Your Premium Bonds sales pitch: why are they a good idea?

Type_45

OldScientist said:

eskbanker said:

The median return will be around 0.9% for pretty much any non-trivial holding and duration, but larger amounts and/or periods will gradually reduce the standard deviation.  This effectively means that the chances of that specific median +/- 10% from a small holding for a year may be, say, 25%, but over a longer time it would reach, say, 90%.

You are entirely right - here are the lower decile (bottom line), median (middle line), and upper decile effective interest rates for a number of bonds held for a single year. 80% of people will obtain an effective interest rate between the lower and upper lines (i.e. with 50k bonds you'd expect an interest rate of between about 0.6% and 1.2% for 4 years in 5).



ps I know that an individual cannot hold more than 50000 - but couples can (hence the slight extension to 60k)

The crucial thing in your analysis is that you are working from the basis that someone has £50K in Premium Bonds.  TRy doing your calculations for people with £10K or less.  Or even £20K or less.  Or even less than £50K.  For those people Premium Bonds aren't worth doing, as Martin Lewis has said.

Prism

steampowered said:

Sea_Shell said:

What sort of amount saved in Premium Bonds is the "sweet spot" for the chances of winning close to the 1%.

Far more than anyone should sensibly have in premium bonds.

If you have £35k+ to stick into premium bonds, learn the basics of investing and invest it.

Premium bonds are good for a cash allocation to go along side investments or for an emergency fund, either of which could easily exceed £35k depending on requirements and total investments.

grumiofoundation

Type_45 said:

OldScientist said:

eskbanker said:

The median return will be around 0.9% for pretty much any non-trivial holding and duration, but larger amounts and/or periods will gradually reduce the standard deviation.  This effectively means that the chances of that specific median +/- 10% from a small holding for a year may be, say, 25%, but over a longer time it would reach, say, 90%.

You are entirely right - here are the lower decile (bottom line), median (middle line), and upper decile effective interest rates for a number of bonds held for a single year. 80% of people will obtain an effective interest rate between the lower and upper lines (i.e. with 50k bonds you'd expect an interest rate of between about 0.6% and 1.2% for 4 years in 5).



ps I know that an individual cannot hold more than 50000 - but couples can (hence the slight extension to 60k)

The crucial thing in your analysis is that you are working from the basis that someone has £50K in Premium Bonds.  TRy doing your calculations for people with £10K or less.  Or even £20K or less.  Or even less than £50K.  For those people Premium Bonds aren't worth doing, as Martin Lewis has said.

Pretty sure he (or anyone who work for MSE) has said no such thing, unless you have evidence to the contrary. 

If you read link below it ‘suggests’ for £5000 premium bonds are ‘better’. 

https://www.moneysavingexpert.com/savings/premium-bonds/

Type_45

grumiofoundation said:

Type_45 said:

OldScientist said:

eskbanker said:

The median return will be around 0.9% for pretty much any non-trivial holding and duration, but larger amounts and/or periods will gradually reduce the standard deviation.  This effectively means that the chances of that specific median +/- 10% from a small holding for a year may be, say, 25%, but over a longer time it would reach, say, 90%.

You are entirely right - here are the lower decile (bottom line), median (middle line), and upper decile effective interest rates for a number of bonds held for a single year. 80% of people will obtain an effective interest rate between the lower and upper lines (i.e. with 50k bonds you'd expect an interest rate of between about 0.6% and 1.2% for 4 years in 5).



ps I know that an individual cannot hold more than 50000 - but couples can (hence the slight extension to 60k)

The crucial thing in your analysis is that you are working from the basis that someone has £50K in Premium Bonds.  TRy doing your calculations for people with £10K or less.  Or even £20K or less.  Or even less than £50K.  For those people Premium Bonds aren't worth doing, as Martin Lewis has said.

Pretty sure he (or anyone who work for MSE) has said no such thing, unless you have evidence to the contrary. 

If you read link below it ‘suggests’ for £5000 premium bonds are ‘better’. 

https://www.moneysavingexpert.com/savings/premium-bonds/

I watched the video on that page, rather than read the article.  Martin Lewis says that if you have less than £10K then Premium Bonds aren't worth it.

And until you get to £50k, your odds of getting anything much from them is pretty small.

Watch the video.

OldScientist

Prism said:

steampowered said:

Sea_Shell said:

What sort of amount saved in Premium Bonds is the "sweet spot" for the chances of winning close to the 1%.

Far more than anyone should sensibly have in premium bonds.

If you have £35k+ to stick into premium bonds, learn the basics of investing and invest it.

Premium bonds are good for a cash allocation to go along side investments or for an emergency fund, either of which could easily exceed £35k depending on requirements and total investments.

Or indeed for short-term (whatever that means for you) spending (e.g. a house deposit)

Prism

Type_45 said:

grumiofoundation said:

Type_45 said:

OldScientist said:

eskbanker said:

The median return will be around 0.9% for pretty much any non-trivial holding and duration, but larger amounts and/or periods will gradually reduce the standard deviation.  This effectively means that the chances of that specific median +/- 10% from a small holding for a year may be, say, 25%, but over a longer time it would reach, say, 90%.

You are entirely right - here are the lower decile (bottom line), median (middle line), and upper decile effective interest rates for a number of bonds held for a single year. 80% of people will obtain an effective interest rate between the lower and upper lines (i.e. with 50k bonds you'd expect an interest rate of between about 0.6% and 1.2% for 4 years in 5).



ps I know that an individual cannot hold more than 50000 - but couples can (hence the slight extension to 60k)

The crucial thing in your analysis is that you are working from the basis that someone has £50K in Premium Bonds.  TRy doing your calculations for people with £10K or less.  Or even £20K or less.  Or even less than £50K.  For those people Premium Bonds aren't worth doing, as Martin Lewis has said.

