Premium Bonds

[Deleted User]

Maths, help, please, mine is appalling.  I have got 17K in premium bonds.  Most months I win £25.  I've been reading articles including Martin's about premium bonds and generally it seems you get 0.08% per year.  What is the calculation that shows me how much I'm earning on mine a year?  If anyone knows of any online maths classes that help you with life problems, please let me know.  I need to whether I should move the money and need to be able to work these things out for myself. 

grumiofoundation

Presume you are referring to this article?
https://www.moneysavingexpert.com/savings/premium-bonds/
The 'average' return (average luck, decent sized holding over a longer period of time) is ~0.9% (not sure where you getting 0.08% from?).


Premium bonds do not pay interest. The prize draws are random so you are not guaranteed to win anything.
If you want guaranteed interest you should move to a saving account. Currently the 'average' return (average luck, decent sized holding over a longer period of time) from premium bonds would be expected to be ~0.9% (not sure where you getting 0.08% from?). Which is greater than interest available on easy access accounts (best currently 0.45%). Note - the prize rate has dropped in the past year so if you calculate past returns may get higher than can be expected going forward. 
 
If you have had £17,000 in premium bonds for the last 12 months then to calculate how much you are earning per year as a percentage the sum would be 

[(Prizes won in last 12 draws)/17,000] x 100 = 


For example if you won 1 x £25 prize per month (edit not year) your return would be 
25 x 12 = 300
300/17,000 = 0.0177 = 1.77% (above average luck). 

For completeness not am assuming prizes not reinvested (although this would make very little difference to the overall % figure). 

ivormonee

I think the figure is more likely to be 0.8% rather than 0.08%. This is just an average and is based on probabilities of winning and by how much. It's a rough guide - you may get more than 0.8%; you may get less than 0.8%.

You say "you win £25 most months". Let's assume "most" = 9/12. Then in one year you will have won £25 x 9 = £225. You have £17,000 saved in PBs. So, the "maths" that you are asking for is:

£225/£17,000 = 1.32%. So with your assumed streak of winning £25 "most" months you are achieving 1.32% which is more than the average of 0.8% - so you are ahead of the game!

As there are no guarantees of winning, as it is a random draw that provides the winnings, you might find a year where you've won nothing at all; your return for such a year would be 0%.

If on the other hand, you won the £1,000,000 "prize" in one year, and no other winnings for that year, your return for that year would be 5,882.35% - ie. a bit more than the average of 0.8%.

Your final question regarding "whether I should move the money" is a question about choosing either: do I keep my money in PBs where I may get somewhere between 0% and 5,882.35%, with probabilty decreasing along the scale and with a non-guaranteed average of 0.8%, or do I put the money in a savings account where I know I will get a guaranteed amount, of perhaps 0.5%? Or do I invest the money, say in "stocks and shares", where I also face the possibilty of losing some of it but with the trade off being that I might do better than a savings account?

There are fundamental decsions to be made. PBs and savings protect your notional capital (the amount of money saved but not accounting for inflation) and investments do not. PBs "winnings" are random; savings interest is guaranteed (at whatever rate is quoted) and investment capital and income is subject to risk and fluctuation.

lozzy1965

grumiofoundation said:

For example if you won 1 x £25 prize per year your return would be 
25 x 12 = 300
300/17,000 = 0.0177 = 1.77% (above average luck). 

I presume you meant "month" here, based on the 25 x 12.  1 £25 prize per year would be just 25

[Deleted User]

Thank you all - that was really, really helpful.  I am ashamed of my maths abilities!

HansOndabush

You must be getting my quota of prizes!

Nebulous2

Beremy said:

Thank you all - that was really, really helpful.  I am ashamed of my maths abilities!

Never mind your maths - your luck seems pretty good! 

To get a percentage you multiply the return by 100.  A return on investment  of 0.008  = 0.8% 
If you invest £3125 and get one £25 prize in a year your return is 25/3125 = 0.008  Multiply that by 100 to get a percentage and you are getting 0.8% 

[Deleted User]

Thank you - that's really helpful to know how to do it.  I'd like to be luckier and win the million, of course!

Albermarle

Some more maths 
The chance of a single premium bond winning a Million prize each month is 1 in 50,000,000,000 .
So if you have 17,000 bonds for a full year , the chance of winning a Million increases to 1 in 250,000 .
So with average luck you would win a Million every 125, 000 years .
So don't hold your breath !

AlanP_2

Beremy said:

Maths, help, please, mine is appalling.  I have got 17K in premium bonds.  Most months I win £25.  I've been reading articles including Martin's about premium bonds and generally it seems you get 0.08% per year.  What is the calculation that shows me how much I'm earning on mine a year?  If anyone knows of any online maths classes that help you with life problems, please let me know.  I need to whether I should move the money and need to be able to work these things out for myself. 

I'm sure there are online courses but have a look at what is available from your local college(s). They often offer these "basic skills" courses via evening classes (although probably evening Zoom at the moment).

eskbanker

Albermarle said:

So if you have 17,000 bonds for a full year , the chance of winning a Million increases to 1 in 250,000 .
So with average luck you would win a Million every 125, 000 years .

If "the chance of winning a Million increases to 1 in 250,000" then "with average luck you would win a Million every 125 250, 000 years"!