Premium Bonds

We have a Virgin One Current Account mortgage with a fairly low oustanding balance owed of 36K but also have 10K savings in there so am only paying interest on 27K. We have no other investments except for 200 in premium bonds and no spare cash available from income to invest. Our policy is to leave the same amount in the account every month to pay off the mortgage which we are paying off on a capital repayment basis, having cashed in a lousy endowment which was not so much underperforming but so ridiculously out of kilter it looked as though the day could well be arriving when the Insurance company might expect a payout from us rather than the other way around!

I've just received some advertising blurb from National savbings about premium bonds and it appears that it is now possible to invest in premium bonds on a monthly basis with a minimum 50 per month investment. We are now seriously considering investing 50 per month into premium bonds and reducing our monthly payment to Virgin by the same amount. We have a relatively low income so cannot afford to take risks and as it is possible to cash in premium bonds whenever we like, with no loss of capital this seems like a good way of having a chance to win some cash while keeping our original stake safe.

An online calculator shows that we would lose 19.69 in interest in the first year, but over the 20 years we have budgeted for our mortgage to last, this rises to an interest loss of 11,079.55 (I suppose due to interest on the interest?). Obviously I am hoping that this would be offset by a few wins on my premium bonds, though having said that, I've held my current 200 worth of premium bonds for 6 years and not won a penny, and as a rule, do not seem to have a lucky streak.

Anyone have any thoughts on this please?

Lydia

Reply to
LynLyn
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May not be too useful, but! Playing the bons is like playing the lottery - you might not win anything for the next 2 weeks but you might win back shitloads in one week......I would go for the Bonds.....

Reply to
mo

I did a month by month diary in this very newsgroups last year of my investments in and returns from premium bonds. Do a search on google in this newsgroup for 'John Smith' as author and the year as '2004' and you should see the monthly posts. I think the subject was 'Premium Bond Diary'. Hope it helps.

Reply to
John Smith

"LynLyn" wrote

With average luck (and current rates on premium bonds) you'd expect around one prize every 10 years with 200 premium bonds.

So none in 6 years doesn't look too "unlucky"...

Reply to
Tim

Based on the usual blurb that the maximum £30,000 investment is expected to win a prize every month (although I think the odds of winning a prize have ever so slightly improved recently), £200 is probably expected to win a payout once every 12.5 years so you're not (yet) behind on the probabilities.

RM

Reply to
Reestit Mutton

This is important, and is a big reason why you should *not* consider premium bonds.

The point about premium bonds is that they're a mug's game, like the lottery, if you are hoping for big wins. Big wins are so unlikely that you may as well ignore the possibility for all practical purposes. You have to go with averages, and they are that you should expect to win £50 now and then, equivalent to an interest rate, tax-free, of very much less than you would expect to "earn" (in terms of paying less) by investing your £50pm in additional mortgage loan repayments.

On a low income you shouldn't be wasting your money like this.

On the point of your stake being safe, it's true that it's unlikely the premium bond venture will go bust, but it could happen, e.g. by some very clever fraud, or by the whole currency collapsing. There is no safer stake, though, than a debt paid off, so your money is safer if you put it to reducing your loan.

Reply to
Ronald Raygun

It's total guesswork. You might win but you might not. The notional interest rate for premium bonds is 3.2% at the moment, which means that if you won at an average rate, that's what you'd get. And this is tax free. But it's less than you're paying to Virgin, and so it's less than Virgin are paying you, as it were, on your offset account, which is effectively tax free under this offset arrangement. So if you had average wins, you'd lose out.

So it all depends on whether you want to take a risk or not. As you've said, you've not won anything in 6 years and are not a lucky person. But you might win 100,000 next week.

Rob Graham

Reply to
Robin Graham

"Robin Graham" wrote

Unlikely (on premium bonds) - the draw isn't until the 1st of next month ( >1 week away) ... :-(

Reply to
Tim

lol, so its impossible then?

Reply to
mo

I suspect that on average you'd lose out. So how much is it worth to you to have a small chance of a big windfall?

