The Lemon Fool

Thanks for the reminder. A whopper for me. 1 x £50.

£25 between me and Mrs BD, marvellous.

£125 between me and Mrs. Good but still losing out to inflation

2 x £25 on 80K.....to quote someone who ran rings around me playing football.....better luck next time pal..

There was an interesting article in the Telegraph on premium bonds

https://www.telegraph.co.uk/personal-ba ... elsewhere/
But behind a paywall.

The particularly interesting bit to me is:
The 1.4pc "prize rate" figure is distorted by because more than half of total PBs are held by the 3.6pc of bondholders who have between £40,000 and £50,000 invested.
£50,000 in PBs gives you an 87% chance of winning a prize every month. So, bondholders with smaller stakes have a lower effective chance of winning anything and a lower “interest rate”.

torata

torata wrote:There was an interesting article in the Telegraph on premium bonds

https://www.telegraph.co.uk/personal-ba ... elsewhere/
But behind a paywall.

The particularly interesting bit to me is:
The 1.4pc "prize rate" figure is distorted by because more than half of total PBs are held by the 3.6pc of bondholders who have between £40,000 and £50,000 invested.
£50,000 in PBs gives you an 87% chance of winning a prize every month. So, bondholders with smaller stakes have a lower effective chance of winning anything and a lower “interest rate”.

If you google the text "Premium Bonds paid out a record number of times in 2018" you can find the article elsewhere without a paywall.

It doesn't explain the maths behind the 'bondholders with smaller stakes have a lower effective chance of winning anything and a lower “interest rate”' statement. I'm not sure I follow the reasoning.

Scott.

I should have thought it was pretty obvious. With £50k invested, I should be rather cheesed off if I had only the same chance of winning a prize as someone with only £1. Nevertheless, if you look at the major prize winners each month, it is clear that some of the big prizes are won by holders of few bonds whereas I am still waiting for a biggie. I think one's chance of winning is improved if all one's bonds are in one block rather than split up into groups bought on different dates. I might sell all mine and repurchase in one block.

Bouleversee wrote:I should have thought it was pretty obvious. With £50k invested, I should be rather cheesed off if I had only the same chance of winning a prize as someone with only £1.

Er, no. It says there's a lower percentage chance.

Scott.

Bouleversee wrote:I think one's chance of winning is improved if all one's bonds are in one block rather than split up into groups bought on different dates. I might sell all mine and repurchase in one block.

I wouldn't do that personally, as I think your reasoning is wrong. In fact you will I think miss out because:

Your Bonds become eligible for the draw one full calendar month after you buy them. So when you buy Bonds in November, they’ll be in every draw from January.

RC

have they sent the emails yet ? Appreciate this may take hours/days so some may have received, others not
I'm waiting for an email this month rather than the instant disappointment online

Bouleversee wrote:... I think one's chance of winning is improved if all one's bonds are in one block rather than split up into groups bought on different dates. I might sell all mine and repurchase in one block.

No, no difference at all (as per RC's post)

AleisterCrowley wrote:have they sent the emails yet ? Appreciate this may take hours/days so some may have received, others not
I'm waiting for an email this month rather than the instant disappointment online

Yes, got mine earlier today - 2 x £25

RC

ta, possibly a big fat zero for me then Or I'm later in the batch

swill453 wrote:

torata wrote:There was an interesting article in the Telegraph on premium bonds
https://www.telegraph.co.uk/personal-ba ... elsewhere/
But behind a paywall.

The particularly interesting bit to me is:
The 1.4pc "prize rate" figure is distorted by because more than half of total PBs are held by the 3.6pc of bondholders who have between £40,000 and £50,000 invested.
£50,000 in PBs gives you an 87% chance of winning a prize every month. So, bondholders with smaller stakes have a lower effective chance of winning anything and a lower “interest rate”.

If you google the text "Premium Bonds paid out a record number of times in 2018" you can find the article elsewhere without a paywall.

It doesn't explain the maths behind the 'bondholders with smaller stakes have a lower effective chance of winning anything and a lower “interest rate”' statement. I'm not sure I follow the reasoning.

Scott.

What's to explain?

Obviously, if you have significantly fewer 'tickets' in a lottery than somebody else, then you have a lower chance of winning than they do! Ergo - over say one year, your return WILL (on average*) be expected to be lower than theirs. Simples!

The Bond fund may well pay out at a rate of 1.4% pa. But, typically, nobody can reasonably expect to get that much during a year. Your reasonable expectation is to get less than this (and you typically do). The larger your holding the higher your expected return - but don't expect it to normally equal or exceed the Bond fund rate*. Indeed, if you have lower that a few thousand, you can easily end up with a 0% return in a year*.


