The top five NS&I Premium Bond myths busted

7th Jun '12 by Isaac

14 comments 12485 reads

Myth 1 – You have to have £30,000 invested to win the jackpot

Jackpot winners have had different amounts invested over the years – one winner of the £1 million jackpot only had £17 in Premium Bonds! It is true though, that the more Bonds you hold, the better your chances of winning.

Myth 2 – Only new Bonds win prizes

Each £1 Bond has an equal chance of winning, regardless of when or where it was bought. Several winners in June's jackpot draw were bought in the early years that Premium Bonds were on sale. For example, in this month's draw a prize of £1,000 was won with a Bond bought in 1970. Bonds bought more recently may seem to win more often because there are more new Bonds than old.

Myth 3 – Old Bonds are left out of the draw

Winning numbers are generated randomly and then matched against eligible Bond numbers afterwards – numbers aren't entered into or stored in ERNIE so there's no way that any Bonds can be left out of the draw. Even Bonds bought as far back as 1956 may still be eligible for the draw.

Myth 4 -Only Bonds from the South East win prizes

If it seems that more prizes are won by holders in the South East, that's because there are more Bonds held there compared with the rest of the UK.

Myth 5 – The more people that buy Bonds, the more my chances of winning are reduced

Not at all. The prize fund for each draw is a month's interest on all eligible Bonds in the draw, so the more Bonds we sell, the bigger the prize fund.

http://www.telegraph.co.uk/finance/personalfinance/savings/9317130/The-top-five-NSandI-Premium-Bond-myths-busted.html

I came across the winners list for June over the weekend. What do people think of premium bonds? I've been considering chucking the max, £30k at this as I would have 30,000 chances of winning the Jackpot each month, I guess I only need to win it once in a lifetime to make it worthwhile and it is all tax free!

One individual only had £100 but managed to win £5k.

http://www.dailymail.co.uk/money/saving/article-1637084/Premium-Bonds-winning-numbers.html

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Prize Level

Amount per month

Odds of winning per £1 bond

£1 million

1 in 43,474,820,688

£100,000

1 in 7,245,841,249

£50,000

1 in 3,105,363,428

£25,000

1 in 1,358,596,526

£10,000

1 in 557,372,901

£5,000

1 in 258,780,286

£1,000

1,089

1 in 34,641,512

websterstephen

8th Jun '12

I bought £20k last june 2011,biggest win so far £100 this week.

snickers

i like em. they give you a very slight lift at the start of the month. also they immunise you against the national lottery.
downside is presenting the cheques at the bank - you feel either like a pensioner or a doleboy cashing a giro.

if you just put £1 in you're guaranteed to clean up.

MadDutch

9th Jun '12

yeah, yeah.

Our generous Government is paying diddly squat interest on its citizens loans.

What is the % of the total payout over a year? half percent? one percent? or a super generous one point five percent?

Fangorn

Hi MadDutch,

I think the payout is a measly 1.25% or so - certainly down significantly from the good ol days when I sued to own the maximum £30k. Never won more than £100 on any given month,annual payout came in around 1.5% (even when interest rates were 5%).
So a wealth destroyer imv. I'd rather have £30k in the likes of Glaxo, Vodafone, UU, CNA myself.

peterg

I think the payout is a measly 1.25% or so

Says it all really, why would anyone want to tie money up in PBs when they can get 3% from a deposit account? Or put the money to some real use.

marben100

There's a good article here: http://www.moneysavingexpert.com/savings/premium-bonds

It confirms that the current effective interest rate is 1.5% (i.e., negative in real terms) and:

Yet because of the way the prizes are allocated, the majority of people will win much less than the interest rate anyway. There's a full explanation of why this happens later, but for now you can use the Premium Bond Probability Calculator to see how likely you are to win an amount equal to the interest rate.

So, more a low-risk gamble than an investment. [The risk being the opportunity-cost of tying your cash up in this way.]

oilretire

They are viewed as a 'cash' part of my folio.

What's the point in chasing an extra 1 or 2% from a bank when you can have a go at the 'big one' with minimal (if any) risk? Many of the prize tiers will see you better the bank rates by far, so it's not just the big one you are playing for..........

And by being in PB's my 'cash' doesn't find it's way into my high risk O&G share folio by any rash decisions made chasing market down turns, yet it can be called upon at very short notice if the sh!t hit's the fan elsewhere in my life.

