NS&I or lottery with interest

coyrls

danlightbulb said:

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.

No, your premium bond draw entries are based on your capital, not the nominal interest on the capital.  The nominal interest is used to pay the prizes.

wmb194

coyrls said:

danlightbulb said:

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.

No, your premium bond draw entries are based on your capital, not the nominal interest on the capital.  The nominal interest is used to pay the prizes.

Dan is referring to the opportunity cost i.e. you can earn interest elsewhere with your principal and you're effectively gambling that interest you've forgone. I'm surprised at how some people struggle with this. Either way, meh. There must be a lottery calculator somewhere that'll give you your odds on a few hundred pounds a year. I can guess it won't look great.

Linton

danlightbulb said:

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.

Err when you buy a PB you get a draw entry every month for the rest of your life and can get the capital returned any time you want.  When you buy a lottery ticket you only get 1 draw entry in total and lose the capital.  So rather than investing your interest in lottery tickets you would be better off buying PBs.

danlightbulb

@Linton you're not getting it I'm sorry.

A PB gives you a draw ticket at the cost of getting no interest on that amount of savings. What NS&I is doing is automatically buying you a draw entry instead of giving you interest.

Instead, you could put the money into account that pays you interest, but you could take that interest and buy your own draw ticket in a lottery of your own choosing.

In both cases your original savings are not at risk.

The question then becomes, for a level of variance that I would want to accept or target, what lottery has the best odds when prizes are considered compounded over a whole year, and is that better than NS&I?


Option 1 - fixed savings - earn 1% on £50k guaranteed, circa £500 per annum which will compound. You can take your capital and interest earned out at any time.

Option 2 - premium bonds - EXPECT TO EARN an average of £500 per annum through winning prizes, but you may earn less than this, or you could get lucky and win a big prize. You can take your capital and any prizes won out at any time.

Option 3 is just taking option 2 by combining it with option 1. You earn fixed interest just like option 1 but you use it to buy lottery tickets of your choice instead of letting it compound. You are likely to win less on average but may give yourself a better chance at a bigger prize. if you win you add the prize back to your capital. You can still take your capital and any prizes won out at any time.

danlightbulb

wmb194 said:

coyrls said:

danlightbulb said:

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.

No, your premium bond draw entries are based on your capital, not the nominal interest on the capital.  The nominal interest is used to pay the prizes.

Dan is referring to the opportunity cost i.e. you can earn interest elsewhere with your principal and you're effectively gambling that interest you've forgone. I'm surprised at how some people struggle with this. Either way, meh. There must be a lottery calculator somewhere that'll give you your odds on a few hundred pounds a year. I can guess it won't look great.

There isn't a calculator I have found that does this, hence why I asked the question.

A calculator would need to take into account the prize distribution of the various lotteries, the interest rate you earn on your capital and how many tickets that buys you), and work out the odds of getting certain win thresholds over the course of a year.

This is what the MSE NS&I calculator does, and compares it to a fixed interest account.  But what if a person is willing to take more variance for higher potential returns? Then, the prize distribution of the various lotteries becomes really complex to calculate.

Thrugelmir

danlightbulb said:

@Linton you're not getting it I'm sorry.

Having run a large lottery syndicate some decades ago. The returns aren't worthwhile having. 

danlightbulb

@Thrugelmir maybe you were in the wrong lottery? There are a multitude of lottery options now all with different prize distributions. For example, in Euromillions the jackpot is massive but the chance is tiny. However other lotteries have lower jackpots but with better odds. And there are the intermediate prize tiers to consider as well.

At the end of the day, NS&I is itself a lottery, just one with relatively low variance.

What I'm saying is, a lottery calculator could allow you to compare the chance of winning in each prize tier and the average return for that lottery type, for a given quantity of tickets per year. You could then compare that expected return and variance range against a fixed interest account or, as per the thread, against NS&I's own version.

strawb_shortcake

Why lottery tickets and not scratch cards? I think scratch cards give you a 1 in 3 chance of winning your money back as a minimum.
I'm sure when the lottery first started it was 1 in 14m chance of winning the jackpot. 

By the same token as advocating buying lottery tickets, you could suggest betting on the football, horses, matched betting etc? Granted you aren't likely to see the million pound prizes but actual returns may be better. 

I have the max in PB's in the last 12 months I received £650, i feed any winnings into my regular saver paying 2% though I top up to pay in £250 per month. 

wmb194

danlightbulb said:

wmb194 said:

coyrls said:

danlightbulb said:

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.

No, your premium bond draw entries are based on your capital, not the nominal interest on the capital.  The nominal interest is used to pay the prizes.

Dan is referring to the opportunity cost i.e. you can earn interest elsewhere with your principal and you're effectively gambling that interest you've forgone. I'm surprised at how some people struggle with this. Either way, meh. There must be a lottery calculator somewhere that'll give you your odds on a few hundred pounds a year. I can guess it won't look great.

There isn't a calculator I have found that does this, hence why I asked the question.

A calculator would need to take into account the prize distribution of the various lotteries, the interest rate you earn on your capital and how many tickets that buys you), and work out the odds of getting certain win thresholds over the course of a year.

This is what the MSE NS&I calculator does, and compares it to a fixed interest account.  But what if a person is willing to take more variance for higher potential returns? Then, the prize distribution of the various lotteries becomes really complex to calculate.

Huh? Just pick one or more with the odds and/or prizes you like. You're trying to optimise something which isn't worth optimising. I presume you're thinking about lotteries because this is what Premium Bonds is but you could gamble your interest on anything and try to work out an expected return.

MDMD

This won’t change the odds immensely but depending on the number of tickets you are buying each month you could get some of the lottery stake back if it helps you to spend 30 times on a debit card with TSB’s spend and save account

https://forums.moneysavingexpert.com/discussion/6188471/tsb-launches-new-spend-and-save-current-account#latest

or play by Direct Debit if you aren’t already using a Barclays, RBS or NatWest reward account.