What do you think of Premium Bonds?

eskbanker

oldfella said:

my logic is to get 1 PB.

(Current) minimum purchase is 25....

Eco_Miser

Jacob_Jones said:

Albermarle said:

Jacob_Jones said:

eskbanker said:

Jacob_Jones said:

I don't like them. 
Partly, because I don't feel that I have any control over my returns. 
With equities I can choose those companies that I have some confidence in. 

But how do you have any control over the returns from those equities (as opposed to selecting them and believing you're buying them cheaply in the first place)?

I have some control over the capital gain in the share price.
If I buy oil majors when the crude oil price is low (eg March 2020) then it is likely the share price will increase as the oil price increases. It's not risk free, but it suits me. 

Similarly, if I buy defensive stocks when growth stocks are in favour, I know that sooner or later, when interest rates rise and the economy falters, tobacco will become more popular than Netflix. 

I also know that as I am not a fund manager, I don't need to worry about my quarterly performance. I can just sit and wait. 

I used to think that my approach was just common sense. 
But over the last few years, I have found that it is at odds with the mentality of most other people. 
However, I have the type of personality that is happy to ignore them and do my own thing. 

The thread was about comparing PB's with savings accounts. Not really sure it digressing within one page to a totally different topic, is helping the OP.

Sorry, I missed that was the intended comparison. 
In that case, I would prefer saving cash in a few different currencies - provided I could get an OK interest rate on those accounts. 

With Premium Bonds you need to see it from the other side.
ie What benefit is the UK government getting from this deal? 
Why are they offering you the opportunity to win these cash amounts? What's in it for them? 
They won't be doing it for your benefit. They will have their own agenda and incentives. 

Mostly they're doing it to encourage saving. They are diverting money that would be going on Football Pools (back in 1957) or the Lotto, or into betting shops into sort-of savings accounts for the punters. So when the punter has a financial emergency, they find they actually have an emergency fund.

Most of the time, though not right now, they could issue more gilts at a lower coupon than they pay into the prize fund.

grumiofoundation

Millyonare said:

If I told you I'd just gone down the bookies at lunch and placed a £50,000 bet on Elvis riding Shergar into a chip shop in Scunthorpe on Xmas Day, you'd think I'd lost the plot... But that's roughly the same odds you get as winning "the big one" on Premium Bonds.

The two aren't comparable though so as with many of the posts on this thread doesn't really help in a sensible comparison of savings vs PBs

MisterMotivated

Personally, I don't mind them.  I used to get an above average return when I held about £20k in 2018-19.  However, I look at them as being similar to buying lottery tickets, with the cost of the entry each month being the interest you'd be guaranteed if keeping the money elsewhere.  Now that interest rates have risen a fair bit, I'd rather have the guaranteed interest than the minute chance of a big win.  I still held around £3,500 until last month, but now only have a token £25.  Now that I'm approaching the PSA limit, I may still consider buying more in future...

Eirambler

Overall I like them and they were as good as most savings accounts when the rates crashed to historic lows a couple of years ago. Going forward they look less enticing as savings accounts move ahead in terms of rates. However, I am near the limit of my tax free savings allowance so I will be keeping at least some funds in PBs to avoid tax for now. 

They're also great for people like my wife who CBA with the paperwork associated with earning a few quid in savings but loves "winning" £25 every couple of months in PBs. And she was absolutely delighted when she won a £100 prize in October, in a way she'd never be with savings interest.

As for winning the million, while it's highly unlikely, the odds for a couple who both have the max 50k holding of winning the million is about 1 in 18,000 over the course of a year, and their odds of winning 25k or higher in a year is actually as low as 1 in 750.

That's a whole lot better than the lottery even before you consider that they'll get their money back even if they don't win big and probably about 2k each year in average "winnings" along with the initial investment. When you look at it that way it's easy to see the appeal - those odds are actually decent relative to the possible prizes involved.

Millyonare

grumiofoundation said:

Millyonare said:

If I told you I'd just gone down the bookies at lunch and placed a £50,000 bet on Elvis riding Shergar into a chip shop in Scunthorpe on Xmas Day, you'd think I'd lost the plot... But that's roughly the same odds you get as winning "the big one" on Premium Bonds.

The two aren't comparable though so as with many of the posts on this thread doesn't really help in a sensible comparison of savings vs PBs

Of course it's comparable. Nobody seriously thinks they will win a big bet on Elvis in a chip shop. And nobody should seriously think they will win a big bet on Premium Bonds. The odds for the top prizes are billions-to-one. Vanishingly small.

Martico

But if you bet on Elvis appearing, you lose your stake.
If you hold PBs, you get to run the same "bet" every month, and can win smaller amounts. 
The returns aren't terrific, but they're not abysmal 

Stubod

I would not use them as my only savings account, but OK as part of an overall savings strategy, and possibly a good place to put  "emergency" funds. Also would probably not bother saving anything less than the maximum, (or near) amount....but each to their own!

grumiofoundation

Millyonare said:

grumiofoundation said:

Millyonare said:

If I told you I'd just gone down the bookies at lunch and placed a £50,000 bet on Elvis riding Shergar into a chip shop in Scunthorpe on Xmas Day, you'd think I'd lost the plot... But that's roughly the same odds you get as winning "the big one" on Premium Bonds.

The two aren't comparable though so as with many of the posts on this thread doesn't really help in a sensible comparison of savings vs PBs

Of course it's comparable. Nobody seriously thinks they will win a big bet on Elvis in a chip shop. And nobody should seriously think they will win a big bet on Premium Bonds. The odds for the top prizes are billions-to-one. Vanishingly small.

They are comparable if you ignore loads of factors. So is almost everything.See post below yours.

I know you know they are not sensible to compare. 

grumiofoundation

Jacob_Jones said:

Eco_Miser said:

With Premium Bonds you need to see it from the other side.
ie What benefit is the UK government getting from this deal? 
Why are they offering you the opportunity to win these cash amounts? What's in it for them? 
They won't be doing it for your benefit. They will have their own agenda and incentives. 

Mostly they're doing it to encourage saving. They are diverting money that would be going on Football Pools (back in 1957) or the Lotto, or into betting shops into sort-of savings accounts for the punters. So when the punter has a financial emergency, they find they actually have an emergency fund.

Most of the time, though not right now, they could issue more gilts at a lower coupon than they pay into the prize fund.

I suspect the government is doing it to psychologically "butter up" the public in a subtle way. 
Offer nominal prizes a nominal amount. The public get used to trusting the government and lending them money. 

Then when something big comes along (eg a war), the government hits the public with their new request: 
"Hand over your silver for War Bonds".
Joe Public has been conditioned to trust the government, so he goes along with it... 

I think you might be overestimating the importance of premium bonds a tad.