FWIW I did win £10,000 once, but apart from that my winnings over the last few years have been as follows:

2000 3.50% 2001 3.50% 2002 2.25% 2003 2.00% 2004 1.50%
Reply to
Mike Barnes

how many people hold bonds? how often do they draw and how many prizes are there per draw?

Reply to
mo

Figure of speech!

R
Reply to
Robin Graham

The draw is monthly on the first of the month.

When you invest, you always miss out on the draw immediately following your investment. So, for example, if you invest between 01 January and

31 January, the first draw that you will be entered into will be the 01 March draw.

The only other thing you need to know is that the number of prizes are always such that 1 in every 27500 bonds is given a prize. At least I

*think* it's currently 27500 (website currently unavailable to confirm this) - it used to be 30000 but ISTR that they recently increased the odds of winning a prize to 1 in 27500 by increasing the number of minimum £50 prizes at the expense of the number of higher valued prizes.

Thus, if you hold the maximum 30,000 bonds (each bond is £1) then, statistically, at least one of them should win a prize every month.

HtH RM

Reply to
Reestit Mutton

i see - does every bond have a number or something that is randomly picked (bit like the lotto)

Reply to
mo

Yes. Ernie is basically a random number generator - thus anyone who thinks they ought to cash in a bond once they've won and repurchase a new one is simply subscribing to an urban myth. The odds of winning a prize with a particular bond is not affected by its history.

RM

Reply to
Reestit Mutton

Is it? I thought premium bonds had to be one of the lowest risks around.

Premium bonds are underwritten by the Treasurary. Where would you put your money so that it's safe in the event of the `whole currency collapsing`?

I'm not suggesting Premium Bonds are the best policy for the OP but risky they ain't.

Reply to
Alex

Is it? I thought premium bonds had to be one of the lowest risks around.

I'd be very interested to hear how a such a fraud would work. Premium bonds are underwritten by the Treasurary. Where would you put your money so that it's safe in the event of the `whole currency collapsing`?

I'm not suggesting Premium Bonds are the best policy for the OP but risky they ain't.

Reply to
Alex

"Reestit Mutton" wrote

It's actually now 24,000 to 1 (source: NS&I letter January 2005).

"Reestit Mutton" wrote

They have even more recently (since last September) "reduced the number of

50 prizes and *doubled* the number of prizes worth 100." [Same source.]

"Reestit Mutton" wrote

That's very misleading. The probability of someone holding 30K bonds, *not* winning any prize in a month, is certainly not *zero*.

Reply to
Tim

Yes, very much so.

Indeed they are. I only mentioned on the side that although the risk of loss of capital from the Treasury collapsing is infinitesimal and can for all realistic purposes be disregarded, it is not absolutely zero, while the risk of debt paid off coming back to bite *is* absolutely zero. This is not the deciding factor here, though.

No, the thrust of what I meant is, given that the "risk" of a big win is so small that it may effectively be disregarded, that it follows that the risk of doing badly (in terms of enjoying poor growth) is therefore high. Someone on a low income who cannot afford to take risks, I'd say can also not really afford to invest in something expected to perform at about 3% tax-free, when much better options are available. Even ordinary savings will give 4% tax-free (5% less 20% tax - low income implies not HRTP), but the obvious investment here is to shove the dosh into the mortgage, giving -say- 6% tax free - twice as good as premium bonds.

Reply to
Ronald Raygun

Thanks for the figures.

Almost certainly at the expense of larger prizes though...otherwise they wouldn't be able to increase the number of prizes whilst maintaining the current level of payout. Okay, so the effective payout probably increased recently to account for interest rate rises over the past year. However, the rise in payout alone would not have been enough to allow a doubling of the number of £100 payouts and a reduction in the number of £50 payouts.

Statistics dictates that the EXPECTED number of monthly wins is greater than 1. That is a FACT. Yes, you might not win anything in any given month but the long term average is such that you will, on average, have at least one prize per month. That is what the term "statistically" is meant to imply - nothing more, nothing less. Methinks you either misunderatand the concept of statistics or are simply splitting hairs.

RM

Reply to
Reestit Mutton

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