Premium Bonds - ERNIE picks a winner!

[Rob McCow]

I'm not sure about premium bonds. There's an interesting article at the other end of this link about premium bonds. They're not bad to put a little money in, I suppose, there's always the chance that they'll come up trumps.

What do you think?

[Trudi G]

I want to get some, the only problem is the minimum investment is 100. That's alot of money for me to find in one go.

[Ralph]

I hold a 1 bond from 1964 - I live in hope that one day I will be a millionaire

My Mum and Dad love them but can't say I'm overly excited I know of course that Alan Sugar is orgasmic over them but I'm sure they are a tiny part of his portfolio....

[Paul Monk]

Anyone thinking of getting some should read the article on the Money Saving Expert site that Steve linked to earlier. It might be more profitable to put your money elsewhere.

[Si Hunt]

Premium Bonds are excellent because they provide a way of saving with an additional 'lottery' thrown in. You get all your money back whenever you want it, yet you can't touch it without filling in a form (so it avoids the temptation of spending it) plus there is a nice prize fund which means if you have a serious investment in it (a few grand, say) you can almost expect a semi-regular "income" of 50-100 prizes.

That article is highly flawed!

Premium Bonds almost always lose in comparison

In comparison to interest rates, yes! But that ignores the fact you are in with a chance of winning a higher prize. People pay every week for the chance of winning a lottery prize, and you lose your capital. You pay for the same stakes with Premium Bonds, except all it costs is your lost interest (1.75% a year according to the article) plus you keep your stake!

The great sell is the lottery effect, the chance of winning a dream; yet actually the chance of winning the jackpot per 1 spent on the lottery is one in 14 million whereas its one in 16 billion per Premium Bond draw.

Yes, but there are better smaller prizes on Premium Bonds. The Lottery offers it's absurd odds for a obscenly inflated jackpot, and then mere crumbs further down, whereas there are many more prizes of 100,000, 50,000 right down to hundreds of 100 prizes available on Premium Bonds. It's well acknowledged that Premium Bonds offer better odds on winning a prize, it's minimum payout also being five times that of the Lottery. AND YOU GET YOUR MONEY BACK!

Often you hear people say, my friend wins 50 every few months. Well of course people win, and the more they save, the more they win. Someone with 10,000 of Bonds should win around 315 a year; roughly 50 every other month. And isnt that much more exciting than the guaranteed 40 drip-feed every month of a savings account? Even though the saving account actually leaves you better off! Brilliant psychology!

Again, you are paying in lost interest for the chance to win a bigger prize! And very few people actually have enough money saved to get a "40 drop-feed" of interest. If I had ten grand in there, maybe I'd put it in an ISA. But for most people, even a fairly large amount of savings is still going to give you an unexciting interest return, whereas by contrast you could, again, put it in Premium Bonds and be in with a chance of winning a larger amount.

Put 100 in Premium Bonds, calculate the probability and 95% of people wont win a penny over a year

Well, no. You have to look at it seriously and acknowledge how many bonds there are. 100 won't win you anything. You have to have a significant investment to be in with a serious chance of a regular payout, or a large one.

Any statistical analysis of Premium Bonds is going to conclude that you'd overall get more money in interest... but the point of it is, it's a game. People are willing to pay money on the Lottery each week to be in with a small chance of winning a prize - in actual fact, I'm sure most people pay to win the Jackpot and nothing else, and probably plough any of the smaller prizes back into more tickets. Premium Bonds allow you to have the same 'gamble', to know that you are in with a chance of that BIG life-changing prize, while at the same time staggering the prize structure more sensibly so lesser wins are also quite significant too, and only charging you what you would have earned in interest, which as you never had you don't miss anyway.

Si.

[Ralph]

My Mum and Dad would love that post Si

[Captain Tancredi]

The in thing at work seems to have become to put 100 of your bonus in every year, and I may well do that myself. The thing with the minimum amount is that it's still an investment, not a lottery, and it would be poor PR for Premium Bonds if somebody won the million from a 1 investment- the idea is that for the majority of people over time, the prize money should be more or less equivalent to bank interest over the same period.