Premium Bonds

[Padders72]

A really useful point to remember is the change in the odds. From 24,500 to one to 24,000 to one, from next month.

This allows you to work out your likely return over the year.

Surely all that matters is the % paid into the prize fund?

No.

Why? Because you don't (typically) expect to get a return that equals that rate of interest. The return a bond holder can expect to get in a given period - say one year - is very dependent on the number of bonds they hold. More bonds, a higher expected return in the period. Time held helps too. But so far, my original bond purchased in 1959 has returned zilch! Unsurprisingly.

I think your use of language is a bit sloppy given we're talking about statistics here.

You are (I think) talking about your mode return. The mode return on £1000 of bonds is zero. I am talking about the mean return, or what a mathematically inclined person would call the expected return. The mean return is £1000 x the % prize fund. If we were to talk about the median return, it is a bit lower for a large holding than the % prize fund, owing to the small number of very large prizes.

It's meaningless to talk about return as anything other than % return. As such, your statement that if you have more bonds you have a higher expected return is a bit odd. It's either a statement of the obvious or wrong!

I don't think it meaningless at all, the odds of winning a single prize are very relevant. The mean as a metric isn't very helpful with Premium Bonds really is it? The lumpy (quantised) nature of the return with the minimum prize being £25 means as most of us here know on here that holding less than 5 figures is a waste of time. It is probably worth pointing this out for noobs though, viz unless you can put in, say £20K, don't bother since you stand a good chance of seeing many months pass until a prize drops. Martin Lewis's calculator explains it rather well for the layman I find. If interest rates continue to rise and the number of base prizes is raised considerably (and the odds of winning any prize as a result come down significantly) then that will change, but unless you know the odds how would you be aware of that? Note despite the return being increased to 2.2%, the chance of winning a prize is basically the same as last month, if you have £24K in, you can expect a prize half the time so you could argue that the % return is actually less important than the odds of winning from one POV!

[Spet0789]

A really useful point to remember is the change in the odds. From 24,500 to one to 24,000 to one, from next month.

This allows you to work out your likely return over the year.

Surely all that matters is the % paid into the prize fund?

No.

Why? Because you don't (typically) expect to get a return that equals that rate of interest. The return a bond holder can expect to get in a given period - say one year - is very dependent on the number of bonds they hold. More bonds, a higher expected return in the period. Time held helps too. But so far, my original bond purchased in 1959 has returned zilch! Unsurprisingly.

I think your use of language is a bit sloppy given we're talking about statistics here.

You are (I think) talking about your mode return. The mode return on £1000 of bonds is zero. I am talking about the mean return, or what a mathematically inclined person would call the expected return. The mean return is £1000 x the % prize fund. If we were to talk about the median return, it is a bit lower for a large holding than the % prize fund, owing to the small number of very large prizes.

It's meaningless to talk about return as anything other than % return. As such, your statement that if you have more bonds you have a higher expected return is a bit odd. It's either a statement of the obvious or wrong!

I don't think it meaningless at all, the odds of winning a single prize are very relevant. The mean as a metric isn't very helpful with Premium Bonds really is it? The lumpy (quantised) nature of the return with the minimum prize being £25 means as most of us here know on here that holding less than 5 figures is a waste of time. It is probably worth pointing this out for noobs though, viz unless you can put in, say £20K, don't bother since you stand a good chance of seeing many months pass until a prize drops. Martin Lewis's calculator explains it rather well for the layman I find. If interest rates continue to rise and the number of base prizes is raised considerably (and the odds of winning any prize as a result come down significantly) then that will change, but unless you know the odds how would you be aware of that? Note despite the return being increased to 2.2%, the chance of winning a prize is basically the same as last month, if you have £24K in, you can expect a prize half the time so you could argue that the % return is actually less important than the odds of winning from one POV!

I see your point, but I still think it’s a bit unsophisticated and on this site I assume most posters are more financially literate than the average punter.

If you want a safe savings vehicle where the mean return = mode return = median return, take out a regular FSCS protected deposit.

Premium bonds are different (hence the tax advantages) and the large proportion of holders who have the max £50k suggests that most investors in them are aware of that.

[Steveam]

I hold the max number of PBs and expect to get near to the “interest” number but a consideration for me is my tax position. 2.2% tax free is (assuming a 40% tax rate) over 3.5% taxable. I treat this as an instant access account.

