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  • FIRST POST
    • Former MSE Wendy
    • By Former MSE Wendy 24th Jul 07, 3:20 PM
    • 868Posts
    • 1,782Thanks
    Former MSE Wendy
    Premium Bonds Article Discussion Area
    • #1
    • 24th Jul 07, 3:20 PM
    Premium Bonds Article Discussion Area 24th Jul 07 at 3:20 PM
    This thread is to discuss the
    Premium Bonds: Are they worth it?
    article


    Also see the
    Premium Bond Probability Calculator
    to discuss the calculator specifically see the

    Premium Bond Calculator Discussion.

    To take part, click reply.
    Last edited by MSE Martin; 24-07-2007 at 5:19 PM.
Page 33
    • eskbanker
    • By eskbanker 9th Aug 18, 4:07 PM
    • 8,721 Posts
    • 9,955 Thanks
    eskbanker
    500 was derived from the calculator.
    Originally posted by Kallisti
    The bit you're referring to is wrong, or at best misleading. The full odds page for 50K over a year only gives odds for 500+ (87%) and 750+ (24.7%), so the summary correctly identifies that 500 is a more likely outcome than 750, but ignores all the intermediate data points - as the median return on 50K in any given month is 50 (each individual bond is 1 in 24,500) it follows that the annual equivalent will be at least 600.

    Over the long term (short of near-infinite time), unless you win big prizes (wholly unlikely and the reason for my post separating out the chance of a big win being an attractive selling point), stable below 1.26%.

    You're likely to win the 50 prize once every 27 months with a 50k investment, anything more (assuming the mistake in the first paragraph) is very unlikely (once every four years, then once every 9). So, taking them out entirely, your short-term chance (one year) is closer to 1.08%, rising to 1.17% over 8 years.
    Originally posted by Kallisti
    No, I did the odds in another thread recently, based on the NS&I published prize draw breakdown, and 1.2% is the expected return in 25 prizes, rising slowly closer towards the full 1.4% as the larger prizes are added in:
    Pretty sure we've discussed this before but the nominal figure is 1.4% - the more realistic median expectations are indeed lower but are a continuum rather than a specific single figure, i.e.

    98.20% of the prizes (the 25s) would return 1.20%
    98.98% return 1.22%
    99.77% return 1.26%
    99.94% return 1.30%
    99.99% return 1.33%
    and then progressively smaller increments up to 100% = 1.4%

    In other words, a return of 1.26% is more likely than 1.3% but less likely than 1.22%....
    Originally posted by eskbanker
    As for savings rates, #thatscomplicated, but the savings page suggests anything from 1.35% to 5% (limited ), so that really depends on your appetite for complexity!
    Originally posted by Kallisti
    Indeed, but as PBs can be cashed in at any time then the obvious equivalence (at 50K level, which obviously rules out current accounts, etc) is an easy access account, although strictly if there were 30-day notice accounts they'd probably be a bit closer.

    But yes, as is often pointed out on this thread and other PB ones, it is usually possible to beat likely PB returns with guaranteed interest from savings accounts at a gross level. However, as per the posts immediately before yours, tax can and does make a significant difference for some, tipping the balance back towards PBs in those circumstances....
    • Kallisti
    • By Kallisti 9th Aug 18, 4:40 PM
    • 39 Posts
    • 6 Thanks
    Kallisti
    No, I did the odds in another thread recently, based on the NS&I published prize draw breakdown, and 1.2% is the expected return in 25 prizes, rising slowly closer towards the full 1.4% as the larger prizes are added in:
    Originally posted by eskbanker
    #1 - admit when you're wrong. I got the wrong headline figure - I calculate the odds as being 1.2% immediately, 1.22% over 2 years, 1.26 over 4, 1.3 over 17 and 1.33 over a lifetime... Probably using the same method as you refer to (though I didn't look back to find it!).

    tax can and does make a significant difference for some, tipping the balance back towards PBs in those circumstances....
    Originally posted by eskbanker
    So, absolute return is one benefit of PBs and, personally, long-shot of a second home on an island somewhere is another. Ignoring the first, the second suddenly doesn't seem too much different. At worst (50k over 5 years & a 1.35% rate), you're talking about 500 + 175 in the lottery which will probably be zero and a 1/45m chance of an island retreat (though to be fair, maybe the whole island) or put the lot in PB and get 500 + 1/35m chance of second home. Very much marginal and PB is less hassle/complexity.
    :: No Links in signatures please - FM ::
    • KenSim
    • By KenSim 31st Oct 18, 9:22 AM
    • 10 Posts
    • 5 Thanks
    KenSim
    Well its been a while since my post on premium bonds and I did say that it was a gamble without losing lots of money, I am well aware of the effect of inflation which you obviously thought that I hadn't been able to figure out for myself. Just thought I'd let you know that at the moment I am at just over 300% profit .Thats the beauty of a relatively low cost gamble.
    • eskbanker
    • By eskbanker 31st Oct 18, 10:48 AM
    • 8,721 Posts
    • 9,955 Thanks
    eskbanker
    Well its been a while since my post on premium bonds and I did say that it was a gamble without losing lots of money, I am well aware of the effect of inflation which you obviously thought that I hadn't been able to figure out for myself. Just thought I'd let you know that at the moment I am at just over 300% profit .Thats the beauty of a relatively low cost gamble.
    Originally posted by KenSim
    Looking back up the thread I see that it was me who observed that holding PBs loses value to inflation if you have average luck (in that the typical 1.2-1.26% return will usually be below inflation, even allowing for being tax-free).

    Obviously if you have significantly better than average luck then you can indeed outperform inflation but the fundamental point remains that if you believe that you can achieve 300% profit on an ongoing basis then you're in for some serious disappointment, so if the purpose of your post was simply a boastful "I told you so" then perhaps you'd be gracious enough to accept that there is a concept of beginner's luck.

    A 50 stake held for 6 months has a 1 in 34,790 chance of returning at least 150, which illustrates the likelihood of achieving 300% profit - you may have been the one at this stage but obviously the odds favour you being in the 34,789 in future!
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