Martin Lewis on Premium Bonds

Renard77

I feel that comparing returns from premium bonds to savings accounts is not comparing lemons with lemons. I view a more valid comparison of the returns of premium bonds is against the lottery. It is more likely that X amount invested in a savings account would offer a higher yield than from premium bonds and in turn the lottery. However I view money invested in premium bonds as a lottery ticket where ones stake money is returned even with a "losing ticket" 

Audaxer

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, 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.

The lower figures you quote above again shows the limitations of the calculator as it just shows rounded up figures. If you had £5,000 in PBs your expected win rate for a year would only be £25 (0.5%) as detailed in the table under section number 3 on the following page:
Premium Bonds: are they worth buying? - MoneySavingExpert
However the win rate for 1 year of £450 for a £50,000 holding is accurate as you are most likely to win 0.9% with average luck for the maximum in PBs. The overall average is 1% because those that are very lucky will win the big prizes, but the majority of holders will win less than 1% with average luck.

eskbanker

Audaxer said:
If you had £5,000 in PBs your expected win rate for a year would only be £25 (0.5%) as detailed in the table under section number 3 on the following page:

Premium Bonds: are they worth buying? - MoneySavingExpert

So you're assuming that the article is more accurate than the calculator?

eskbanker

Renard77 said:

It is more likely that X amount invested in a savings account would offer a higher yield than from premium bonds

Not true - did you miss the discussion in the previous posts (and numerous other threads) highlighting that expected PB return of 0.9% (with average luck) outperforms all directly comparable traditional easy access savings accounts that are currently available?

There are undoubtedly better-paying alternatives such as current accounts (each for small amounts) or fixed term savings accounts though....

Audaxer

eskbanker said:

Audaxer said:
If you had £5,000 in PBs your expected win rate for a year would only be £25 (0.5%) as detailed in the table under section number 3 on the following page:

Premium Bonds: are they worth buying? - MoneySavingExpert

So you're assuming that the article is more accurate than the calculator?

Yes, because I think with average luck you are more likely to win slightly higher percentages, the more PBs you hold.

eskbanker

Audaxer said:

eskbanker said:

Audaxer said:
If you had £5,000 in PBs your expected win rate for a year would only be £25 (0.5%) as detailed in the table under section number 3 on the following page:

Premium Bonds: are they worth buying? - MoneySavingExpert

So you're assuming that the article is more accurate than the calculator?

Yes, because I think with average luck you are more likely to win slightly higher percentages, the more PBs you hold.

Sort of - if you have a maximum holding and keep it for many years, then eventually you should have a reasonably significant prospect of winning one of the bigger prizes that make up the difference between the 0.9% median and the 1% mean, but that factor is irrelevant if comparing, say, £5K with £25K over a year.  Rounding does have an impact, especially on small holdings or durations, but as above every bond has an equal chance every month, so it's not true in any meaningful sense that pro rata winnings are higher for larger holdings....

Audaxer

eskbanker said:

Audaxer said:

eskbanker said:

Audaxer said:
If you had £5,000 in PBs your expected win rate for a year would only be £25 (0.5%) as detailed in the table under section number 3 on the following page:

Premium Bonds: are they worth buying? - MoneySavingExpert

So you're assuming that the article is more accurate than the calculator?

Yes, because I think with average luck you are more likely to win slightly higher percentages, the more PBs you hold.

Sort of - if you have a maximum holding and keep it for many years, then eventually you should have a reasonably significant prospect of winning one of the bigger prizes that make up the difference between the 0.9% median and the 1% mean, but that factor is irrelevant if comparing, say, £5K with £25K over a year.  Rounding does have an impact, especially on small holdings or durations, but as above every bond has an equal chance every month, so it's not true in any meaningful sense that pro rata winnings are higher for larger holdings....

As every bond has an equal chance, surely the median percentage winnings is likely to be higher (although still below 1%) if you hold 25,000 bonds as opposed to 5,000 bonds? That is certainly what I took from reading the article and watching Martin's video on the subject.

