interest rate

[johnny37]

I trying to work out the rate of return on my premium bonds,

If �5000 over 46 months earns �450 interest, what is the interest rate?

[dzug]

2.35 on an annual basis - you've actually received 9% over 46 months so divide by 46 and multiply by 12.

Doesn't take into account WHEN you received the money

[jezzatt70]

Not enough! You are better off going with a savings account or ISA which will return up to 2% more per year. Premium bonds should bring you in about 3.60% per year as of 1st Feb, with the possibility of winning �50 once in a very long blue moon.

[Hammer]

It's actually less than that - 2.27% per year if you take into account compounding (ie interest earned in the first year will itself earn interest in the second year).

Jezzat - it depends on your attitude. You are expected to earn around 3.6% with average luck, but you could win �1m. Not very likely, granted, but you could.

[johnny37]

Hammer, you havent taken into account tax which is deducted from a savings accounts. I think savings are taxed at 20% which would make 2.27% actually worth 2.83% (more for a higher rate taxpayer). Not as much as you could make on Icebank for example at 5.7% but as you say it is worth a punt at the 1m prize. Better odds that The Lottery, I reckon. I may have lost interest but �2 a week on the lotter y would have been about the same.

[jezzatt70]

I had to reply after reading the last few posts. If you put a �1 on the lottery your odds are one in 14 million. If you put that same pound on a Bond your odds are one in 17 billion. So my suggestion stick to the lottery boys. The long and short answer for Bonds is there are better options. If you would like me to reel off loads of stats on Bonds I will be more than obliged. I'm not blabbering on to scare you into getting out of a Bond....wait a minute, yes I am. GET RID OF YOUR BONDS!

[johnny37]

According to the NS&i website the odds of any one bond winning any prize is 24000 to 1 and the total returned in prizes is 3.6% of the fund. The 1m prize odds are obviously very high but i would rather have many chances of smaller prizes, which with luck will beat inflation, than no (or hardly any) chance as in the Lottery.

I think the quote of 24000 can be construed in different ways. eg a block of 5000 will have more chance of hitting one prize than would 5000 random bonds.

Unless you can convince me otherwise!

[Hammer]

Johnny, why would a block of 5000 have more chance of winning than 5000 random bonds?

The random number generator they use is just that, random. Any bond is equally likely to be chosen, by definition. 5000 bonds in a block have the same probablility of winning as 5000 random bonds.

[johnny37]

I'm not an expert but I believe the laws of chance say the odds of 5000 tickets as a block have more chance of one hit than 5000 individual tickets spread across the whole system operating as a net with lots of large holes in it..

[Hammer]

No, you are wrong I�m afraid. Random is random and you can�t increase your chances at all. **Every bond is equally likely to win**. It�s like saying that if you toss a coin and get heads ten times then it�s more likely to be tails next time - not true, it�s still fifty-fifty. Or telling people not to pick consecutive numbers on the lottery as they are less likely to come up � not true, any 6 numbers are as likely as any other 6 numbers.

[dzug]

had to reply after reading the last few posts. If you put a �1 on the lottery your odds are one in 14 million. If you put that same pound on a Bond your odds are one in 17 billion.

No, there's several flaws in that argument.

First, you can get your PB bond back - once it's blown on the lottery it's gone.

Secondly, it's in the PB draw month after month until you cash it in. Your lottery ticket is a one-off.

Not sure that either is a particularly good 'investment', but at least compare like with like before slagging one or the other off.

[jezzatt70]

Okay lets sort this out....

First thank you dzug for your comments, of course what you say is perfectly true. I was just making a point that your chances of 'winning' the jackpot is a no hoper near enough'. However yes you can win �50 at odds of 29,000 to 1 for every pound and maybe you could win �100 at 100,000 to one.
BUT all that is just a psycological ploy to make you think that you save and win money at the same time. When in fact with your 3.6% and 29,000 to 1 odds of winning that �50 you're no better off, in fact worse off than having a regular savings account that gives you your interest every month drip drip drip....no gimmocks no BS!
So in conclusion johnny37 in answer to your original question: If �5000 over 46 months earns $450 interest, what is the interest rate?
Answer: Absolute pants!

[johnny37]

Hammer, Can you give me the formula for working out the interest rate. I've tried p x r x t divided by 100 to find r but it doesn't seem to work. Is that the correct formula?