General

Premium Bonds – Advantages & Disadvantages

Again in Could final 12 months I endowed £1000 in Premium Bonds. Up to now, I’ve received noaffair and yet have my £1000 price of bonds. My plan was to maintain them for 12 months earlier than re-assessing whether or not I ought to maintain them or not. This text will talk about the benefits and downsides of Premium Bonds as an funding car and conclude with my determination.

How They Work

Principally, the month-to-month curiosity attained on each Premimum Bond is lumped put together to make the prize fund. Then, a prize draw takes place utilizing a pc (ERNIE), which willy-nilly picks the winners.

Premium Bonds - Advantages & Disadvantages

The Particulars

To be desirable to buy

Premium Bonds

, you have to be a minimum of 16 years obsolete and should make investments a minimum of £100 (or £50 through an everyday standing order). Premium Bonds could be purchased as a present for a kid below 16 by their dad and mom and grandparents. Essentially the most that may be endowed in Premium Bonds is £30,000.

Premium Bonds are supplied by Nationwide Financial nest egg & Investments, that are backed by HM Treasury so your capital is extraordinarily secure.

The Numbers

In keeping with the Nationwide Financial nest egg & Investments site, there are presently

£26 Billion

price of bonds issued. The interest rate used inside the calculation of the prize fund is

3.60%

(from February 2007), there are

1,417,836

prizes monthly and the entire prize fund values

£102.1 Million

.

Prizes are tax-free and vary between £50 and £1,000,000.

Probability of Profitable

Nationwide Financial nest egg & Investments state that the possibility of self-made (any) prize is

one in 24’000

per bond. Utilizing the opposite figures on their site (1’417’836 prizes and 26 billion bonds), I calculate that there’s a one in 18’338 chance of self-made one affair per bond though it is price noting that these figures could also be old-fashioned. Clearly they can not replace the determine each time a bond is offered 🙂

It’s also price noting that ought to you win, you continue to only have a one in 708’918 chance of self-made 1,000,000, making the percentages of grabbing the massive prize over one in 17 billion.

How Does It Examine to the Nationwide Lottery

The Nationwide Lottery (or Lotto, as it’s now referred to as) offers every ticket a one in 14 million chance of self-made the jackpot, which is often a minimum of 1,000,000. This compares with a one in 17 billion chance with Premium Bonds. There’s a one in 54 chance of self-made a prize with Lotto, in contrast with a one in 24 chance of self-made a prize with Premium Bonds. Nevertheless, with Premium Bonds, you keep your capital of £1 per bond and it may be used in a number of attracts. With Lotto, every £1 spent on a ticket is misplaced and the smallest prizes are decrease than Premium Bonds (£10).

Advantages & Disadvantages

To summarise, at a lower place are the benefits and downsides of investment in Premium Bonds:

Advantages:

  • Probability of self-made a greater than you’ve attained in curiosity
  • Thrilling Funding
  • Prizes are tax-free
  • Capital is retained
  • Capital is safe (backed by HM Treasury)

Disadvantages:

  • Poor interest rate/prize fund
  • Poor odds

My Resolution

My private opinion is that, having seemed on the numbers in depth, the disadvantages far outbalance the benefits, so I will be cashing them in after the June 2007 draw has taken place. It’s because the June draw is providing 5 £1 million prizes as a substitute of the standard 2. I’ll maintain a token amount (£100) in there for the enjoyable facet. I will be utilizing the cash to meet one in every of my targets for 2007 – to speculate £1000 in one affair that can yield greater than the most effective commercial enterprise nest egg account.

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