Premium Bonds - Not a bean for months now!!!!
Discussion
I don't get an email as not registered for it, I just routinely check here http://www.nsandi.com/savings-premium-bonds-have-i...
Sometimes too soon in the month, and sometimes I don't want to check as I'll be yet again disappointed
Sometimes too soon in the month, and sometimes I don't want to check as I'll be yet again disappointed
mark387mw said:
Ah , got a little moment of hope then as that's when I bought mine, unfortunately though i'm not a £1m better off 
Martin Lewis writes again on the subject, but before I C&P that in (and incase you get bored before you get to it) here is his PB calculator:
http://www.moneysavingexpert.com/savings/premium-b...
Meaning I have 3 times more luck with this than the average person....
Source of article: http://uk.finance.yahoo.com/news/truth-behind-ns-p...
Lewis says:
Line up everyone with £1,000-worth of Premium Bonds in order of their year’s winnings, and the person half way along would have won … not a penny! In fact, you’d need to walk past two-thirds of the line until you hit the first £25 winner.
NS&I’s Premium Bonds are the UK’s single most popular savings product, with £47 billion invested in them. Yet the rates are low and the safety advantage negligible so are they worth it?
Doing the numbers
The nearest thing Premium Bonds have to an interest rate is its annual prize rate, currently 1.3pc. This describes the ‘‘average’’ payout, but it is just a vague watermark. It describes the mean average, indicating that for every £100 paid into bonds, on average £1.30 a year is paid out yet in practice this is impossible, as the smallest prize is £25. In fact if 20 people each had £100 invested, for one to win £25-plus, the remaining 19 would have to win nothing.
A far better indication of what someone with typical luck would win is the ‘‘the person half-way along’’ measure. Those who can dredge up their school maths will remember this is called the median average.
To best demonstrate this, here’s an extreme example.
Imagine I sold a million people a £1 lottery ticket, and then paid just one winner a million pounds. I could argue, mathematically, that the (mean) average payout was £1, so on average everyone got their money back. This, of course is bonkers. Almost everyone wins nothing which is the result you’d discover if you lined them all up and asked the mid-way person.
The Premium Bond prize rate is a lesser version of this: to pay a million-pound winner, many thousands need to earn nothing.
The Premium Bond Probability Calculator
To accurately calculate the odds, you need to use something called “multinomial probability”. After all, to work out the chance of someone winning £200 a year, they could win 2 x £100, 8 x £25, 4 x £50, or a host of other variants. This multitude of probabilities means accurate calculation is hellish.
A few years ago I set myself a challenge to do it. I failed. I got one of my team with a top maths degree to try. He failed. We contacted an LSE Professor of Financial Mathematics she knew how to work it out, but she needed a specialist to do it for her.
Eventually we tracked down a post-doctoral cosmology statistician (someone who calculates star movements) who had the requisite skills, and he wrote us an algorithm to build PremiumBondCalculator.com. This allows you to plug in how many bonds you have, and it will predict your likely winnings. It proves that at every value someone with typical luck will earn less than the quoted prize rate.
Don’t think of it as winning
The most powerful psychological sell of Premium Bonds is that interest is called “winnings”. This lottery-effect hooks you into the unlikely dream of bagging a million-pound prize.
I often hear excited comments such as: “My friend wins £25 every few months!” Yet someone with £10,000-worth of bonds should win £100 a year that’s £25 every few months. The same money in a top cash Isa would ‘‘win’’ £175 a year, guaranteed.
Normally in finance there’s a risk premium: you should expect higher returns when there’s a higher risk. For some perverse reason, with Premium Bonds people tend to be happy to earn less when there’s a risk.
Premium Bonds versus savings
In the battle of tax-free savings, even the bloated 1.3pc tax-free prize rate compares poorly with the top 1.75pc easy-access cash Isa.
Nor does it do well against Santander’s 123 bank account, which can pay 3pc interest, or 2.4pc after tax at the basic rate, 1.8pc at the higher rate (it does have a £2 per month fee, but the cashback paid on bills usually more than covers it).
Only against the top normal savings, which have just dropped to a pitiful 1.5pc, does it look a winner, as basic-rate taxpayers will only earn 1.2pc, and higher rate 0.9pc. Yet the Probability Calculator shows a truer picture.
