Premium bonds

Pagala

Premium bonds have crossed my radar recently. I just looked into them, and I must be misunderstanding them. I can't think of a worse thing to do with your money. Could someone help me to understand this?

Apparently, you buy a premium bond and they (NS&I) give you a premium bond number. Every month, there is a prize draw. Out of all the countless premium bond numbers in existence, you stand a chance to win £25. The odds are absolutely mental: something like 1 in 34000+, according to a website I found. Meanwhile, year-on-year your invested sum grows at a rate well, well below the rate of inflation. Something like 1%.

Am I reading this correctly, or have I misunderstood something fundamental about premium bonds? It's quite possible I'm an idiot and I don't get it. Why would anyone buy premium bonds? Are they just a means of preying on the vulnerable and non-neurotypicals?

TadleyBaggie

You have completely misunderstood something...there is no year-on-year growth. Unless you reinvest your prize winnings, what you invested is what you have in your account.

I've only invested £80K in the last couple of months because I needed a safe and easy place to hold some cash that is earmarked for capital expenditure on the house. Any prize winnings (I got £100 last month) is a bonus.

eskbanker

Pagala said:

I can't think of a worse thing to do with your money.

What better choices do you suggest for sums of up to £50K, with easy access and no risk of capital loss?

Pagala

No year-on-year growth? Oh my God... That's even worse. 

Pagala

eskbanker said:

Pagala said:

I can't think of a worse thing to do with your money.

What better choices do you suggest for sums of up to £50K, with easy access and no risk of capital loss?

If you genuinely need instant access for sums up to £50K, then a bank account would work, whether personal or business.
But I'm thinking in terms of savings and investments (i.e. the forum title). That's the context in which I came across it, and that's a wonderfully, even supremely !!!!!! investment choice, IMHO. You couldn't make it up. Imagine someone putting savings in there for 40+ years.

eskbanker

Pagala said:

eskbanker said:

Pagala said:

I can't think of a worse thing to do with your money.

What better choices do you suggest for sums of up to £50K, with easy access and no risk of capital loss?

If you genuinely need instant access for sums up to £50K, then a bank account would work, whether personal or business.

But a bank account wouldn't return as much in an average year, so isn't better in that sense.

Pagala said:

But I'm thinking in terms of savings and investments (i.e. the forum title). That's the context in which I came across it, and that's a wonderfully, even supremely !!!!!! investment choice, IMHO. You couldn't make it up. Imagine someone putting savings in there for 40+ years.

It's a product that's neither saving or investing in the usual sense, but has aspects of both and is clearly a viable solution for many who'd be in the market for one or the other.  It's obviously not a universal panacea applicable to everyone, but nothing is, so the fact that it isn't particularly suitable for long term money doesn't negate its benefits for others....

Thrugelmir

Pagala said:

No year-on-year growth? Oh my God... That's even worse. 

Are you prepared to buy equities and potentially lose money? 

Stubod

..assuming you can "invest" the max amount (£50k / £100k for a couple), you are probably going to make more than you would in most standard bank savings accounts in a 12month period and being state run your money is "protected" and available in a relatively short time if you need it...not sure what is complicated about that? 

..and every month a couple of lucky people make a million...

Like most things, it's a product that some people will like, and some will not, depends on what you want to do with your money, and what your attitude to risk is. 

Misslayed

Mr M bought 40,000 PBS 36 months ago, and has won between £25 and £175 every month except two. (He's probably had above average luck!)

Pagala

I suppose I just fall into the trap of overestimating people. People just don't understand inflation or investments. It's too hard. Or, rather, it's easy to understand but they are ... well, not allowed to say.

£100 in 1976 has the purchasing power of £767 today.

https://www.in2013dollars.com/uk/inflation/1976?amount=100

If you'd put the same amount into an S&P 500 tracker in 1976, today it would be worth 10x times, i.e. £100 would be £1000.

If you'd bought £100 worth of premium bonds in 1976, then, being generous, let's say you won £25 once. Your premium bonds are now worth £125. You have lost £642 worth of spending power. Congrats!

eskbanker

Pagala said:

I suppose I just fall into the trap of overestimating people. People just don't understand inflation or investments. It's too hard.

Some people just don't understand premium bonds, despite them really not being a complicated concept....

But yes, not something to measure against long-term investment, for a variety of reasons.