Monday, April 7, 2008

The True Value of Premium Bonds

When an investment instrument that sounds to good to be true, controversy always arise. Taken into the odds of winning per bond and the interest rates for bank saving accounts, your argument can be on either side. If you look at premium bonds, an investor can probably win a million pounds during the draw. What about the other side of the coin? 36 billions people don't get to win any single cent. Although the money you put in stay same and you don't have any fear of losing your money, but then you don't get to earn any interest. The truth is that the British government has all the access to 6 billion pounds without paying any interest except to spend more a million dollar pounds for the cash prizes every twice a month. This is less than 0.1 percent of the total money invested.

You can see why some people are questioning whether or not premium bonds are good investment. Furthermore, the odds of winning declines when there are too many bondholders. This explain why most of the investors have little chance of winning the cash money. They also lose the potential to make money because they can't earn money like the saving accounts. They can make more money if they buy shares.

Let us look closely at the premium bonds. Supposing there are one million investors who own one bond per person. If one win the grand prize, then it means 999,999 investors will be the losers. These group of people can make some money should they put their money in the saving accounts. Therefore, you can choose a chance to win one million pounds or a guaranteed small return.

You can study the interest rate for each bond. The interest rate for payout of one pound bond is estimated to be 4 percent. This is the interest rate used to allocate the prize money. In other word, you should get 4 pounds for every 100 pounds you invested. This doesn't make sense because the cash value for the smallest prize is 50 pounds. This means 7 investors will lose their interest in that month if you won the 50 pound cash prize. So, more people will lose their money because they contribute 2 million pounds to two winners.

You decide if you want to invest your money premium bonds. There are other options. You have choices and only you can make the choice. It is the element of gambling which get people excited even they know the odds of winning are small. Saving accounts may not offer any thrill but you know that at the end of the day you will get your return even though it is small.


Parag said...

Since interest rates are falling, premium bonds are seen as a safe way to invest and at the same time have the thrill of winning one of the over million and a half cash prizes awarded each month.
Buy premium bonds