£1475 won on £50k Premium Bonds in one year - what interest rate does this represent?

eskbanker

grumpy_codger said:

 It's worth adding that 2.95% is just an approximate estimation.

This can be, say, an underestimation if a big-value prise was won at the start of the year followed by smaller prizes.

And, generally, one year is a far too short period for making a reliable estimation.

There's no estimating involved when it's just a calculation of the actual percentage return from OP's bonds over the last year, which is the clear implication from the specifying of a non-rounded absolute value?

Ayr_Rage

grumpy_codger said:

 It's worth adding that 2.95% is just an approximate estimation of the actual rate. Sort of a rate as it's probability in fact.

This can be, say, an underestimation if a big-value prise was won at the start of the year followed by smaller prizes.

And, generally, one year is a far too short period for making a reliable estimation.

No it's not!

The annual return is exactly 2.95% if £1475 has been won on a maximum holding over a year.

Alexland

Unless the OP won all their prizes at the end of the year they would have had the opportunity to reinvest the winnings somewhere else (as they were already at the limit) during the year to earn a little additional return.

grumpy_codger

Yes, but the only reason for calculating this 'rate' is to compare it to other rates. 

My point was that if 2.95% is lower than, say, interest rates available for savings, one can't conclude reliably that PB perform worse, although this can be the case.

Ayr_Rage

grumpy_codger said:

Yes, but the only reason for calculating this 'rate' is to compare it to other rates. 

My point was that if 2.95% is lower than, say, interest rates available for savings, one can't conclude reliably that PB perform worse, although this can be the case.

Please re-read the title of the topic.

"What interest rate does this represent?"

There is only one answer.

eskbanker

grumpy_codger said:

Yes, but the only reason for calculating this 'rate' is to compare it to other rates. 

My point was that if 2.95% is lower than, say, interest rates available for savings, one can't conclude reliably that PB perform worse, although this can be the case.

One also can't conclude reliably that OP had any such evaluation in mind....

Markmywords

Premium bonds don't compare well generally to other saving rates unless you lucky and win quite a bit. 

eskbanker

Markmywords said:

Premium bonds don't compare well generally to other saving rates unless you lucky and win quite a bit. 

That's too much of a generalisation though - those with large holdings for a long time should achieve something like 80-85% of the published headline rate, so a £50K holding should on average (median, not mean) return about 3.45% over a year versus the nominal 4% prize rate.

In itself that's not great relative to current market-leading savings rates, but the tax-free status makes a significant difference for those already using their tax allowances, especially higher rate taxpayers, for whom an effective rate of over 5.7% is more tempting....

winkowinko

Obviously nobody has a crystal ball, but the 2.95% sounds even less great when you consider what kind of fixed interest rate could have been achieved 12 months ago.

zagfles

Ayr_Rage said:

grumpy_codger said:

Yes, but the only reason for calculating this 'rate' is to compare it to other rates. 

My point was that if 2.95% is lower than, say, interest rates available for savings, one can't conclude reliably that PB perform worse, although this can be the case.

Please re-read the title of the topic.

"What interest rate does this represent?"

There is only one answer.

There isn't only one answer. What "interest rate" could mean the nominal rate or the AER. The AER will be higher than 2.95% unless all the winnings were at the end of the year.