be entering into 24000 draws over the twelve months of the year, and as the odds of winning a prize are one in 24500 while you are only entering 24000 draws, you would expect with average luck to not win any prizes at all (expected win 0% over the year). However by month 13 you would have entered 26000 draws so would expect one prize, which would most likely be £25, giving you a practical expectation of getting 1.25% of your money in 13 months, which is about 1.15% a year

The odds worsen from December onwards because the win rate drops from 1 in 24500 to 1 in 34500.  So a holder with £50,000 entering 600,000 draws would expect 17 prizes.  If you assume that all those prizes are very likely to be £25, you would get £425. That's 0.85% on £50,000, so if you round it off (rounding up rather than down because its 17 point something prizes and some of the prizes (though hardly any in the grand scheme of things) are worth more than £25, you would get to polymaff's expectation of about 0.9% if you have a big holding. 

If you don't have a big holding (e.g. you have just a few thousand invested) its more likely that you will win nothing at all and get that 0% mentioned earlier. The smaller the holding, the more likely it is to fail to win anything over the year. Even a small holding held for a long term should eventually get the expected headline result but you are not going to be playing it for hundreds of lifetimes - so the way to get closer to the 'expected' result is simply to have a larger holding.

Although it's true that in the long term the ups and downs would average out no matter what size of holding you have, the smaller holdings will require a longer period to reach the average. Like if you only toss a coin twice while betting on heads, you 'should' get one head but you it's very possible that they are both tails and you might not win anything; whereas if you toss the coin 50 or 100 or 1000 times it's pretty unlikely you would not get any heads at all.

For a small holding you could be holding the product for a long time with low or zero returns and then eventually find some other more lucrative product  (higher AER) comes along before you actually hit a win, and so you move to that better product having received precisely no return at all from NS&I PBs - meaning the fact that the 'expected' win rate is 0.9% or 1% doesn't mean it's a great account. Someone putting £1000 in for a year would practically expect to win £0, even if the maths says the 'expected' return is £10.

Thanks so much for that very detailed summary. I never knew it was so complex.
So, is it a yes, or a no ?