Martin Lewis on Premium Bonds

Former_MSE_James_F

Premium Bonds can beat easy-access accounts if you're saving over £4,000, MoneySavingExpert.com founder Martin Lewis has said in the eighth episode of this season's The Martin Lewis Money Show. But as the prizes are a lottery and the amount you win depends on your luck, those who don't need easy access to their cash can earn far more with the top fixed rate savings.

Read the full story here:
'Martin Lewis: Premium Bonds can beat easy-access savings, but you'll be better off fixing if you can'

Click reply below to discuss. If you haven’t already, join the forum to reply.

Albermarle

To be more accurate . 
Then it sharply rises and keeps getting higher, until you get to the £50,000, where with typical luck you'd win 0.9% or £450 a year." + a very very small chance of winning a big prize and an almost infinitesimal chance of winning a Million ( but two people win a Million every month ) 

Also by coincidence there is another current thread questioning the accuracy of the MSE PB calculator .
Premium Bonds Calculator query — MoneySavingExpert Forum

El_Torro

I've been saying for some time now that Premium Bonds aren't the be all and end all of where to put your savings. If you want instant access then yes, stick with Premium Bonds. There are other options for longer term savings though, assuming long term doesn't mean investments.

As always it's a case of looking at what's on offer and making a decision from there. For many people though a 0.90% return or a 1.35% return isn't going to make that big a difference.

Especially with interest rates expected to rise in the not too distant future it will be interesting to see if Premium Bonds make the effort to be as competitive as long term savings accounts.

Donatello

Another way of looking at it is that it's effectively, a lottery but the odds of winning SOMETHING are somewhat better than the National Lottery and you don't lose your stake, so as a modest gambling option, it's not all bad.

quirkydeptless

Playing around with the calculator, I found some values at the lower end of the scale, e.g. £5000 (£50) and £7500 (£75), if you have average luck, you would expect to win at a rate of 1% over 1 year, if the MSE calculator holds up to any mathematical rigour, whereas e.g.

"The Key Result

With £50,000 in Premium Bonds, if you have average luck1
you would expect to win roughly £450 over 1 year"

So only 0.9%

Still a lot better than easy access savings at the moment, even if you splice that rate down to account for the £1M prize.

eskbanker

quirkydeptless said:

Playing around with the calculator, I found some values at the lower end of the scale, e.g. £5000 (£50) and £7500 (£75), if you have average luck, you would expect to win at a rate of 1% over 1 year, if the MSE calculator holds up to any mathematical rigour....

Numerous other threads have discussed the flaws in this calculator but there is often a tendency to seek out 'sweet spots' with enhanced chances of winning, when there really aren't any!

It's certainly true (and more so at the lower end) that there will be a range of holdings that have a median outcome of, say, £50, so it could be argued that finding the lowest of these is optimal, i.e. if the expected outcome from both £5K and £7K was £50, then stick to the lower holding.  However, that thinking is flawed, in that the odds of winning at least £50 from £7K are higher (at 70.4%) than £50 from £5K (52.5%, allegedly), so the fact remains that there really isn't any way of escaping the identical odds of 34,500 to 1 for every bond in every draw....

jimjames

quirkydeptless said:

So only 0.9%

Still a lot better than easy access savings at the moment, even if you splice that rate down to account for the £1M prize.

I wouldn't say " a lot better" than instant access. You can get around 1% on current accounts up to £20k or so. Beyond that it's more difficult but you can get 0.6% on instant access savings with no restrictions.

refluxer

jimjames said:

I wouldn't say " a lot better" than instant access. You can get around 1% on current accounts up to £20k or so. Beyond that it's more difficult but you can get 0.6% on instant access savings with no restrictions.

The difference definitely seems to be reducing month by month at the moment. I guess the hope is that NS&I will raise the prize rate at some stage but, by the looks of the derisory rates available on their other products, I'm not holding my breath ! 

What current account is paying 1% on around £20k, out of interest ? It doesn't make MSE's top table as those rates are around 2%, but they're only on much smaller balances so of less interest to savers.

eskbanker

refluxer said:

jimjames said:

I wouldn't say " a lot better" than instant access. You can get around 1% on current accounts up to £20k or so. Beyond that it's more difficult but you can get 0.6% on instant access savings with no restrictions.

The difference definitely seems to be reducing month by month at the moment. I guess the hope is that NS&I will raise the prize rate at some stage but, by the looks of the derisory rates available on their other products, I'm not holding my breath ! 

What current account is paying 1% on around £20k, out of interest ? It doesn't make MSE's top table as those rates are around 2%, but they're only on much smaller balances so of less interest to savers.

Given their achievement of net financing targets ahead of schedule, it seemed to be a case of expecting NS&I's next move being to reduce the premium bonds rate rather than increase it, but time will tell.

The all-important pluralising of 'current accounts' for up to £20K presumably signified that the point was that a collection of such accounts can deliver 1% overall....

jimjames

refluxer said:

jimjames said:

I wouldn't say " a lot better" than instant access. You can get around 1% on current accounts up to £20k or so. Beyond that it's more difficult but you can get 0.6% on instant access savings with no restrictions.

What current account is paying 1% on around £20k, out of interest ? It doesn't make MSE's top table as those rates are around 2%, but they're only on much smaller balances so of less interest to savers.

As per eskbanker, it's a combination. £5k each in BoS, Lloyds and Halifax combined with Virgin will pay just over 1% but for  many people with savings under £20k it's a better return than either premium bonds or other savings options

snowyy

I made a lot of money from premium bonds ....i took them all out and invested in a fund on the stock market!