Premium bonds, a case now for closing them?

LHW99

Better than the lottery though - you don't lose your stake.

jimexbox

CompulsiveSaver said:

eskbanker said:

As an easy access product, premium bonds have never competed with fixed rate or notice accounts, so that comparison wouldn't ever really be relevant, and none of the above has any chance of staying anywhere near inflation at this sort of level....

If you compare it to the Shawbrook Easy Access Account @ 1.75% that means that compared to the Premium bond (tax free) prize pool of 1.4%, that means as long as you are a basic rate tax payer, it would be neutral even if you had used all of your £1000 allowance.

And after a few months of not winning, I am thinking of leaving NS&I to their slow ponderous ways.

I use my wife's starting saving rate. She earns part time around 13k. So she can get upto 5,570 in interest tax free. I wish I had that amount of cash to get that much!

Exodi

LHW99 said:

Better than the lottery though - you don't lose your stake.

The lottery was only an example to explain the concept of an interest rate based on 'mean vs median' average luck.

Your argument is somewhat misleading though, because you're still 'paying' for the chance in the form of a lower average interest rate.

For example, you could take the money out of premium bonds and put the £50k into the Shawbrooks 1.75% account that's been mentioned and earn an extra ~£225 a year that you could spend on lottery tickets (obviously these figures change a bit if you're a tax payer, as premium bonds are paid tax-free).

stuartp2000

Purely from an interest and inflation perspective I can see the point but does also depend on your pot held, as I see it if I have 1000 in premium bonds I could get what 1.75% Interest on easy access so 17.50 a year.
Would I pay 1000 with the chance to win from 25.00 to a million then the answer is yes I would and I do as the lottery is 24 if doing once a month.
i guess once you get to 10k plus you might view this different.
obviously with inflation at 10% you need to protect the money you have but whilst rates are still so low we are losing whatever option we choose.

talexuser

There is still a point if you have maxed ISA, maxed pension contributions, enough cash for emergencies etc etc and want to stay out of the 40% band, and even if you are in it. It will be hard to keep up with 13% inflation where ever your money is for the next few years. I only have excess cash because waiting for a new car delivery in September.

Does anyone believe getting back to target inflation within a couple of years?  

DoublePolaroid

What would Janeway do? (If she'd had her morning coffee; she'd probably attack a civilisation if she hadn't).

eskbanker

CompulsiveSaver said:

eskbanker said:

As an easy access product, premium bonds have never competed with fixed rate or notice accounts, so that comparison wouldn't ever really be relevant, and none of the above has any chance of staying anywhere near inflation at this sort of level....

If you compare it to the Shawbrook Easy Access Account @ 1.75% that means that compared to the Premium bond (tax free) prize pool of 1.4%, that means as long as you are a basic rate tax payer, it would be neutral even if you had used all of your £1000 allowance.

That was my point though - it's legitimate to compare PBs with other easy access accounts, but not with fixed rate or notice ones, because they don't allow easy access (and pay better rates to compensate for this).

zxspeccy

Exodi said:

zxspeccy said:
I hold the maximum allowance in Premium Bonds and will probably keep them until the end of the year, and if the prize pot is more competetive then I will review further. Also I have had below average luck so far this year with the draws so I see where I stand at the end of the year.

Do you mean below average luck based on the  mean 1.4% AER advertised on NS&I because you will have to appreciate that virtually everyone, except a tiny minority winning the high value prizes, will have 'below average luck'.

As MSE puts it:

Why the Premium Bond prize rate isn't what you'll win

To show you why using the 'mean' average isn't a good description of what most people will win, let me use an extreme example…

Imagine I sold a million people a £1 lottery ticket, and then paid just one winner a million pounds.

I could argue, mathematically, that the average (mean) payout was £1, so on average everyone got their money back. This, of course, is bonkers.

Almost everyone wins nothing – which is the median average – as if you lined them all up and asked, the midway person would've won nowt.

