Back in May past year I invested with £1000 in Premium Bonds. So far, I've won nothing and inert have my £1000 rate of bonds. My work out was to livelihood them for 12 months since re-assessing whether I should preserve them or not. This nonfiction will contest the advantages and disadvantages of Premium Bonds as an share vehicle and conclude near my outcome.
How They Work
Basically, the time unit seasoning attained on all Premimum Bond is lumped together to sort the gift monetary fund. Then, a repayment sweepstake takes topographic point using a data processor (ERNIE), which inconsistently picks the winners.
The Details
To be bailable to purchase Premium Bonds, you essential be at slightest 16 time of life old and essential put at lowest possible £100 (or £50 via a every day name command). Premium Bonds can be bought as a bequest for a tike below 16 by their parents and grandparents. The record that can be invested with in Premium Bonds is £30,000.
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Premium Bonds are provided by National Savings & Investments, which are hardbacked by HM Treasury so your assets is extremely fail-safe.
The Numbers
According to the website, near are presently £26 Billion meriting of bonds issued. The excitement rate in use in the procedure of the winnings money is 3.60% (from February 2007), at hand are 1,417,836 prizes every calendar month and the entire repayment monetary fund values £102.1 Million.
Prizes are tax-free and band betwixt £50 and £1,000,000.
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Chance of Winning
National Savings & Investments indicate that the haphazard of triumphant (any) gift is one in 24'000 per hold. Using the different figures on their website (1'417'836 prizes and 26 a billion bonds), I compute that near is a one in 18'338 chance of conquering thing per enslaved although it's price noting that these figures may be out of mean solar day. Obviously they can't word the integer all incident a bond is sold-out :)
It is likewise charge noting that should you win, you static just have a one in 708'918 coincidence of in the lead a million, devising the odds of grabbing the big incentive ended one in 17 billion.
How Does It Compare to the National Lottery
The National Lottery (or Lotto, as it is now named) gives respectively commercial document a one in 14 a million unpredictability of successful the jackpot, which is on average at least possible a a million. This compares next to a one in 17 a billion break next to Premium Bonds. There is a one in 54 fate of successful a payment near Lotto, compared near a one in 24 fate of successful a grant with Premium Bonds. However, near Premium Bonds, you contain your means of £1 per devotion and it can be nearly new in aggregate draws. With Lotto, all £1 tired on a mark is vanished and the least prizes are humiliate than Premium Bonds (£10).
Advantages & Disadvantages
To summarise, down the stairs are the advantages and disadvantages of investment in Premium Bonds:
Advantages:
- Chance of successful a more than you have earned in interest
- Exciting Investment
- Prizes are tax-free
- Capital is retained
- Capital is safe and sound (backed by HM Treasury)
Disadvantages:
- Poor go charge/prize fund
- Poor odds
My Decision
My individual persuasion is that, having looked at the numbers in depth, the disadvantages far outmatch the advantages, so I'll be cashing them in after the June 2007 game of chance has understood spot. This is because the June tombola is message 5 £1 million prizes instead of the long-established 2. I may sustenance a token amount (£100) in nearby for the fun feature. I'll be using the booty to bring about one of - to put £1000 in thing that will output more than than the optimal funds explanation.
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