I have had a number of Premium Bonds for some years, and when interest rates were higher, I got a small prize with reasonable regularity which gave me the equivalent of an acceptable rate of interest (particularly before I retired) and there was always the chance of winning a million!
However, with declining interest rates, and National Savings pretending that they are even lower that they are, I have not won a prize for some while, and of course my capital is depreciating with the current high inflation.
So currently there seems some advantage of withdrawing my money and investing it in Index-Linked Savings Certificates. These currently pay 1% plus the rate of inflation, which would at least maintain the value of my capital.
Then the thought struck me; Suppose I "invest" the equivalent of the 1% interest each week in the National Lottery? Would I be better of than with Premium Bonds? Certainly I would be maintaining my capital, and in with a chance of a prize.
So let's invest a theoretical £10,000 in premium bonds. According to Money Savings Expert, with average luck this is likely to win me £100 in a year with a 1 in 338,824 chance of winning the £1,000,000 prize.
Now, the 1% on my £10,000 investment in Certificates would bring in a certain £100 per annum, the same as the most likely probability with Premium Bonds.
So what about the lottery? Well Lotto tickets cost £1 each, and so I could buy two a week with my interest money, but the calculations are somewhat more difficult, and I have to admit to not being interested in probability theory all those years ago when I took my "A Levels"!
However, according to the official statistics, the odds of winning the UK National Lottery jackpot prize are a staggering 1 in 13,983,816! The chances of winning any prize at all is around 1 in 54.
So it seems that if one spends £100 each year, the above figures can be divided by 100 to give the probabilities of winning in the course of the year. Thus the chance of winning the jackpot comes down to 1 in 139,838, which is actually better than that of winning the top premium bond prize. Of course, there is no guarantee as to the size of the lottery prize, and it might have to be shared with other winners.
However, for the lowest prize, with £2 each week, statistically it seems one should win a couple of times a year, albeit a mere £10 minimum prize.
So all in all, Premium Bonds now seem to be a "no-brainer". Is there anyone out there whose maths is better than mine who can confirm my calculations?
Gates of Vienna News Feed 8/3/2015
1 hour ago