Premium Bonds- Are they worth it?

[palfreyman18]

Hi,

I want to buy �1000 worth of premium bonds, but i heard that you lose money on them after a while because of interest. I know that it investing in them is nothing like gambling, so the risks are minimal, but I have been told that such a small amount of money has little chance of winning anything every number of months, and that i would lose more than i would win, but i want to know what you lot think: should i get �1000 worth of premium bonds or should i spend more? I don't know what to do! (note that i am only a student and that i don't have as much money as most of you)

[Oneeyedvic]

On the balance of probability you will get a return of 3% - this means that it is slightly lower than a cash isa - it is better than a standard savings account though because premium bonds are tax free.

Of course this is on the balance of probability - you may get a return of nothing or of course you may get more.

A 3% return isn't great, but then nor is 4% from an ISA. The money you will 'lose' if you win nothing in a year is around �40.

So I guess the real question is do you want to gamble �40.00 - you will on average get �30, but you may get �1 Million (htough highly unlikely). You will always get your �1000 back.

 

Hope this helps

[Loosehead]

Vic is of course correct. When he says you will lose �40 he doesn't mean that �40 will be deducted what he means is that the erosion by inflation effect ie the future value will be as if it was �960. the amount you have will always be 1000 but it's spending power will decreas over time. Your holding can grow however if you reinvest, so say you win �30 buy more bonds so now you have 1030 etc etc, (I think you can only buy �50 at a time but you get the picture)

[palfreyman18]

Thanks guys, by the way Loosehead, Isn't �50 the least amount you can buy at a time?

[Loosehead]

Yeah that's what I meant, �50 miniumum.

[kempie]

The �50 minimum is if you buy them monthly by standing order, otherwise the single purchase minimum is �100.

[Hermia]

I have had �500 worth for 15 years and am still waiting for a win, but I have heard of people who win fairly regularly even though they don't have huge amounts. I am quite happy to keep the money where it is though as my ISA is full up and I don't get much interest elsewhere.

[Booldawg]

Well Alan Sugar seems to think they're a safe bet! I've heard reports of people holding the maximum amount and not winning in years. Personally, If I had 30k that didnt return me anything I'd invest elsewhere.

The best thing to do is put your money in for a year and see if the winning outweigh what you would've gained in interest and then decide.

If you have premium bonds you can check online who's won 5k or more and it makes for pretty sickening reading. Someone won a million last month who invested only 5k in May this year!