[ Avoid tax on your savings with an ISA - compare the best deals ]
Are Premium Bonds worth it?
As chance is involved, there’s no definitive answer. My talk of typical luck ignores the fact that some will always beat the odds. How you value ‘‘the dream’’ is up to you.
Based on the odds, Premium Bonds are certainly a good bet for higher and top-rate taxpayers who’ve filled their cash Isa and have exhausted quirky savings like Santander’s 123 account, or First Direct’s 6pc regular saver (see www.mse.me/savings).
Even for basic rate taxpayers, with the top deals now so weak, Premium Bonds look an OK bet. But this is unusual. That’s likely to reverse, either as savings rates rise, or Premium Bond rates drop as NS&I isn't allowed to dominate the market. Normally, Premium Bond odds of beating savings are minuscule and they should be avoided with all but a non-significant portion of your assets.
So while Premium Bonds aren't all-star winners, they’re looking as good as they ever have. Though if it’s the million you really want for better odds, put your money in a top savings account, then use the interest to buy lottery tickets.
http://www.moneysavingexpert.com/savings/premium-b...
Meaning I have 3 times more luck with this than the average person....
Source of article: http://uk.finance.yahoo.com/news/truth-behind-ns-p...
Lewis says:
Line up everyone with £1,000-worth of Premium Bonds in order of their year’s winnings, and the person half way along would have won … not a penny! In fact, you’d need to walk past two-thirds of the line until you hit the first £25 winner.
NS&I’s Premium Bonds are the UK’s single most popular savings product, with £47 billion invested in them. Yet the rates are low and the safety advantage negligible so are they worth it?
Doing the numbers
The nearest thing Premium Bonds have to an interest rate is its annual prize rate, currently 1.3pc. This describes the ‘‘average’’ payout, but it is just a vague watermark. It describes the mean average, indicating that for every £100 paid into bonds, on average £1.30 a year is paid out yet in practice this is impossible, as the smallest prize is £25. In fact if 20 people each had £100 invested, for one to win £25-plus, the remaining 19 would have to win nothing.
A far better indication of what someone with typical luck would win is the ‘‘the person half-way along’’ measure. Those who can dredge up their school maths will remember this is called the median average.
To best demonstrate this, here’s an extreme example.
Imagine I sold a million people a £1 lottery ticket, and then paid just one winner a million pounds. I could argue, mathematically, that the (mean) average payout was £1, so on average everyone got their money back. This, of course is bonkers. Almost everyone wins nothing which is the result you’d discover if you lined them all up and asked the mid-way person.
The Premium Bond prize rate is a lesser version of this: to pay a million-pound winner, many thousands need to earn nothing.
The Premium Bond Probability Calculator
To accurately calculate the odds, you need to use something called “multinomial probability”. After all, to work out the chance of someone winning £200 a year, they could win 2 x £100, 8 x £25, 4 x £50, or a host of other variants. This multitude of probabilities means accurate calculation is hellish.
A few years ago I set myself a challenge to do it. I failed. I got one of my team with a top maths degree to try. He failed. We contacted an LSE Professor of Financial Mathematics she knew how to work it out, but she needed a specialist to do it for her.
Eventually we tracked down a post-doctoral cosmology statistician (someone who calculates star movements) who had the requisite skills, and he wrote us an algorithm to build PremiumBondCalculator.com. This allows you to plug in how many bonds you have, and it will predict your likely winnings. It proves that at every value someone with typical luck will earn less than the quoted prize rate.
Don’t think of it as winning
The most powerful psychological sell of Premium Bonds is that interest is called “winnings”. This lottery-effect hooks you into the unlikely dream of bagging a million-pound prize.
I often hear excited comments such as: “My friend wins £25 every few months!” Yet someone with £10,000-worth of bonds should win £100 a year that’s £25 every few months. The same money in a top cash Isa would ‘‘win’’ £175 a year, guaranteed.
Normally in finance there’s a risk premium: you should expect higher returns when there’s a higher risk. For some perverse reason, with Premium Bonds people tend to be happy to earn less when there’s a risk.
Premium Bonds versus savings
In the battle of tax-free savings, even the bloated 1.3pc tax-free prize rate compares poorly with the top 1.75pc easy-access cash Isa.
