I want to invest for income. What is your thought investing in Premium Bonds
gertrud Tue 13/05/08 11:48
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Whilst Premium bonds are good if you've used up all your tax free savings which allow instant access (ISA's £3600 this year). Your best bet is a longer term savings account, many now offering 7% or so.
Check MSE website for the best current savings accounts and also a Premium bonds calculator.
http://www.moneysavingexpert.com/banking/
http://www.moneysavingexpert.com/savings/premi um-bonds-calculator/
Typically the return on £30,000 of Premium bonds is 3.5% giving you 1050 pa. whereas if your money was in a savings account paying 7% you'd be getting £2100 pa. Thats £1050 more every year.
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I am not sure I would call premium bonds "investing", more like gambling without losing your stake.
Suppose you buy £1,000 of premium bonds, but in the first year you win nothing. Because inflation is now 3%, your £1,000 stake is now only worth £970.
If you were unlucky enough not to win in the second year either your £970 is now down to £940.
Now as pug100 says, the odds of winning are 3.5%, but you may be unlucky and win nothing, or at least less than 3.5%.
And each year you win nothing (or less than expected) the value of your money is dropping.
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I bought my first bond - £1 - the week they were issued.
I know they are money down the drain if you fail to win a biggie, but each month I live in hopes. (I now hold the max).
However, I don't believe ERNIE to be impartial.
I have a £2k bond taken out 8 years ago which has won 4 times and another £2k bond taken out the following month which has won 15 times.
They have all been small prizes and I would have done far better to have invested the money in a Building Soc a/c - but maybe come 1 June I'll be able to record that I'm a millionaire - and that's what keeps me going.
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I suggest you cash in your bonds every few years and buy afresh, but I will never sell my best one as above!
PS. Are there any statisticians out there who care to comment on the inequality of my 2 x £2k bonds?
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