Also, I have twice now sold £1k of bonds and let the small, almost monthly wins be auto re-invested as bonds rather than taking small cheques down to the bank. I'll do it again when I hit the £30k max.

10th Jun '12

Just by coincidence I received my details to enable online access to my PB holding which I set up today.

You can set up to have prizes paid direct to bank account - no more will you feel either like a pensioner or a doleboy cashing a giro :-)

It also logs your prizes won, but only since online was set up, not long, but handy going forward.

Isaac

I am well aware of the small returns that an average bond holder gets, but I thought it was a good idea to have exposure to a £million draw each month

Oilretire sums it up quite nicely actually....

They are viewed as a 'cash' part of my folio.

What's the point in chasing an extra 1 or 2% from a bank when you can have a go at the 'big one' with minimal (if any) risk? Many of the prize tiers will see you better the bank rates by far, so it's not just the big one you are playing for..........

And by being in PB's my 'cash' doesn't find it's way into my high risk O&G share folio by any rash decisions made chasing market down turns, yet it can be called upon at very short notice if the sh!t hit's the fan elsewhere in my life.

Even if you don't win the jackpot the other prizes higher up are decent....

Prize Level	Amount per month	Odds of winning per £1 bond
£1 million	1	1 in 43,474,820,688
£100,000	5	1 in 7,245,841,249
£50,000	8	1 in 3,105,363,428
£25,000	18	1 in 1,358,596,526
£10,000	46	1 in 557,372,901
£5,000	91	1 in 258,780,286
£1,000	1,089	1 in 34,641,512

And over a 10 year period the odds of winning the above prize's is not that bad either with £30k invested...

At least £1,000	Virtual certainty
At least £1,500	Virtual certainty
At least £2,500	Virtual certainty
At least £5,000	10.1%
At least £10,000	1 in 140
At least £25,000	1 in 377
At least £50,000	1 in 855
At least £100,000	1 in 1,968
At least £1,000,000	1 in 10,537

http://www.moneysavingexpert.com/savings/premium-bonds-calculator/#result

So there is a 90% chance of winning atleast £10k with £30k invested over a 10 year period, that is equivalent to £1k/year or about 3.3% per annum tax free.

Although you can get 3% in an easy access account, after paying 40/50% tax it is not that much better then the average premium bond holder!

Atleast you have exposure to winning a £million in that period.

extrader

Hi Isaac,

I think you may have misread something......: flwg your link, I get, from the website (bold)

".....The Key Result
With £30,000 in Premium Bonds, if you have average luck(1)
you would expect to win £2500 over 10 year(s) "

I don't think he posts here, more's the pity, but ISTR that a few years ago on TMF Gengulphus made a pretty convincing case (based on minimal opportunity cost and flexibility) that it was better to keep the GBP 30K in a high-yield account (this WAS a few years ago) and 'invest' GBP 52 of the interest in a weekly National Lottery ticket, which has a more favourable distribution curve ie lots of GBP 10 and a top prize that was usually worth a lot more than GBP 1 million.

Jus' sayin', like ! I use Premium Bonds precisely for their 'stickiness" ie rainy day money to be able always to pay off HMRC come January........;-(

Good luck with your investments, whatever form they take !

11th Jun '12

I held 30k's worth of premium bonds for 14 years Isaac - Never won more than the £25 to 100 per month, and averaged about 600-800 per year.

So you're "virtual certainty" of winning at least £1000-2500 is a tad wide of the mark!

Jus' sayin', like ! I use Premium Bonds precisely for their 'stickiness" ie rainy day money to be able always to pay off HMRC come January........;-(

But you can do that with a deposit account and earn more while you wait to pay the bill.

Gengulphus's argument seems a pretty good one. If you want a flutter the lottery offers more potential adrenaline. If you want an investment (as those who argue that you get regular small wins seem to favour) then why go for something that gives you 1.5% when getting twice with instant access is easy?

Hi Peter,

A deposit account isn't "sticky" enough ! I like the admin hassle of cashing in PB's as a disincentive/discipline agst 'premature encashment'......

As to PBs vs. National Lottery, in my case it's a question of "Not only, but also..."

ATB

The top five NS&I Premium Bond myths busted

Myth 1 – You have to have £30,000 invested to win the jackpot

Myth 2 – Only new Bonds win prizes

Myth 3 – Old Bonds are left out of the draw

Myth 4 -Only Bonds from the South East win prizes

Myth 5 – The more people that buy Bonds, the more my chances of winning are reduced

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Isaac

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