NS&I or lottery with interest

eskbanker

msallen said:

So if your lottery returns 50% of the monies raised in prizes and the PB prize fund equates to 1% (after December) then you would need to find an account paying over 2% to do better than PBs

But in this scenario you'd keep the 2% rather than wasting half of it by spending it on lottery tickets!

danlightbulb

@barnstar2077 NS&I is limited to £50k per customer so that presumably caps the odds. Take a look at the MSE premium bonds calculator for yourself to see the figures, they are legitimate.

@msallen on average, you're right. But the average return is not the only consideration. People in NS&I already willingly sacrifice some average return for a chance at higher prizes, and going for an alternative lottery is simply an extension of this but with the expectation of higher variance. All I am saying is, that to make the right decision individually, depending on your risk appetite, one would need the full odds of all the scenarios.

barnstar2077

danlightbulb said:

@barnstar2077 NS&I is limited to £50k per customer so that presumably caps the odds. Take a look at the MSE premium bonds calculator for yourself to see the figures, they are legitimate.

@msallen on average, you're right. But the average return is not the only consideration. People in NS&I already willingly sacrifice some average return for a chance at higher prizes, and going for an alternative lottery is simply an extension of this but with the expectation of higher variance. All I am saying is, that to make the right decision individually, depending on your risk appetite, one would need the full odds of all the scenarios.

You were saying that the lottery may give a better chance than 1 in 77k to win a million.  So I am saying that if the odds were that good then wouldn't someone who is incredibly rich already just buy lottery tickets.  A quick google says that the odds of hitting the jackpot in the UK lottery is 1 in 45 million.  You are always statistically going to be better off keeping your money, or it wouldn't be gambling.  Not sure how it compares to premium bonds, but I would expect a privately run lottery to be even less favourable. 

danlightbulb

@barnstar2077
£50k in savings would generate £41 per month in fixed interest at 1% per year.

A lottery ticket is £2 so that would buy you approx 20 tickets per month or 240 tickets per year. At 1 in 45 million, this makes the odds of winning the jackpot over the course of a full year to be about 1 in 188,000. However that is comparing a £1m prize on premium bonds to a c. £10 million prize on the lottery.

Instead how about looking at the euromillions which is £2.50 per ticket but includes a millionaire maker draw entry with each ticket. Forgetting the euromillions draw itself, the millionnaire maker has an odds of 1 in 1.9 million on Tuesdays, according to wikipedia. Instead of buying 20 lottery tickets, if you bought 16 euromillions tickets for Tuesdays each month, that would be 192 entries to the millionnaire maker per year. Over a year, the odds of winning would be 1 in 9900. That is significantly better than the 1 in 77k from the NS&I. However, you're sacrificing lower end prizes in exchange for a better chance of winning big.

Because there are so many lotteries and prize tiers within those lotteries, it is a complex problem to calculate all the different combinations and compare them to NS&I.

colsten

danlightbulb said:

colsten said:

Interest becomes part of your capital as soon as you have earned it. Your idea is only good for gamblers.

You have also misunderstood the proposal.

I haven't misunderstood. Your proposal is only good for gamblers.

danlightbulb

colsten said:

danlightbulb said:

colsten said:

Interest becomes part of your capital as soon as you have earned it. Your idea is only good for gamblers.

You have also misunderstood the proposal.

I haven't misunderstood. Your proposal is only good for gamblers.

Do you also consider NS&I to be gambling? You're trading off a fixed return for a variable one with a chance at winning bigger prizes.

ColdIron

You don't lose your stake with PBs as you do with the lottery. Think of it as a perpetual ticket and then you get all your stake back when you sell. Hardly comparable to gambling

danlightbulb

@ColdIron I am not proposing you lose your stake at all in any approach, this is why I think you have misunderstood.

In premium bonds you earn no interest but you get X number of draw entries. You don't lose your original capital. Any prizes you win are added back to your capital.

In this alternative, you use the interest only to buy draw entries, you don't use your original capital. Any prizes you win, you add back to your capital. You only play with the interest you earn.

ColdIron

So what happened to the £2 that you paid for the ticket that lost?

danlightbulb

ColdIron said:

So what happened to the £2 that you paid for the ticket that lost?

That was bought from the interest you earned on the capital, not from the actual capital itself.

With premium bonds, you wouldn't have ever got the £2 in the first place, only two draw entries which you may not win on.

So they are equivalent principles.