Best wishes,

Steve

[swill453]

I hold the max number of PBs and expect to get near to the “interest” number but a consideration for me is my tax position. 2.2% tax free is (assuming a 40% tax rate) over 3.5% taxable. I treat this as an instant access account.

That's fair. As a non taxpayer I decided that 3.5% fixed for 1 year in a savings account was preferable.

(I still have an interest here as my wife has kept her bonds.)

Scott.

[XFool]

I think Padders72 has already the made the relevant points. However, this is my 2p.

A really useful point to remember is the change in the odds. From 24,500 to one to 24,000 to one, from next month.

This allows you to work out your likely return over the year.

Surely all that matters is the % paid into the prize fund?

No.

Why? Because you don't (typically) expect to get a return that equals that rate of interest. The return a bond holder can expect to get in a given period - say one year - is very dependent on the number of bonds they hold. More bonds, a higher expected return in the period. Time held helps too. But so far, my original bond purchased in 1959 has returned zilch! Unsurprisingly.

I think your use of language is a bit sloppy given we're talking about statistics here.

Possibly because I am not a post-doctoral cosmology statistician?

The maths of PBs can get complicated (for simple practical purposes it doesn't need to) - if I remember, Martin Lewis (no mathematical slouch, I am given to understand) found it stumped him, he asked a physics(?) professor at a London college, she didn't have the time so handed it over to one of her PhD students, hence the Martin Lewis Premium Bond Calculator: https://www.moneysavingexpert.com/savings/premium-bonds-calculator/

"The underlying probability calculations behind this easy-to-use tool were designed by a post-doctoral cosmology statistician. Each month it runs for six hours, just to calculate the new odds!"

Fortunately you don't need all this. You just need a bit of commonsense, know the number of bonds you have, the odds of winning any PB prize and the assumption that all PB prizes are £25. Now all PB prizes are not £25 however, as the overwhelming number of them are, that assumption is a reasonable one and leads to simple answers that in practice produce realistic answers, without having to run on a computer for six hours.

You are (I think) talking about your mode return. The mode return on £1000 of bonds is zero. I am talking about the mean return, or what a mathematically inclined person would call the expected return. The mean return is £1000 x the % prize fund.

Yes, in the long run, the return on any number of bonds held will equal the fund interest rate. But the killer here is "in the long run". How many centuries would I expect to have to wait to guarantee I got the fund interest rate on my one 1959 bond? Then again, as humans only live up to a maximum of about ~100 years and PBs cannot be inherited, it is impossible! The "mean return" in your terms is irrelevant. Not withstanding this, some journalists still write articles on PBs saying that the return on them is x%, where x% is the current bond fund interest rate. (The more cautious of them merely state that the bond fund interest rate is x%)

What I want to know, and surely most people do, is what expected rate of return can I expect from my PBs in one year so I can compare this with say a bank saving account or fixed rate bond rate; as that is the obvious comparator to PBs.

If we were to talk about the median return, it is a bit lower for a large holding than the % prize fund, owing to the small number of very large prizes.

So...

(Also, because the PB return to investors is quantized)

It's meaningless to talk about return as anything other than % return.

So why talk about it?

As such, your statement that if you have more bonds you have a higher expected return is a bit odd. It's either a statement of the obvious or wrong!

My statement that "if you have more bonds you have a higher expected return" isn't odd, it's simple arithmetic! And its calculation uses the PB odds of winning a prize as one of its inputs - not the prize fund interest rate.

The return on the bond interest fund may be 'interesting', but it isn't that helpful if you want a reasonable answer to the question: "What is my expected return rate on my bond holding in one year?"

[Spet0789]

The return on the bond interest fund may be 'interesting', but it isn't that helpful if you want a reasonable answer to the question: "What is my expected return rate on my bond holding in one year?"

Easy! The answer to that question is that the expected return is the mean return, which is the holding x the prize fund percentage.

If you want to ask a different question, like "what is my most likely return rate on my bond holding in one year?", then you're asking for the mode which is different, and as we both know, a more complicated question.

[XFool]

The return on the bond interest fund may be 'interesting', but it isn't that helpful if you want a reasonable answer to the question: "What is my expected return rate on my bond holding in one year?"