In this lottery example, technically the 999,999 losers would have had 'below average luck'.

I think the median rate on £50k would work out to about 1.3% AER, meaning with average luck you'd expect approx £650 a year instead of £700.

Apologies, you may already be aware of all this - but may be useful for other posters.

I am aware of the way the prize pot is distrubuted and that the headline 1.4% does not equate to a 1.4% return (it will be lower than this). However the information will be useful to others as the maths around this is a bit of an eye opener.

I have the maximum holding of £50,000 which means on average luck I should obtain 2 x £25 prizes each month. I invested my original maximum holding back in November last year (when Premium Bonds were more attractive when complared to standard easy access savings accounts), so have been included all eight draw this year. So far I have won 2 x £25 twice, 1 x £25 four time and no win at all twice (so an averaged of £25 a month and £200 year to date). I will see things out until the end of the year to see it the average luck evens itself out, but with Premium Bonds being less and less attractive I may look elsewhere at the beginning of next year.

MX5huggy

zxspeccy said:

Exodi said:

zxspeccy said:
I hold the maximum allowance in Premium Bonds and will probably keep them until the end of the year, and if the prize pot is more competetive then I will review further. Also I have had below average luck so far this year with the draws so I see where I stand at the end of the year.

Do you mean below average luck based on the  mean 1.4% AER advertised on NS&I because you will have to appreciate that virtually everyone, except a tiny minority winning the high value prizes, will have 'below average luck'.

As MSE puts it:

Why the Premium Bond prize rate isn't what you'll win

To show you why using the 'mean' average isn't a good description of what most people will win, let me use an extreme example…

Imagine I sold a million people a £1 lottery ticket, and then paid just one winner a million pounds.

I could argue, mathematically, that the average (mean) payout was £1, so on average everyone got their money back. This, of course, is bonkers.

Almost everyone wins nothing – which is the median average – as if you lined them all up and asked, the midway person would've won nowt.

In this lottery example, technically the 999,999 losers would have had 'below average luck'.

I think the median rate on £50k would work out to about 1.3% AER, meaning with average luck you'd expect approx £650 a year instead of £700.

Apologies, you may already be aware of all this - but may be useful for other posters.

I am aware of the way the prize pot is distrubuted and that the headline 1.4% does not equate to a 1.4% return (it may be lower than this). However the information will be useful to others as the maths around this is a bit of an eye opener.

I have the maximum holding of £50,000 which means on average luck I should obtain 2 x £25 prizes each month. I invested my original maximum holding back in November last year (when Premium Bonds were more attractive when complared to standard easy access savings accounts), so have been included all eight draw this year. So far I have won 2 x £25 twice, 1 x £25 four time and no win at all twice (so an averaged of £25 a month and £200 year to date). I will see things out until the end of the year to see it the average luck evens itself out, but with Premium Bonds being less and less attractive I may look elsewhere at the beginning of next year.

The return can easily be higher than 1.4% (or 1.3%) just as it it can be less. 

Your expectation of 2 prizes per month has only been correct for the last 3 draws  1:24500 odds) the previous 5 were when the odds were 1:34500 or approximately 1.5 prizes per draw. So you have still under performed 8 won vs 13.5 expected. 

I’ve had 8 prizes £25 each over the last 7 draws on a holding of around £28k. I think I’m ahead of the 1.0% for 4 of those draws and 1.4% for 3. But I can’t be bothered to work it out. 

I’m happy to hold for now 1.71% is not a big enough difference to 1.3% to make me move, with PB’s I may beat inflation with Savings I know I won’t. 

Norman_Castle

I bought premium bonds about 18 months ago. In the first year I won most months and doubled what I would have got in a Marcus account. I've won nothing in the last 4 or 5 months so if rates rise I'll move into a savings account. Premium bonds have the benefit of not being fixed term so moving in and out of them is easy.