Nor does it do well against Santander’s 123 bank account, which can pay 3pc interest, or 2.4pc after tax at the basic rate, 1.8pc at the higher rate (it does have a £2 per month fee, but the cashback paid on bills usually more than covers it).
Only against the top normal savings, which have just dropped to a pitiful 1.5pc, does it look a winner, as basic-rate taxpayers will only earn 1.2pc, and higher rate 0.9pc. Yet the Probability Calculator shows a truer picture.
[ Avoid tax on your savings with an ISA - compare the best deals ]
Are Premium Bonds worth it?
As chance is involved, there’s no definitive answer. My talk of typical luck ignores the fact that some will always beat the odds. How you value ‘‘the dream’’ is up to you.
Based on the odds, Premium Bonds are certainly a good bet for higher and top-rate taxpayers who’ve filled their cash Isa and have exhausted quirky savings like Santander’s 123 account, or First Direct’s 6pc regular saver (see www.mse.me/savings).
Even for basic rate taxpayers, with the top deals now so weak, Premium Bonds look an OK bet. But this is unusual. That’s likely to reverse, either as savings rates rise, or Premium Bond rates drop as NS&I isn't allowed to dominate the market. Normally, Premium Bond odds of beating savings are minuscule and they should be avoided with all but a non-significant portion of your assets.
So while Premium Bonds aren't all-star winners, they’re looking as good as they ever have. Though if it’s the million you really want for better odds, put your money in a top savings account, then use the interest to buy lottery tickets.
226bhp said:
snip
Even for basic rate taxpayers, with the top deals now so weak, Premium Bonds look an OK bet. But this is unusual. That’s likely to reverse, either as savings rates rise, or Premium Bond rates drop as NS&I isn't allowed to dominate the market. Normally, Premium Bond odds of beating savings are minuscule and they should be avoided with all but a non-significant portion of your assets.
So while Premium Bonds aren't all-star winners, they’re looking as good as they ever have. Though if it’s the million you really want for better odds, put your money in a top savings account, then use the interest to buy lottery tickets.
Interest rates on instant access account are an insult. I would rather take my chances with PBs for the foreseeable future until things improve. Even if I win nothing over the next year, the excitement of checking every month is for me an acceptable opportunity cost for the interest I've forgone.Even for basic rate taxpayers, with the top deals now so weak, Premium Bonds look an OK bet. But this is unusual. That’s likely to reverse, either as savings rates rise, or Premium Bond rates drop as NS&I isn't allowed to dominate the market. Normally, Premium Bond odds of beating savings are minuscule and they should be avoided with all but a non-significant portion of your assets.
So while Premium Bonds aren't all-star winners, they’re looking as good as they ever have. Though if it’s the million you really want for better odds, put your money in a top savings account, then use the interest to buy lottery tickets.
If and when interest rates creep up, I'll reconsider but for now I'll take my chances!
funinhounslow said:
226bhp said:
snip
Even for basic rate taxpayers, with the top deals now so weak, Premium Bonds look an OK bet. But this is unusual. That’s likely to reverse, either as savings rates rise, or Premium Bond rates drop as NS&I isn't allowed to dominate the market. Normally, Premium Bond odds of beating savings are minuscule and they should be avoided with all but a non-significant portion of your assets.
So while Premium Bonds aren't all-star winners, they’re looking as good as they ever have. Though if it’s the million you really want for better odds, put your money in a top savings account, then use the interest to buy lottery tickets.
Interest rates on instant access account are an insult. I would rather take my chances with PBs for the foreseeable future until things improve. Even if I win nothing over the next year, the excitement of checking every month is for me an acceptable opportunity cost for the interest I've forgone.Even for basic rate taxpayers, with the top deals now so weak, Premium Bonds look an OK bet. But this is unusual. That’s likely to reverse, either as savings rates rise, or Premium Bond rates drop as NS&I isn't allowed to dominate the market. Normally, Premium Bond odds of beating savings are minuscule and they should be avoided with all but a non-significant portion of your assets.
So while Premium Bonds aren't all-star winners, they’re looking as good as they ever have. Though if it’s the million you really want for better odds, put your money in a top savings account, then use the interest to buy lottery tickets.
If and when interest rates creep up, I'll reconsider but for now I'll take my chances!
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