Pretty sure he (or anyone who work for MSE) has said no such thing, unless you have evidence to the contrary. 

If you read link below it ‘suggests’ for £5000 premium bonds are ‘better’. 

https://www.moneysavingexpert.com/savings/premium-bonds/

I watched the video on that page, rather than read the article.  Martin Lewis says that if you have less than £10K then Premium Bonds aren't worth it.

And until you get to £50k, your odds of getting anything much from them is pretty small.

Watch the video.

So more than £10k then - sounds about right.

grumiofoundation

Type_45 said:

grumiofoundation said:

Type_45 said:

OldScientist said:

eskbanker said:

The median return will be around 0.9% for pretty much any non-trivial holding and duration, but larger amounts and/or periods will gradually reduce the standard deviation.  This effectively means that the chances of that specific median +/- 10% from a small holding for a year may be, say, 25%, but over a longer time it would reach, say, 90%.

You are entirely right - here are the lower decile (bottom line), median (middle line), and upper decile effective interest rates for a number of bonds held for a single year. 80% of people will obtain an effective interest rate between the lower and upper lines (i.e. with 50k bonds you'd expect an interest rate of between about 0.6% and 1.2% for 4 years in 5).



ps I know that an individual cannot hold more than 50000 - but couples can (hence the slight extension to 60k)

The crucial thing in your analysis is that you are working from the basis that someone has £50K in Premium Bonds.  TRy doing your calculations for people with £10K or less.  Or even £20K or less.  Or even less than £50K.  For those people Premium Bonds aren't worth doing, as Martin Lewis has said.

Pretty sure he (or anyone who work for MSE) has said no such thing, unless you have evidence to the contrary. 

If you read link below it ‘suggests’ for £5000 premium bonds are ‘better’. 

https://www.moneysavingexpert.com/savings/premium-bonds/

I watched the video on that page, rather than read the article.  Martin Lewis says that if you have less than £10K then Premium Bonds aren't worth it.

And until you get to £50k, your odds of getting anything much from them is pretty small.

Watch the video.

Did you read the article, in particular the comparison of the best interest paying accounts vs the expected return (based on average luck) from PBs? 

MX5huggy

Type_45 said:

grumiofoundation said:

Type_45 said:

OldScientist said:

eskbanker said:

The median return will be around 0.9% for pretty much any non-trivial holding and duration, but larger amounts and/or periods will gradually reduce the standard deviation.  This effectively means that the chances of that specific median +/- 10% from a small holding for a year may be, say, 25%, but over a longer time it would reach, say, 90%.

You are entirely right - here are the lower decile (bottom line), median (middle line), and upper decile effective interest rates for a number of bonds held for a single year. 80% of people will obtain an effective interest rate between the lower and upper lines (i.e. with 50k bonds you'd expect an interest rate of between about 0.6% and 1.2% for 4 years in 5).



ps I know that an individual cannot hold more than 50000 - but couples can (hence the slight extension to 60k)

The crucial thing in your analysis is that you are working from the basis that someone has £50K in Premium Bonds.  TRy doing your calculations for people with £10K or less.  Or even £20K or less.  Or even less than £50K.  For those people Premium Bonds aren't worth doing, as Martin Lewis has said.

Pretty sure he (or anyone who work for MSE) has said no such thing, unless you have evidence to the contrary. 

If you read link below it ‘suggests’ for £5000 premium bonds are ‘better’. 

https://www.moneysavingexpert.com/savings/premium-bonds/

I watched the video on that page, rather than read the article.  Martin Lewis says that if you have less than £10K then Premium Bonds aren't worth it.
Yes

And until you get to £50k, your odds of getting anything much from them is pretty small.

No on £10k you have a good chance of £75 per year (68%). Only 3% chance of nothing. 

Watch the video.

There aren’t many blue men! And most of them would get £25 so you’re risking not getting £40 interest from a savings account for a good chance of £75 

Use the calculator for your actual savings rates and potential holdings.

https://www.moneysavingexpert.com/savings/premium-bonds-calculator/

OldScientist

Type_45 said:

OldScientist said:

eskbanker said:

The median return will be around 0.9% for pretty much any non-trivial holding and duration, but larger amounts and/or periods will gradually reduce the standard deviation.  This effectively means that the chances of that specific median +/- 10% from a small holding for a year may be, say, 25%, but over a longer time it would reach, say, 90%.

You are entirely right - here are the lower decile (bottom line), median (middle line), and upper decile effective interest rates for a number of bonds held for a single year. 80% of people will obtain an effective interest rate between the lower and upper lines (i.e. with 50k bonds you'd expect an interest rate of between about 0.6% and 1.2% for 4 years in 5).



ps I know that an individual cannot hold more than 50000 - but couples can (hence the slight extension to 60k)

The crucial thing in your analysis is that you are working from the basis that someone has £50K in Premium Bonds.  TRy doing your calculations for people with £10K or less.  Or even £20K or less.  Or even less than £50K.  For those people Premium Bonds aren't worth doing, as Martin Lewis has said.

The calculations for people with 10k or less are in the graph - at 10k, 80% of people would have an effective interest rate of between 0.25% and 1.5% (i.e. somewhere between £25 and £150 over a year). This is a huge range - the low end of which is below what could be achieved in an instant access savings account, but better than leaving it in a non-interest paying current account. Whether this is worth it is then a personal decision... i.e. how important to the goals for this money is the potential of foregoing a relatively small amount of interest (e.g. an account paying 0.4% like Marcus currently does, would give you £40 while with PB you have a chance that you will get less than that, but a good chance that you will get more - whether foregoing £40 matters depends).

MaxiRobriguez

Another consideration for easy-access-cash-alternatives is dumping it in an offset mortgage.