* But not if you get lucky and win big. It's all a lottery.

XFool wrote:What's to explain?

Obviously, if you have significantly fewer 'tickets' in a lottery than somebody else, then you have a lower chance of winning than they do! Ergo - over say one year, your return WILL (on average*) be expected to be lower than theirs. Simples!

That's obvious. But it's not what the article is saying.

It says 'smaller stakes have ... a lower “interest rate”'. Not the same thing at all.

Scott.

AleisterCrowley wrote:ta, possibly a big fat zero for me then Or I'm later in the batch

Hang on! That Agent Millions may still be trying to beat a track to your front door.

swill453 wrote:

XFool wrote:What's to explain?

Obviously, if you have significantly fewer 'tickets' in a lottery than somebody else, then you have a lower chance of winning than they do! Ergo - over say one year, your return WILL (on average*) be expected to be lower than theirs. Simples!

That's obvious. But it's not what the article is saying.

It says 'smaller stakes have ... a lower “interest rate”'. Not the same thing at all.

Scott.

Well first of all, beware of using the term "interest rate" (WRT bond prizes, not the bond fund).

Last time I made that mistake around here I had a certain proponent of High Yield Share portfolios down on my neck like a ton of bricks.

I think we will be safe if we use the word 'return'. It is a well known fact(?) that the annual return is lower for smaller holdings and higher for larger holdings. Why? Well, the return from the bonds is quantised, not continuous. You cannot win £1.4 pa on your £100 PBs, the minimum winning amount is £25. So, in any one year, with £100 PBs you would reasonably expect to win NOTHING. Obviously, with larger holdings you can expect to win £25 in a year, indeed with a large enough holding you can reasonably expect to win that, or more, in each monthly draw - and you do.

So: Large holdings, you can reasonably expect to get an annual % return; Small holdings - It's a lottery!

XFool wrote:

swill453 wrote:

XFool wrote:What's to explain?

Obviously, if you have significantly fewer 'tickets' in a lottery than somebody else, then you have a lower chance of winning than they do! Ergo - over say one year, your return WILL (on average*) be expected to be lower than theirs. Simples!

That's obvious. But it's not what the article is saying.

It says 'smaller stakes have ... a lower “interest rate”'. Not the same thing at all.

Scott.

Well first of all, beware of using the term "interest rate" (WRT bond prizes, not the bond fund).

Last time I made that mistake around here I had a certain proponent of High Yield Share portfolios down on my neck like a ton of bricks.

I think we will be safe if we use the word 'return'. It is a well known fact(?) that the annual return is lower for smaller holdings and higher for larger holdings. Why? Well, the return from the bonds is quantised, not continuous. You cannot win £1.4 pa on your £100 PBs, the minimum winning amount is £25. So, in any one year, with £100 PBs you would reasonably expect to win NOTHING. Obviously, with large holdings you can expect to win £25 in a year, indeed with a large enough holding you can reasonably expect to win that, or more, in each monthly draw - and you do.

So: Large holdings, you can reasonably expect to get an annual % return; Small holdings - It's a lottery!

What is the definition of a "large holding"? Recently a million pound prize was won with a holding of around £4000 in bonds.

So the article says 'smaller stakes . . . have a lower "interest rate" '. So if you look at 500 holders with £100 stakes and compare their combined winnings to one holder with a £50,000 holding over a period of time, they will on average win less? That doesn't sound right to me.

If you have a larger stake you have a more reliable income stream (but still very lumpy), but that's all I would think.

Mike88 wrote:What is the definition of a "large holding"? Recently a million pound prize was won with a holding of around £4000 in bonds.

It's a choice. My definition would be that the 'very minimum' holding would be the number that can reasonably be expected to win one prize in one year. Although, with that and the variability of returns from a lottery you could easily fail to win anything in one year.

Originally I started with enough to expect to win at least two prizes in a year, later I moved to four prizes a year then to just larger amounts. The lower the expected number of prizes in a year then, obviously, the higher the chance of failing to win anything.
Just start with the current chance of winning any prize with one bond in one draw (now only 30,000 : 1?) and go from there to work out how many prizes you can reasonably expect to win in a year. The expected 'return' rate in a year is (expected annual winnings)/(Amount held).

Winning £1m on a holding of £4000 is just sheer luck. But then, winning £1m is sheer luck on ANY holding of PBs as you cannot hold enough bonds for long enough to come within striking distance of reasonably expecting to win £1m in one year or longer. Obviously the more bonds you have the greater the chance you will get lucky.