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  • Writer's pictureInvestment Synergy Team

The real odds of winning on Premium Bonds — welcome to 5487-1, you’ve won £1,000….

It’s an extremely long wait before your odds improve, yet savers are still up for the draw,

however a saver with £1,000 stashed in Premium Bonds would have to wait more than 200 years before they had a 50/50 chance of winning £50.

You would have to hold the same stake for 1,155 years to have a 50/50 chance of a £500 prize, 3,466 years for a 50/50 shot at £1,000 and more than 60,000 years before an even chance of winning £5,000, according to Andrew Zelin, a data scientist.

Approximately £111 billion ! was saved in Premium Bonds in March — half of all the deposits in the Treasury-backed National Savings & Investments.

Premium Bonds, which have been around since 1956, give holders the chance to win money in monthly prize draws. The money the bank would have paid out in interest is pooled and paid out in prizes ranging from £25 to £1 million. Most customers do not win; there are 3.3 million prizes each month and more than 21.4 million Premium Bond holders. Fewer than 100 monthly prizes are worth more than £5,000.

The Premium Bonds are advertised as having an annual prize rate of 1 per cent, indicating that for every £100 paid into the bonds, an average of £1 is paid out.

You buy £1 bonds and each has an equal chance of winning — the more you buy, the more your odds improve.

NS&I says you have a 1 in 34,500 chance of winning £25 from a £1 bond. The same bond has a 1 in 56.2 billion chance of winning £1 million. The maximum you can hold is £50,000.

Ernie (the NS&I’s electronic random number indicator equipment) generates random numbers for the prizes.

According to Zelin you would wait eight and a half years before £25,000 of Premium Bonds had a 50/50 chance of winning £50. You would have to hold them for 46 years for a 50/50 chance of winning £500 and 139 years for £1,000. If you saved £25,000 in an easy access account over nine years, getting the average interest rate each year, you would have made more than £1,000.

Even those with the maximum £50,000 stake would need to keep them for 23 years to get a 50/50 shot at winning £500, 69.3 years before you had the same chance of winning £1,000 and 1,215 years to get a 50/50 chance of the £5,000 prize. If you held them for 64,398 years you would then have a 50 per cent chance of winning one of the two monthly £1 million jackpots.

Zelin, who analysed the figures on behalf of the Family Building Society, said: “There is nothing wrong with Premium Bonds, but savers need to know the true chance of winning and the fact that the 1 per cent return rate is not really an interest rate at all.”

The main benefits of Premium Bonds is that they are easy to understand and to access and also, because NS&I is a government-backed bank, your money is 100 per cent protected, however much you deposit across the bank. Other institutions have deposits up to £85,000 guaranteed by the Financial Services Compensation Scheme.

In a low-interest-rate environment the fun aspect of the prize draw is the reason that many parents and grandparents choose Premium Bonds for children. You can buy them in a child’s name.

Quilter, a wealth management company, said a child’s savings would have grown at more than double the rate if they had been invested in a stocks and shares Junior Isa (Jisa) over the past ten years, rather than Premium Bonds.

If £3,600 (the maximum allowed at the time) had been invested in a stocks and shares Jisa in 2011, it would be worth nearly £10,000 now. A Premium Bond stake of the same amount is likely to have won just £400. Even a cash Jisa, with an average rate of 4.3 per cent in 2011, would now be worth £5,258.

Some people remain worried about the volatility of investing, but with an 18-year horizon, putting money to work in the market can give significantly higher returns than more popular products such as Premium Bonds.

Investment Synergy - Ernie may be earnest, but clearly there are better, more profitable alternative investments...

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