NS&I or lottery with interest

danlightbulb

@eskbanker
How is that any different to premium bonds though? With PB you give up an amount of fixed interest in the hope of winning a bigger prize. The only difference between the options is how much interest you trade off.

Why is giving up (using the examples above) £100 per year acceptable for a small chance of winning the big prize but not £410 for a 7x improvement in the odds? I do appreciate the odds are tiny in both cases in absolute terms.

eskbanker

danlightbulb said:

@eskbanker
How is that any different to premium bonds though? With PB you give up an amount of fixed interest in the hope of winning a bigger prize. The only difference between the options is how much interest you trade off.

Why is giving up (using the examples above) £100 per year acceptable for a small chance of winning the big prize but not £410 for a 7x improvement in the odds? I do appreciate the odds are tiny in both cases in absolute terms.

Using your figures it doesn't make financial sense to buy PBs either if that's any consolation!  Anyone financially evaluating PBs (or lotteries) against savings should be doing so on the basis of expected return, not the negligibly minuscule chances of a big win, a point you seemed to accept in your OP, so if the numbers were as you suggest then the savings option is better.

However, the current expected return from PBs is higher than equivalent easy access savings and is likely to be so after the November change too, and a like for like comparison also needs to factor in taxation too, where applicable (which MSE does in their article).

strawb_shortcake

But your idea is definitive gambling, regardless of where the capital has come to buy lottery tickets from you risk losing it. MSE are never going to condone using interest gained to spend on the lottery. I'd be very surprised if any organisation whose primary function is to help people make their money work harder is going to put their weight behind spending £40 a month on the lottery.

kangoora

So, if you are currently doing, or intending to do the lottery it would seem to make sense to ignore all the lotteries apart from the Tuesday millionaire maker with odds of 1:9,900 of winning £1m. You're also still getting a tiny chance of winning the regular Euromillions jackpot to satisfy the people who want the chance of the 'big win'.

This is working on the premise that £1m is 'enough' and which would be enough to set up the vast majority of people for life anyway?

I appreciate this is still gambling and chances are still low, but if you were going to do the lottery anyway...............?

danlightbulb

eskbanker said:

danlightbulb said:

@eskbanker
How is that any different to premium bonds though? With PB you give up an amount of fixed interest in the hope of winning a bigger prize. The only difference between the options is how much interest you trade off.

Why is giving up (using the examples above) £100 per year acceptable for a small chance of winning the big prize but not £410 for a 7x improvement in the odds? I do appreciate the odds are tiny in both cases in absolute terms.

Using your figures it doesn't make financial sense to buy PBs either if that's any consolation!  Anyone financially evaluating PBs (or lotteries) against savings should be doing so on the basis of expected return, not the negligibly minuscule chances of a big win, a point you seemed to accept in your OP, so if the numbers were as you suggest then the savings option is better.

However, the current expected return from PBs is higher than equivalent easy access savings and is likely to be so after the November change too, and a like for like comparison also needs to factor in taxation too, where applicable (which MSE does in their article).

Hi.

Sure, the prize rate compared to interest rate has to be taken into account of course. When discussing only the principle of the idea - then we can assume the interest rate and the prize rate are the same, however in practice yes there are various interest rates available on all sorts of products. There are as many combinations of what someone could do with their savings as there are lottery combinations!

However regarding the premium bonds, on a like for like interest rate basis, premium bonds have to have a lower average return than a fixed savings account because some of the interest rate fund is being used to fund the higher prizes. That has to be paid for at the lower end.

I assume your assumption after the November change is that other savings providers will drop too, so premium bonds at 1% will still be better than other products? I know their 1.4% rate is currently better, so yes, absolutely the difference in rates has to be a factor I totally agree.

danlightbulb

annabanana82 said:

But your idea is definitive gambling, regardless of where the capital has come to buy lottery tickets from you risk losing it. MSE are never going to condone using interest gained to spend on the lottery. I'd be very surprised if any organisation whose primary function is to help people make their money work harder is going to put their weight behind spending £40 a month on the lottery.

