Premium Bonds: part 2
Your emails and comments keep coming in about Premium Bonds.
Some of you have given a fairly unsympathetic response to my post about the cut in prizes for Premium Bond owners.
Instead of paying interest directly to investors, the money is turned into a range of prizes for lucky bond holders.
But the total to be paid in January works out at an interest rate of just 1.8 percent - much less than other savings products around.
Sadbloke writes in the blog comments, "anyone who invested in premium bonds for a steady return (is) in the wrong product ... I don't see the point in moaning that the return has reduced ... The whole point of premium bonds is that you have the chance to win big."
Ah - but that's the point. Just what are the chances of winning?
It's not just that the prize pot is less valuable.
It's also - as reported on Working Lunch yesterday - that the odds of winning anything at all have also been reduced. (If you missed it, you can catch yesterday's programme on the ³ÉÈË¿ìÊÖ iPlayer).
Some of you think those odds could be improved if the Premium Bonds people got rid of one of its two £1 million prizes, and spread the money around by giving out a greater number of smaller prizes.
Chris emails that with his purchase of Premium Bonds, he "could hope to win a prize every 3 months on average"; giving him "some sort of return plus the ... opportunity of a 'big win'." But he says the big prizes "take too much of the pot. I would prefer to have more chances of winning (smaller prizes) by only having one £1m prize."
But if you ask them, the Premium Bonds people say re-jigging the pot wouldn't necessarily lead to additional pay-outs.
Working Lunch viewer Roy Mason has copied us the emails he has exchanged with the Premium Bond customer enquiry desk.
He suggested exactly that change to them.
I'm not going to quote directly from their reply, but they think removing a top prize would not make significant difference to the odds.
Most people, they say, own just a small number of bonds rather than investing the full permitted amount. They assume this means bond holders are hoping for a jackpot - rather than a regular stream of small winnings.
They add that Premium Bonds may never be the right investment choice if your aim is a guaranteed return.
Snap! That's pretty much what Sadbloke wrote in his blog comments.
But - they are keeping it under review, and if interest rates keep falling they might consider removing one of the jackpot prizes.
Which might give a little bit of hope to viewer Mr S.A.; he's had Premium Bonds for the last 51 years. His number has yet to come up.
Comment number 1.
At 10th Dec 2008, the1beard wrote:YAWN bonds
For the lazy hope to get lucky quick investor.
Just another financial instrument born/invented to frustrate the investor.
What the gov should do is introduce a TAX Free investment bond or account which can be cashed in if you become unemployed.
This would surely be a positive and useful product to help worker who become unemployed whilst looking for a new job rather than the GOV paying them job seekers allowance.
In return the saver would get a tax benefit ie zero tax on interest.
Further it would boost the savings ratio.
SIMPLE Practical Effective.
The world have moved on from 1960 or when ever Premium bonds were invented.
Complain about this comment (Comment number 1)
Comment number 2.
At 10th Dec 2008, the1beard wrote:Oh I'd call them UNEMPLOYMENT Bonds.
Maybe tax free at retirement who know ?
Complain about this comment (Comment number 2)
Comment number 3.
At 10th Dec 2008, PetersKitchen wrote:I win the small prizes on a regular basis with only a third of the maximum allowed.
Some years I have not been so fortunate.
I expect a reasonable return for my gamble and would not tolerate zero for too long. So I will call time on my bonds like many others if the re-allignment provides no return at all
Complain about this comment (Comment number 3)
Comment number 4.
At 10th Dec 2008, n1 wrote:1. At 12:58pm on 10 Dec 2008, the1beard wrote:
What the gov should do is introduce a TAX Free investment bond or account which can be cashed in if you become unemployed
Haven’t we already got one? its called an ISA. Only difference is you don’t have to become unemployed to cash it in!
3. At 3:00pm on 10 Dec 2008, PetersKitchen wrote:
I expect a reasonable return for my gamble and would not tolerate zero for too long.
Isn’t that just a little contradictory reasonable return and gamble in the same sentence ?
Premium bonds themselves are not a gamble, you are guaranteed your money back, it’s the return you are taking a gamble on, it doesn’t matter if the implied return is 1% or 10% the odds on getting any return will stay at 34,000 to 1 (I think that’s what the program quoted) each month if you keep adjusting the size of the payouts.
Declan
It seems to me that at the end of the day the NS&I could increase the number of small payouts at the expense of the big wins, the only trouble is by doing this it may increase your chances of a win each month, but it would still not guarantee any return at all and it would reduce the chances of a big win thereby reducing your chances of beating the stated return. Taken to extremes I am sure they could make the odds of winning really good but amount you would win wouldn’t be worth the trouble.
As I understand it the odds on getting a win on the premium bonds are much better than getting a win on the national lottery and you get your stake back, well they can’t be that bad, how many people are happy to spend a fiver a week on the lottery with no guaranteed return and you lose you stake money.
Complain about this comment (Comment number 4)
Comment number 5.
At 11th Dec 2008, busby2 wrote:Premium bonds were a good way of obtaining a tax free return.
Now that the Govt has cut the rate of return to 1.8%, they can expect a huge outflow of funds from those with large holdings as, over the course of a year, they could expect their returns to be generally close to the average rate of return. I expect there will be a large outflow of funds from the largest holders of bonds.
Complain about this comment (Comment number 5)
Comment number 6.
At 25th Jan 2009, jessmack wrote:One of the reasons given for introducing the second 1M prize was to attract more investors and since this reason no longer exists due to a rush of investors wanting to safeguard their cash, surely now would be the time for the government (Treasury) to do their bit to share the cash out. Nobody really needs 1 million, but an extra 10,000 £100 prizes would make a lot of little savers very happy indeed. After all, we've saved our money and not thrown it away on lottery tickets, so how about some support for savers. What does the government say? They'll change the minimum prizes to £25 instead of £50! I presume that's what THEY call sharing it out!
Complain about this comment (Comment number 6)