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

zagfles

eskbanker said:

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....

I wouldn't call a year a "long time", if held for 10 years the median return will be higher. 

eskbanker

zagfles said:

eskbanker said:

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....

I wouldn't call a year a "long time", if held for 10 years the median return will be higher. 

True, I even managed to contradict myself by not spotting that 3.45% is actually more than 80-85% of the headline rate even over just a year!  But yes, as you say, the median return (relative to the nominal rate) gradually increases over time.