Renard77

eskbanker said:

Renard77 said:

It is more likely that X amount invested in a savings account would offer a higher yield than from premium bonds

Not true - did you miss the discussion in the previous posts (and numerous other threads) highlighting that expected PB return of 0.9% (with average luck) outperforms all directly comparable traditional easy access savings accounts that are currently available?

There are undoubtedly better-paying alternatives such as current accounts (each for small amounts) or fixed term savings accounts though....

To clarify, I was trying to get across that as the returns on premium bonds are not guaranteed, it feels incorrect to compare said returns against products that are. When the word "luck" is inserted logic, maths and science are diluted. Thats why I compare premium bonds to lottery tickets. The upside of premium bonds over the lottery (or even the 3.50 at Kemptton Park) is even if you don't win, your stake money is returned.  

eskbanker

Audaxer said:

eskbanker said:

Audaxer said:

eskbanker said:

Audaxer said:
If you had £5,000 in PBs your expected win rate for a year would only be £25 (0.5%) as detailed in the table under section number 3 on the following page:

Premium Bonds: are they worth buying? - MoneySavingExpert

So you're assuming that the article is more accurate than the calculator?

Yes, because I think with average luck you are more likely to win slightly higher percentages, the more PBs you hold.

Sort of - if you have a maximum holding and keep it for many years, then eventually you should have a reasonably significant prospect of winning one of the bigger prizes that make up the difference between the 0.9% median and the 1% mean, but that factor is irrelevant if comparing, say, £5K with £25K over a year.  Rounding does have an impact, especially on small holdings or durations, but as above every bond has an equal chance every month, so it's not true in any meaningful sense that pro rata winnings are higher for larger holdings....

As every bond has an equal chance, surely the median percentage winnings is likely to be higher (although still below 1%) if you hold 25,000 bonds as opposed to 5,000 bonds?

I don't understand why you'd expect the percentage to be higher - the expected winnings in absolute terms will naturally be higher, but in percentage terms it should be constant, subject only to rounding.  However, even when rounding affects the median expected winnings, looking at the actual odds of achieving that median will paint a more complete picture, and hence my comment on the previous page about £5K and £7K both having the same median outcome over a year but different odds of achieving it.

The MSE article, and the calculator, largely ignore this last point and hence the misleading and apparently illogical presentation of expected outcomes listed in that table that you refer to.

Audaxer

eskbanker said:

Audaxer said:

eskbanker said:

Audaxer said:

eskbanker said:

Audaxer said:
If you had £5,000 in PBs your expected win rate for a year would only be £25 (0.5%) as detailed in the table under section number 3 on the following page:

Premium Bonds: are they worth buying? - MoneySavingExpert

So you're assuming that the article is more accurate than the calculator?

Yes, because I think with average luck you are more likely to win slightly higher percentages, the more PBs you hold.

Sort of - if you have a maximum holding and keep it for many years, then eventually you should have a reasonably significant prospect of winning one of the bigger prizes that make up the difference between the 0.9% median and the 1% mean, but that factor is irrelevant if comparing, say, £5K with £25K over a year.  Rounding does have an impact, especially on small holdings or durations, but as above every bond has an equal chance every month, so it's not true in any meaningful sense that pro rata winnings are higher for larger holdings....

As every bond has an equal chance, surely the median percentage winnings is likely to be higher (although still below 1%) if you hold 25,000 bonds as opposed to 5,000 bonds?

I don't understand why you'd expect the percentage to be higher - the expected winnings in absolute terms will naturally be higher, but in percentage terms it should be constant, subject only to rounding.  However, even when rounding affects the median expected winnings, looking at the actual odds of achieving that median will paint a more complete picture, and hence my comment on the previous page about £5K and £7K both having the same median outcome over a year but different odds of achieving it.

The MSE article, and the calculator, largely ignore this last point and hence the misleading and apparently illogical presentation of expected outcomes listed in that table that you refer to.

In his on-line video (and on his recent TV show) Martin Lewis included a table showing 'Typical Luck Annual Winnings' with the following holdings and percentages:
£100 - 0%
£1,000 - 0%
£10,000 - 0.75%
£25,000 - 0.8%
£50,000 - 0.9%

That is why I'd expect the percentage likely winnings to be higher, the more bonds you hold.