Premium bonds

MX5huggy

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. 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!

Why the S&P 500 in 1976? The Nikkei 225 in 1989 would have been just as good a choice. 

andyhicks88

A lot of people don't like investing in things like the stock market and prefer to save simply and safely through a standard savings account or premium bonds. The vast majority of people I would say choose those methods over investing, even with things like inflation as it is, surely that is a known. Please don't call these people stupid, as was your suggestion. 

Premium bonds offer about the same or more returns than the current easy access savings accounts or potentially a lot more, because you are quite wrong to say that you just have a chance of winning £25, you have a chance of winning many sums of money up to 1 million pounds and if you look at the dedicated thread to premium bonds on this forum you will see that people regularly win, often months in a row, quite far from you suggesting someone might win £25 in 40 years.

badmemory

Premium Bonds are gambling.  The odds are that if you have £34k then you will win once, more & the odds are you will win twice.  If you don't like the odds then don't bet.  My friend who is generally luckier than I am has less than I do & wins more than I do.  So to quote a famous movie "do you feel lucky?"  Hopefully now the bank rate has gone up so too will the PB rate.

eskbanker

badmemory said:

Premium Bonds are gambling.

Oh dear, this never ends well!

It's undoubtedly true that returns are variable and unpredictable, but, as that word usually triggers negative connotations of capital loss and reckless wastage, it's rarely helpful in characterising the way that PBs work, especially the inevitable lottery comparison.

badmemory said:

Hopefully now the bank rate has gone up so too will the PB rate.

Don't hold your breath!  The PB 'interest' rate is calibrated to the annual NS&I net financing target, and has no direct correlation with savings interest rates - the current competitive position of PBs is more by accident than design and a rate reduction has long been projected as the next move, although I don't believe that the 2022/23 target has been set yet....

hugheskevi

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. 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!

Different vehicles for different purposes. It doesn't have to be one or the other, it can be both depending on objectives.

I have my pension invested at a higher risk level than my ISA due to when I will draw the funds.

I also have about £20,000 of Premium bonds (expected return around 0.9% p/a), along with with about £60K in savings accounts (0.6%ish) - this will all get spent in the next couple of years so is not appropriate to invest given the short time horizon. For these funds I pay a liquidity penalty in the form of a very low return, and that is fine given their purpose. The role of ISA and pensions are to generate growth and they are invested accordingly. I could pile all savings into Premium Bonds for a marginal additional expected return, but I prefer the convenience of instant access (the Premium Bond investment is the beginning of a plan to invest the maximum amount which I then changed).

Cash, savings, Premium Bonds, LISAs, SSISAs, GIAs, Personal Pensions, etc, all have their roles and strengths and weaknesses. None are necessarily inherently better or worse, just different.

strawb_shortcake

They are also tax free, a bonus for many people.
My winnings have exceeded what I'd get in a standard bank account and I don't want to risk my moving house fund in the stock market.
My winnings do get paid into a savings account so they earn interest too rather than just absorbed into day to day spending 

andyhicks88

badmemory said:

Premium Bonds are gambling.  The odds are that if you have £34k then you will win once, more & the odds are you will win twice.  If you don't like the odds then don't bet.  My friend who is generally luckier than I am has less than I do & wins more than I do.  So to quote a famous movie "do you feel lucky?"  Hopefully now the bank rate has gone up so too will the PB rate.

What are you gambling? There is no potential loss.

msallen

Pagala said:

It's quite possible I'm an idiot

Tick     .

ranciduk

Apart from all the ups and downs you could mention- it’s actually a bit of fun checking the results once they are released 

i still get a buzz when I find out I’ve won £25

EssexHebridean

Pagala said:

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?

I rather think you understand full well how they work, and that this rather offensive post is simply a swipe at the many people on here you are well aware have PBs. Your final sentence rather gives the game away. 

However, last month my just-under 1k of bonds which I’d had for under 3 months won a £25 prize. I’ll leave it to you to work out the equivalent interest rate there.