Premium Bonds

[Ric.ror]

So what's this in the budget about increasing the prizes

[emeritus]

Cap on Premium Bonds to be lifted from £30,000 to £40,000 in June and £50,000 next year. He mentioned increasing Million pound winners but didnt get the detail.

[furrypusscat]

I gather there will be two £1000000 prizewinners per month not one. I think.

[Sipowicz]

http://www.telegraph.co.uk/finance/personalfinance/savings/10708444/Budget-2014-NSandI-Premium-Bonds-limit-to-hit-50000-with-new-1m-prize.html

[Ric.ror]

Thank you
I'll remember you if I win;-))

[furrypusscat]

From 1 June 2014, savers will be allowed to hold up to £40,000 in Premium Bonds, up from £30,000 previously, and in 2015 the limit will be raised further to £50,000.

The number of £1m Premium Bond prizes will be doubled each month to two, beginning with August's draw.

[New Judge]

Yes and along with that, assuming people invest more money in PPBs, the number of other prizes will increase (though the chances of winning with any one bond will probably remain about the same).

[Gromit]

Last year Osborne cut the prizres because Premium Bonds were too popular. This year he increases them. Another U-turn? Or oes he just not know his Yabbie from his elbow?

July 24 2013

// Premium Bond prizes just got harder to win

Returns on Premium Bonds have been cut in a bid to reduce their popularity

The 22 million Britons who own Premium Bonds will have less chance of winning prizes from next month after National Savings & Investments cut the prize pool yesterday.
NS&I is slashing almost £8 million from the monthly prize pot to £49 million, lengthening the odds on winning from 1 in 24,000 to 1 in 26,000.
The £1 million jackpot will still be paid out each month, but the number of £100,000 prizes will be cut from five to three and the £50,000 prizes from nine to six. //

[Tilly2]

Any chance of the £25 win going back to £50?

[mikey4444]

Premium Bonds are a ludicrous way to save. There is no guarantee whatsoever of any win, and therefore return, and every day your bonds don't win a prize, their value is being eaten away by inflation. Investments for daft people !

[royfromaus]

Risk free gamble.

[factor-fiction]

I've only got one (£1) but I accept that they can be a useful part of an investment portfolio, especially for higher rate taxpayers, and the prize fund builds in a rate of interest that is similar to net returns available elsewhere

[mikey4444]

Risk free gamble ?

Every day your money is locked up in Premium Bonds, it is losing its value because it isn't earning any interest, and it is being eroded by the effects of inflation. Premium Bonds are sort-of OK if you have loads of money in other places, like deposit accounts. But if you only have £30,000, if plain stupid to put it all in Premium Bonds.

Why do people always not understand the effects of inflation ?

eg, you put £100 into Premium Bonds. After a year with inflation at 5%, that money is now worth only £95. At the end of year two, its worth £90.25. At the end of year 3, its worth £87.73, year four £81.45. By the end of year 5 its only worth £77. You have lost nearly a quarter of your original £100. The odds on winning any prize in that time is very low.

How does that make sense to anyone ?

[mikey4444]

FF...there is not guarantee that you will win money at all with Premium Bonds and to compare it with a rate of inflation is completely erroneous.

To repeat, if you are very wealthy, than its might make sense to gamble with your money, because your Premium Bond holdings will represent a very small part of your whole portfolio. So if you don't win anything, and the vast amount of people don't...well, its a hit that you can afford to take.

[BlueToffee]

mikey4444, I held the full amount of £30,000 before the prize fund went down. It showed me an 8% nett return over three year period. Perhaps I was just lucky.

[factor-fiction]

I agree, mikey4444. that inflation does affect the value of your bonds although I calculate the 5 year figure to be £78.35 rather than £77 based on your rather high figure of 5% pa. But you also need to take into account that an inflation element (currently around 1.5% and presumably this would be nearer 5% if inflation was at your 5% figure) is applied to the fund and is paid out as prize money. No tax is deducted so for a taxpayer, particularly a higher rate tax payer, it's a reasonable net rate of return. I know the chances of winning are small but they do exist and you just can't ignore them.

[factor-fiction]

FF..."there is not guarantee that you will win money at all with Premium Bonds" - that's true and those many people who have chosen to buy bonds are are aware of that

"and to compare it with a rate of inflation is completely erroneous"- that comment doesn't make sense to me. You seem to be just picking and choosing which facts to include

But it's personal choice. Many people like premium bonds. I don't buy them but I can see why people do

[mikey4444]

Blue toffee...I am glad for you but yes, you were lucky. Its obvious that the more money you put into Premium Bonds, the more likely you are to win. The same goes with the Lottery...if you buy 10 tickets you stand a better chance of winning that you do with 1 ticket.

The trouble with Premium Bonds is this widely-held view that they are a "risk-free" investment. Wrong on both accounts...not an investment and not risk-free. In my years as a financial adviser ( over now thank God ! ) I met many people, especially the elderly that put all or nearly all of their meagre savings into Premium Bonds. Most of them had nowhere near the max savings of £30,000, so missed out on the increased chance of winning. But they seemed pleased when they won £50 once or twice a year. And all because they viewed them as "risk-free" And all the time their original lump-sum was losing value due to inflation.

[Tilly2]

Last year Jan to Dec, I won at least £25 in Jan, April, May, June, July, Nov and Dec. No big wins but a delight and nice surprise, when all is said and done.

[factor-fiction]

Mikey- you say: "the more money you put into Premium Bonds, the more likely you are to win. The same goes with the Lottery...if you buy 10 tickets you stand a better chance of winning that you do with 1 ticket. "

Surely that applies to savings as well. The more you save the more interest you get.

With premium bonds surely you are confusing the rate of return (as a percentage of the amount invested) and the size of the return

[mikey4444]

But that is the problem FF...people do compare it with a rate of interest. The vast majority of bond holders have never won a prize, because they don't hold enough bonds. I have had £100 in Premium Bonds since I was about 5 years old, and they have never won anything. There are millions of small-amount Bond holders like me. They are the ones that are paying for the big payouts.