Yes I see what you're saying. Although the principle in theory is no different to buying premium bonds (do you agree with this, do you also see premium bonds as a form of (mild) gambling?), I guess the perception amongst the general public would be likely to be misconstrued and thus MSE would want to avoid that. I guess the same could be said for complex financial products so its understandable (but in my opinion not great for the consumer, who is potentially missing information they could benefit from).

george4064

annabanana82 said:

But your idea is definitive gambling, regardless of where the capital has come to buy lottery tickets from you risk losing it. MSE are never going to condone using interest gained to spend on the lottery. I'd be very surprised if any organisation whose primary function is to help people make their money work harder is going to put their weight behind spending £40 a month on the lottery.

After having read through the posts in this thread, I think this post hits the nail in the head. Whilst OP’s idea may have some traction I really can’t see it becoming mainstream, also I would like to point out that everyone has their own opinions and there is nothing preventing the OP from pursuing their savings account/lottery strategy.

danlightbulb

kangoora said:

So, if you are currently doing, or intending to do the lottery it would seem to make sense to ignore all the lotteries apart from the Tuesday millionaire maker with odds of 1:9,900 of winning £1m. You're also still getting a tiny chance of winning the regular Euromillions jackpot to satisfy the people who want the chance of the 'big win'.

This is working on the premise that £1m is 'enough' and which would be enough to set up the vast majority of people for life anyway?

I appreciate this is still gambling and chances are still low, but if you were going to do the lottery anyway...............?

If you only care about a million, then yes that seems the best odds. However as you indicate, the rest of the prize distribution is what will dictate your 'average return' in the same way as how premium bonds works. Without crunching the numbers, because all the lotteries have different prize distributions, there is no way of comparing statistically how there prizes are distributed.

Come to think of it, maybe what Im actually describing here is a statistical comparison tool for lotteries, like we have for energy or insurance.

danlightbulb

george4064 said:

annabanana82 said:

But your idea is definitive gambling, regardless of where the capital has come to buy lottery tickets from you risk losing it. MSE are never going to condone using interest gained to spend on the lottery. I'd be very surprised if any organisation whose primary function is to help people make their money work harder is going to put their weight behind spending £40 a month on the lottery.

After having read through the posts in this thread, I think this post hits the nail in the head. Whilst OP’s idea may have some traction I really can’t see it becoming mainstream, also I would like to point out that everyone has their own opinions and there is nothing preventing the OP from pursuing their savings account/lottery strategy.

Hi I do agree with what's being said as well and I can understand the position. In peoples' minds, any links to a lottery would be easily misconstrued and abused - even though premium bonds is also one!

However do you at least acknowledge that in principle at least, the suggestion is really no different to what millions of people do already do with premium bonds?

Its not something I do yet by the way - I was just trying to think it through and wanted to try and compare some numbers, precisely to see for myself how it stacks up. My savings are currently in PB, so it is a natural extension to question fundamentally what is happening with PBs and how they work, which opens up the possibilities Ive been thinking about.

eskbanker

danlightbulb said:

However regarding the premium bonds, on a like for like interest rate basis, premium bonds have to have a lower average return than a fixed savings account because some of the interest rate fund is being used to fund the higher prizes. That has to be paid for at the lower end.

No, that's a separate issue - the expected return from premium bonds is always going to be less than the stated prize fund rate, because of the distorting effect of the small number of large prizes, so the rule of thumb of circa 90% of the quoted rate is a reasonable estimate, i.e. the expected return currently is about 1.25%.  There's no reason why that should be lower than a fixed savings account, and indeed there are no mainstream (<1 year) fixed rate savings accounts paying a better rate than that expected PB one - however, I was also drawing attention to the fact that a like for like comparison needs to line PBs up against easy access savings products, which typically have lower rates than fixed ones.

danlightbulb said:

I assume your assumption after the November change is that other savings providers will drop too, so premium bonds at 1% will still be better than other products? I know their 1.4% rate is currently better, so yes, absolutely the difference in rates has to be a factor I totally agree.

You seemed to be assuming that you'd be comparing a fixed rate savings account at 1% with an expected PB return of 0.8% (where did that come from btw?) so if those are realistic figures after November (and that rate is available on easy access savings too) then obviously that favours the savings account, but the evaluation should be revisited once we get there, based on an expected PB rate of nearer 0.9% and whatever easy access savings are doing at the time....