One in three of us have these, and they’re rubbish

Written by Melissa Stewart on July 28, 2011 – 11:34 am

A third of us have money stashed away in Premium Bonds. But is there not a better home for our cash?

Everybody loves Ernie. He’s a national treasure. I remember him from my childhood, big-heartedly dishing out random cash prizes every month. Premium Bonds were a big thing when I was a boy, and they’re even bigger today.

An incredible 22 million people hold them. That’s one in three of us. They really are the nation’s favourite investment. This is why I feel bad for pointing out that they are a bit rubbish these days.

I know, this is a bit like dissing your best uncle because he didn’t give you an expensive birthday present, but it has to be done. Lovable old Ernie (which stands for Electronic Random Number Indicator Equipment, which is used to pick the winning numbers), with his folksy name and government-backed reliability, is looking a bit stingy these days. And because one in three of us are emotionally and financially attached to him, I thought you should know.

This is a pity, because in today’s uncertain times, a solid chap like Ernie should be in his prime. Instead, he is repaying loyal savers with an average prize fund interest rate of just 1.5%. That looks pretty miserly to me.

There’s no denying Premium Bonds have pedigree. They were launched in 1957, when Harold Macmillan was Chancellor, Britons had never had it so good, and the top prize was £1,000 (£17,000 in today’s money). That was enough to buy you a brand-new Morris Minor at the time.

Ernie has moved with the times, upping the jackpot to £1 million in 1994. Even the National Lottery couldn’t bury him.

He is still dishing out the dosh. In July, Ernie paid out more than £53 million. As well as that £1 million big one, he handed out four prizes of £100,000 and nine prizes of £50,000.

If you hold Premium Bonds, you are likely to have won more than once, but you probably won’t be rich. Nine out of 10 prizes are for £100 or less. Most people pocket £25 – more than 1.7 million of the smallest prizes were paid out in July.

You can dream of winning a million, but the chances are low. The odds depend on how many bonds you hold. Each bond costs £1, although the minimum stake is £100

If you hold the minimum £100 of bonds, your chances of a million are a vanishing 150 million to one. By comparison, your £1 Lottery ticket gives you a 14 million to one chance of becoming a millionaire.

If you hold £1,000 worth of bonds, your odds fall to 15 million to one. Even if you hold the maximum £30,000, your odds are still 500,000 to one.

True, your bonds go back into the draw every month, whereas a losing Lottery ticket is just litter. But your average return is likely to be 1.5% and that ain’t great, especially when you can Earn 6% a year on safe investments.

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