Savers love Premium Bonds. As a country, we’ve stashed £111 billion in Britain’s eccentric savings lottery and for many the best option is to set aside a ton of extra cash, especially if it’s for the kids or grandkids.
We know we probably won’t win £1million – although we casually dream of it anyway – and realize we’re unlikely to win one of the rare £100,000. Prizes of £50,000 or even £25,000, but it’s the small wins that keep us going.
But even those may be harder to find than you think, according to a new study. It says that someone who owns £1,000 would wait 213 years for a more than 50:50 percent chance of winning a £50 prize.
All we need is a little patience: According to new research, Premium Bond savers may be waiting longer than they think to win prizes of £50 or more
The numbers study by data scientist Andrew Zelin delved into publicly available data from NS&I to try to convert the 1 percent premium bond rate — the equivalent of an average interest rate — into something people could understand in terms of the odds of winning a prize. .
It was commissioned by the Family Building Society, and it’s worth noting that it has a vested interest in the subject thanks to its own rival Windfall Bond savings product.
Instead of choosing how long it would take for a guaranteed prize, it focused on the odds better than 50:50, i.e. you’re more likely to win than not, and yielded some notable results.
Someone with £1,000 saved in Premium Bonds should in theory win £10 a year based on that 1 per cent rate, but as the smallest prize is £25 they can’t really do this.
Instead, the investigation showed that they would wait two years before getting that letter saying they had won £25.
That takes some patience, but they have to be patient as well as defy the laws of nature to have a reasonable expectation that they can take home a bigger prize.
A saver with £1,000 would be expected to wait 213 years to have a more than 50 percent chance of winning £50 or £100; 1,155 years to get a prize of £500 and 3,466 years to win £1,000.
It makes little sense to go on and list timings, but if you’re interested, the expected more than half chance of winning £1 million or £1,000 in bonds is 3.2 million years.
In fact, that saver with £1,000 would expect to wait 94.7 years to win a prize of £50 or more.
I know what you’re probably thinking here – and that’s what I thought when I first read the study.
“Oh well, I have way over £1,000 in Premium Bonds…”
So, how long do you think it would be before you have more than half a chance of winning a prize of £50 on the Premium Bonds, even if you had a significant holding of £15,000?
Just over 14 years, according to Mr. Zelin’s research.
Meanwhile, celebrating a £500 letter in the mail from NS&I would be a once in a lifetime event as it is only expected to arrive after 77 years.
Even someone with the maximum of £50,000 in Premium Bonds – and an expectation of a return of £500 a year – would wait 4.3 years to win a prize of £50, 23 years for a prize of £500 and 69 years for a windfall of £1,000.
The table showing how long Premium Bond savers with different positions would wait for a greater than 50:50 chance of winning certain prizes
Aside from our love of Premium Bond stories and conspiracy theories (only winning new bonds etc), what’s the point of the research?
The report said that while NS&I is completely transparent about the probability of a single bond winning a prize each month, “this may not be the most meaningful way” for ordinary people to understand Premium Bonds.
It added, “An alternative way to present this information is to convert it to a time period in which an investor with a particular bond holding would have to wait before their chance of winning this particular price exceeds 50/50.”
The results are certainly captivating, but will they diminish our love for Premium Bonds?
That’s unlikely. Even rate cuts and price cuts have not diminished their appeal.
There are certainly many people with large interests who would be better off investing their money to get better returns.
Nevertheless, Premium Bonds remain a good way to save relatively easily accessible cash in a 100% government-protected account with a decent nominal return (the 1 percent beats the best easily accessible deal by 0.6 percent).
The icing on the cake is the hope that you can hit the jackpot, with the caveat that you almost certainly won’t.
As someone who holds my rainy day fund in Premium Bonds, so a fairly sizable investment, what the research highlights is the importance of the £25 prices.
They may not feel very exciting, but those are the ones that keep the basic returns going in the long run.
In the meantime, I will continue to dream and hold onto stories like the woman from Devon who won £1 million in August with just £1,001 in Premium Bonds bought a year earlier.
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