Savers love Premium Bonds. As a nation we have £111 billion stashed in Britain’s oddball savings lottery and for many it’s the go to option for sticking a lump of spare cash aside, especially if it’s for the kids or grandchildren.
We know we probably won’t win £1million – although casually dream of it anyway – and realise that we’re unlikely to bag one of the rare £100,000. £50,000 or even £25,000 prizes, but it’s the small wins that keep us going.
Yet, even those might be harder to come by than you think, according to a new piece of research. It says someone with a £1,000 holding would wait 213 years for a better than 50:50 per cent chance of winning a £50 prize.
All we need is just a little patience: Premium Bond savers could be waiting longer than they think to win any prizes of £50 or more, according to new research
The number crunching by data scientist Andrew Zelin delved into publicly available data from NS&I to try to turn the 1 per cent Premium Bond fund rate – its equivalent of an average interest rate return – into something people could understand in terms of the likelihood of winning a prize.
It was commissioned by Family Building Society, which it’s worth noting has a vested interest in the topic thanks to its own rival Windfall Bond savings product.
Rather than opt for how long it would take for a guaranteed prize, it focussed on the better than 50:50 chance, ie you are more likely to win than not, and threw up some eye-catching results.
Someone with £1,000 saved in Premium Bonds should theoretically win £10 per year, based on that 1 per cent rate, but as the smallest prize is £25 they can’t actually do this.
Instead, the research showed they would expect to wait two years before getting that letter telling them they’ve won £25.
That requires some patience, but they’ll need to be both patient and defy the laws of nature to have a reasonable expectation of bagging a bigger prize.
A saver with £1,000 would be expected to wait 213 years to have a better than 50 per cent chance of winning £50 or £100; 1,155 years to get a £500 prize and 3,466 years to win £1,000.
There’s little point in continuing to list timings beyond that, but if you’re interested the expected wait for a better than half chance of winning £1million of £1,000 in bonds is 3.2million years.
In fact, that saver with £1,000 would expect to wait 94.7 years to win any prize of £50 or more.
I know what you’re probably thinking here – and I thought it too when I first read the research.
‘Ah but, I’ve got much more than £1,000 in Premium Bonds…’
So, how long do you reckon it would take you to have more than half a chance of winning a £50 prize on the Premium Bonds even if you had a sizeable £15,000 holding?
Just over 14 years, according to Mr Zelin’s research.
Meanwhile, celebrating a £500 letter in the post 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 £50,000 in Premium Bonds – and an expectation of a £500 a year return – would wait 4.3 years to win a £50 prize, 23 years for a £500 one and 69 years for a £1,000 windfall.
The table showing how long Premium Bond savers with different holdings would wait for a better than 50:50 chance of winning certain prizes
Other than catering to our love of Premium Bond stories and conspiracy theories (only new bonds win etc) what’s the point of the research?
The report said that while NS&I is totally transparent on the odds 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 of presenting this information involves converting it into a period of time over which an investor with a certain bond holding level would need to wait before their chance of winning this particular prize exceeds 50/50.’
The results are certainly arresting, but will they dim our love of Premium Bonds?
That’s unlikely. Even rate and prize cuts have done little to diminish their appeal.
There are certainly many people with big holdings who would be better off investing their money to get a better return.
Nonetheless, Premium Bonds remain a good way of saving relatively easy access cash in 100% government-protected account with a decent nominal interest rate return (the 1 per cent beats the best easy access deal at 0.6 per cent).
The icing on the cake is the hope you might win the jackpot, with the caveat that you almost certainly won’t.
As someone who holds my rainy-day fund in Premium Bonds, so a reasonably sizeable investment, what the research highlights is the importance of the £25 prizes.
They might not feel very exciting but those are the ones that keep the long-term basic return going.
In the meantime, I’ll keep dreaming and hold onto stories like the woman from Devon who won £1million in August with just £1,001 in Premium Bonds bought a year earlier.