Time to dump Premium Bonds?

Macsidia

Gotta be in it to win it is my point of view. Besides that based on averages I would get very little more (approx £200) from easy access vs premium bonds in a years return. Always the small chance of a 'medium prize' (I got a £500 win last draw.) and a remote chance of a million or a £100K. Money is safe and I see it as a better National Lottery alternative.

eskbanker

Keezing said:

eskbanker said:

boingy said:

Keezing said:

The headline rate for Premium Bonds is 3.7%, but most people will not achieve this due to prize weightings. With average luck you will achieve 3.2% tax free.

And how much will the *median* customer earn? It's significantly less than the average one.

The median average return will be about 2.95%, despite the mean average being the nominal 3.7%, as the top 20% of the prize fund (by value) is paid out from only about 1% of the prizes (by volume), so the expected return should be roughly 80% of the mean.

So even achieving just 80% of the mean, the expected value is still higher than Chip @ 4.21%, which returns 2.3%-2.9% net for higher and additional rate tax payers.

If we consider that we might hold our emergency fund for 30 years, this matters.

So we agree that Premium Bonds are the better option for higher and additional rate tax payers to store their emergency fund versus savings accounts.

'Better' is quite subjective, but yes, the 'average luck' (median) expected return from PBs is currently above the (guaranteed) net return from Chip for higher/additional taxpayers, which I make to be 2.5% or 2.3% by the way.

jak22

Terms like mean or median etc, or comparing the PB fund rate to savings rates, or edge cases like additional rate taxpayers might not be much help to anyone needing a reliable source of income rather than random monthly wins.

It's as simple as comparing those monthly wins to the £245 returned each and every month from a full PB holding in a 1 year fix or £185 in an EA for example - even a £500 or £1000 win still might not guarantee matching that return over the year. 

eskbanker

jak22 said:

Terms like mean or median etc, or comparing the PB fund rate to savings rates, or edge cases like additional rate taxpayers might not be much help to anyone needing a reliable source of income rather than random monthly wins.

Yes, that's what I was meaning by subjectivity, i.e. it isn't viable to generalise about what's better without knowledge of the individual circumstances, and clearly the variable nature of PB returns is incompatible with a need for a reliable income, regardless of average rates....

kev1744

totted up my returns on my PB...works out ive averaged 1.2% over past 12 months ...not great

Swipe

kev1744 said:

totted up my returns on my PB...works out ive averaged 1.2% over past 12 months ...not great

Seems like there are one or two of us with that spectacular annual rate.

pearl123

I took mine out. I'll return back to PB once interest rates go back down. 

Doctor_Who

My year to date return has been 3.25% on a full holding and still 6 months to go........so a big thank you to everyone with below average returns  . I'm sure my luck will soon run out and your luck will improve, we'll find out in a few days.

EssexHebridean

I'm leaving mine in until after the July draw, then they will be cashed out. We're intending to do this inside the next few months anyway as they will be providing some of the cash towards a ew house purchase, and as the Coventry account I'm also using for some of the funds is now going to be on 4.3%, I rather think the POB money can go there...

And if THAT doesn't prompt a win in the next draw to make me question that decision,  nothing will! 

mebu60

Doctor_Who said:

My year to date return has been 3.25% on a full holding and still 6 months to go........so a big thank you to everyone with below average returns  . I'm sure my luck will soon run out and your luck will improve, we'll find out in a few days.

Ditto, I'm similar YTD (and no individual prize higher than £100) and usually achieve or just beat the stated average most years.

Even if my returns dipped (or when!) I will still use for reasons others have stated re tax etc.