Easy! The answer to that question is that the expected return is the mean return, which is the holding x the prize fund percentage.

"in one year". You cannot in one year reasonably expect to win the exact mathematically "expected" return on £1000 x fund interest %, because the bond prizes are quantized, with the minimum prize quantum being £25. £25 return on £1000 in one year is 2.5%, so more than the proposed raised bond fund prize interest rate, significantly more than the existing 1.4% rate. (Of course, any one bond holder might win £25, or even more, on £1000 held for one year - but that is the luck of the draw)

It has already been pointed out that with £1000 of bonds held for one year you would reasonably expect to receive a return of 0%. (Doesn't mean any particular £1000 bond holder might not win £1m, just very unlikely)

Put a £1000 PB holding for one year in the Martin Lewis Premium Bond Calculator

https://www.moneysavingexpert.com/savings/premium-bonds-calculator

I just did:

The Key Result
With £1,000 in Premium Bonds, if you have average luck
you would expect to win roughly NOTHING over 1 year

What's the problem? This is so simple I just don't understand the point of trying to make it complicated. (I don't know what it is about Premium Bonds...)

[Mike88]

NS&I boosts underlying Premium Bonds rate to beat the top easy-access accounts with nearly twice as many £100k and £50k prizes up for grabs
Monthly odds of winning from £1 to go from 24,500 to 1 to 24,000 to 1
Boost is expected to add £76m to the prize fund for October
Number of £100,000 prizes up to 18 from 10; £50k up to 35 from 20
More than 22m people hold Premium Bonds

[XFool]

NS&I boosts underlying Premium Bonds rate to beat the top easy-access accounts with nearly twice as many £100k and £50k prizes up for grabs
Monthly odds of winning from £1 to go from 24,500 to 1 to 24,000 to 1
Boost is expected to add £76m to the prize fund for October

Careful! I know what you mean, but...

[Itsallaguess]

Link to October 2022 high-value winners -

https://www.nsandi.com/prize-checker/winners

Spreadsheet version of the October 2022 high-value winners list that also includes £1000 prize winners too -

https://www.nsandi.com/files/asset/xlsx/prize-october-2022.xlsx

Link here to check for any lower denomination prizes from tomorrow morning (Tuesday 4th October) - https://www.nsandi.com/prize-checker

Good luck to all holders.

Cheers,

Itsallaguess

[kiloran]

Link to October 2022 high-value winners -

https://www.nsandi.com/prize-checker/winners

Spreadsheet version of the October 2022 high-value winners list that also includes £1000 prize winners too -

https://www.nsandi.com/files/asset/xlsx/prize-october-2022.xlsx

Link here to check for any lower denomination prizes from tomorrow morning (Tuesday 4th October) - https://www.nsandi.com/prize-checker

Good luck to all holders.

Cheers,

Itsallaguess

Thanks, your good luck wishes worked!! £225 on two full holdings, my highest ever, and the first-ever £100 prize. Untold riches!

--kiloran

[DrFfybes]

Thanks, your good luck wishes worked!! £225 on two full holdings, my highest ever, and the first-ever £100 prize. Untold riches!

--kiloran

"Untold" except for to us you mean

We too have had IIRC our first win over £50, 1 x £100 and 4 x £25 on 2 full holdings. That pays nicely for the trailer I bought on Ebay last night

Paul

[XFool]

...On a prizes won metric, still doesn't beat my eight (£25) prizes on one bond account.

[Bouleversee]

OTOH, I had only 1 x £25 on a £50k holding, par for the course. No £170 per head dinner at Cliveden on my birthday, then.

[flyer61]

Two full holdings.....9 prizes!! £475

Cliveden here I come

[pje16]

OTOH, I had only 1 x £25 on a £50k holding, par for the course. No £170 per head dinner at Cliveden on my birthday, then.

Snap, same for me
Happy birthday

[Bouleversee]

Two full holdings.....9 prizes!! £475

Cliveden here I come

There is no justice in this world!

[staffordian]

Only one prize this month...

But it was my first ever £100

[flyer61]

Happy birthday Bouleversee...we are fellow Libyans! Mines next week.

[terminal7]

£325 on 2 full accounts plus Alpinista in the Arc at 6/1 AP

T7