NS&I Premium Bonds

Hope itā€™s a decent prize!

If you download their app, it tells you exactly how much you have won, without having to log into your NS&I account.

edit - added screenshot

1 Like

Cheers @weenie !
PS - Really enjoy your blog.

Ha, thanks @Jim_mcgrain :smile:

1 Like

I use Premium Bonds and a few high interest current accounts as the cash portion of my portfolio. Iā€™ve found that Iā€™m averaging 3% return on Premium bonds though that is obviously very lucky, my wife has been averaging 1.5% with hers. Premium bonds are unlikely to hit 1.4% with low amounts in as there is a minimum prize size, so if that is more than 1.4% of your portfolio youā€™d expect to wait a couple of years before winning even the minimum prize on average. This then diminishes your portfolioā€™s ability to compound

2 Likes

Of course it doesnā€™t beat inflation, but most things donā€™t once you factor in tax unless youā€™re willing to accept some risk. With Ā£50k in cash a single person can get about 1.8% interest using high interest current accounts, any more than that and there just arenā€™t enough accounts for them to open that will help them increase the average interest and it will be getting very similar to the 1.4% offered by premium bonds. At that point they will also either be paying tax on the interest if higher rate, so doing worse than premium bonds, or would be about to start paying tax on the interest if they save any more if theyā€™re a standard rate tax payer. In that case it would make sense to use premium bonds as the winnings are tax free

1 Like

The question is, would you rather pay some low tax (considering that the first Ā£500 is tax free for a higher rate) on a guaranteed income or hope to receive untaxed income which is not guaranteed? :thinking:

Why not just do both, get you Ā£500 tax free with high interest current accounts and also use premium bonds. The rest of in the interest income being taxed at 40% is pretty steep to me

2 Likes

I have never dealt with premium bonds, but according to MSE, it seems like the odds of winning Ā£25 are 1 in 24,500 or 0.004% for every Ā£1 invested.

Complex probabilities aside, that could be roughly about Ā£1 for our Ā£25,000 invested or Ā£12 in a year ā€œon averageā€. Alternatively, you could get Ā£375 interest with Marcusā€™ 1.6% and your NPAT will be Ā£225 assuming you do not have any space in your cash ISA and pay 40% tax. Unless, of course, you hope to be very lucky and win something significantly more than Ā£25. But the chances are very very slim.

But you donā€™t get the chance of winning Ā£1m every month and that too is part of the appeal for me.

Like a lottery but not, because I can get my cash back if I want, albeit eroded a little by inflation.

For me, premium bonds are a good cash compliment to my investments because their value isnā€™t going to rollercoaster any time soon.

4 Likes

The whole point of Premium Bonds is that on average they will return 1.4% so while individual months will have a large standard deviation, on average it is correct to use the 1.4% figure. I did the maths so others donā€™t have to. Based on being able to put Ā£4000 in 5% interest, Ā£6000 in 3% interest and the rest in 1.5% interest current accounts, the optimal for higher rate tax payers is maxing out the 5% and 3% and also putting Ā£8000 at 1.5% interest. Any extra would then be better put into premium bonds. In the case of a standard rate tax payer you would have to get to Ā£41,330 in 1.5% interest accounts (as well as the Ā£10,000 in higher interest accounts) before it starts to be worth putting money into premium bonds

When I win that jackpot, Iā€™ll let you know if itā€™s been worth putting money into premium bonds :four_leaf_clover::joy:

Iā€™ve had them on and off for years. I seemed to get better returns when I had more invested - when I was below 10k it wasnā€™t great but the thought of winning big was exciting regardless:grinning:

Itā€™s official!

NS&I have today (1 February 2019) reduced the minimum initial investment for Premium Bonds from Ā£100 to Ā£25. This is the first time in the 63 years since Premium Bonds launched that the minimum investment has been lowered, and it is the lowest minimum purchase since 1993. The change will allow adults over the age of 16 to purchase or set up a standing order for a minimum of Ā£25, or gift at least Ā£25 to their children or grandchildren.

1/3 of people in the UK hold Premium Bonds.

https://twitter.com/nsandi/status/1091320349436858368?s=21

5 Likes

I think of premium bonds as half price national lottery ticket plus I never loose my stake.
Usually never get more than a Ā£25 prize but one month got 6 of them. So more than any interest I could have received. Maybe Iā€™m just lucky. Have noticed on the winners list many winning large prizes with just a few bonds. Trust your luck

4 Likes

:arrow_down:

3 Likes

Are there any bonds you are in on Freetrade?

Iā€™m still happy to keep a wedge of cash in premium bonds (won Ā£50 in Jan and Ā£25 in Feb). My return last year was around 1.4% which is about the same as what Iā€™d get if I stuck the cash in an interest-paying account. However, I donā€™t mind not getting the guaranteed return as I quite like the chance of being able to win Ā£1m!

1 Like

I calculate mode average wins as follows for Premium Bonds:

1 x 12 x 25 / 24500 = 1.22%
1 x 12 x 25 / 26000 = 1.15%

Meaning each 1 GBP bond, has 12 chances a year to win 25 GBP minimum with odds 24500 (current) or 26000 (future).

Also, since minimum prize is 25, one needs

25 / 1.22% = 2050
25 / 1.15% = 2175

Minimum invested for a whole year, to get one win.

Times that by 12, for a win every month, ie ~25,000 GBP.

Imho, having less than 2,000 of bonds is pointless and one is better of with a fractional savings account.

With 25,000+ one can start to see regular wins. Although still can be beaten by a regular savings account.

Premium bonds never made any sense to me. The 1.4% that they advertise is for the all their bonds so it is obviously not going to be remotely close to that if you only have a couple thousand pounds. You need over Ā£20k to even approach a 1.4% rate of return and in that case you will be better off with a savings account.
Even with the max Ā£50k you have 1 in 138 (0.72%) to win anything above Ā£10k in 10 years and only 1 in 700,280 chance to win Ā£1 million. Might seem like a good deal but youā€™d be paying over Ā£800 to play that lottery (25/2 payout with 1 in 138 odds :confused: ) , assuming a constant 1.4% return from any other wins and comparing it to treasury bonds.

Iā€™ve got nowhere near 20k and Iā€™ve averaged about 2% return in each of the last 4 years. For a 5k instant access account best you could do is approx Ā£75 interest ( 3 prizes ). For the sum I have in bonds Iā€™m happy to trade off that kind of return for the chance of a bigger win.

1 Like