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  • FIRST POST
    • FilledWithLight
    • By FilledWithLight 12th Jul 18, 4:23 PM
    • 9Posts
    • 1Thanks
    FilledWithLight
    Premium bonds versus Fixed Term Deposit
    • #1
    • 12th Jul 18, 4:23 PM
    Premium bonds versus Fixed Term Deposit 12th Jul 18 at 4:23 PM
    I have 1000 which I would like to temporarily invest but need to pay it back in 2 years. I asked advice on a previous thread and was recommended to put the money into a 2 year Fixed Term Deposit at 2.14% AER, which includes a 50 launch bonus, so I would come out with 93.26. Or I could buy Premium Bonds. Which would you recommend?
Page 1
    • mije1983
    • By mije1983 12th Jul 18, 4:36 PM
    • 3,326 Posts
    • 19,240 Thanks
    mije1983
    • #2
    • 12th Jul 18, 4:36 PM
    • #2
    • 12th Jul 18, 4:36 PM
    https://www.moneysavingexpert.com/savings/premium-bonds/


    https://www.moneysavingexpert.com/savings/premium-bonds-calculator/


    Are you happy to get zero interest, in return for the (slim) chance to get more than 2%?

    Side note, you probably could have just carried this on in the current thread.

    • Paul_DNAP
    • By Paul_DNAP 12th Jul 18, 4:44 PM
    • 171 Posts
    • 183 Thanks
    Paul_DNAP
    • #3
    • 12th Jul 18, 4:44 PM
    • #3
    • 12th Jul 18, 4:44 PM
    That 50 launch bonus alone is higher than what someone with average luck would expect to win on 1k premium bonds over 2years.
    However, to be getting that bonus and that rate I am assuming it's not a risk-free savings account (P2P lending?) with premium bonds you are absolutely guaranteed to still have your 1k back at the end.
    (Although I could be wrong, I often am.)
    • eskbanker
    • By eskbanker 12th Jul 18, 4:48 PM
    • 7,494 Posts
    • 8,081 Thanks
    eskbanker
    • #4
    • 12th Jul 18, 4:48 PM
    • #4
    • 12th Jul 18, 4:48 PM
    I have 1000 which I would like to temporarily invest but need to pay it back in 2 years. I asked advice on a previous thread and was recommended to put the money into a 2 year Fixed Term Deposit at 2.14% AER, which includes a 50 launch bonus, so I would come out with 93.26. Or I could buy Premium Bonds. Which would you recommend?
    Originally posted by FilledWithLight
    The notional average annual return on Premium Bonds is 1.4%, but this is skewed by the very low possibility of a very large prize, so the more likely (median) outcome is closer to 1.2-1.25%.

    However, a relatively small PB holding is more susceptible to the lumpy nature of the returns when the minimum prize is 25, so you'd only have a 36.2% chance of winning 25 but a 37.5% chance of winning nothing and a 26.3% chance of winning 50 or more. To borrow Clint Eastwood's phrase, do you feel lucky?
    • mije1983
    • By mije1983 12th Jul 18, 4:51 PM
    • 3,326 Posts
    • 19,240 Thanks
    mije1983
    • #5
    • 12th Jul 18, 4:51 PM
    • #5
    • 12th Jul 18, 4:51 PM
    However, to be getting that bonus and that rate I am assuming it's not a risk-free savings account (P2P lending?) with premium bonds you are absolutely guaranteed to still have your 1k back at the end.
    Originally posted by Paul_DNAP
    It's just a standard fixed term savings account, risk-free (well as much as cash can be). It's not the highest interest paying one, but the 50 bonus makes it the most profitable.

    https://www.raisin.co.uk/our-marketplace

    There are higher interest rates available so 2.14% isn't market leading for a 2 year fixed term.

    https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#fixedsavings

    OP, this is why it would make sense to keep it all in one thread. So people can see exactly what has gone on before.

    • Terry Towelling
    • By Terry Towelling 12th Jul 18, 5:12 PM
    • 193 Posts
    • 95 Thanks
    Terry Towelling
    • #6
    • 12th Jul 18, 5:12 PM
    • #6
    • 12th Jul 18, 5:12 PM
    This comes up a lot and we always get a range of views - but usually only when talking about the maximum holding of 50K.

    There are about 2.9 million prizes per month, of which about 2.8 million are 25. The probability of winning is 1 in 24500. So, with 1K you might expect to win one prize every 24.5 draws. That is the probability/expectation sorted.

    Chance, on the other hand, says you could win the top prize or you could even win 1000 prizes every month for 24 months or you could win nowt! That is the difference between 'chance' and 'probability'.

    If you fancy your chances of beating the odds then go for it and report back here in a couple of years - it can happen. Alternatively you could guarantee yourself 93.26 in a fixed-term deposit account - that's if that rate is truly guaranteed and not one of these 'expected profit rate' accounts.
    • ValiantSon
    • By ValiantSon 12th Jul 18, 7:30 PM
    • 2,166 Posts
    • 2,040 Thanks
    ValiantSon
    • #7
    • 12th Jul 18, 7:30 PM
    • #7
    • 12th Jul 18, 7:30 PM
    With the bonus, your effective interest rate is 4.66%. That's pretty damn good in the current market. I'd jump at it, if I were you. Premium bonds are really quite unlikely to deliver that kind of return.
    • Terry Towelling
    • By Terry Towelling 12th Jul 18, 9:09 PM
    • 193 Posts
    • 95 Thanks
    Terry Towelling
    • #8
    • 12th Jul 18, 9:09 PM
    • #8
    • 12th Jul 18, 9:09 PM
    In your other thread you have 31 months to pay back but only 24 in this one. The suggestion of sticking it on Premium Bonds made by a contributor in the other thread was based around a return of 1.3% for simply saving it for a single year. You can do far better than 1.3% - as you have now discovered.

    You could comfortably beat 93.26 in another way but there would be some unknowns and logistics to deal with. Why not open a Nationwide FlexDirect (5%) and a TSB Classic Plus (5%) at the same time. Put it all in one account and switch it to the other at some point in the month and then switch it back some time later. It doesn't matter how long between the switches because both accounts deliver the same rate and leave the interest in to make sure it compounds.

    After a year the Nationwide rate drops to 1% so keep it in TSB for most of each month and switch it to Nationwide for only a day. Once cleared switch it back to TSB.

    This process also takes care of the minimum monthly pay-in amounts needed to operate these accounts and, currently, TSB is paying 5 per month for having two direct debits.

    The unknowns are; will you qualify for those accounts when you apply? How long will TSB offer 5%? Can you trust TSB? (should be able to).

    The logistics are the direct debits needed to qualify for the TSB interest rate. One of your direct debits can be to the credit card with the 1000 balance but that means you will have to be careful to manage your pay-in to TSB to ensure the money is in place to cover the credit card payment direct debit (no great issue) plus one other Direct debit.

    All in all you could probably make about 125 (depending on the longevity of the 5 TSB monthly direct debit cashback offer).

    I think I've got the maths right - shout if not.
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