hi i'm damian and today i'm going to be
talking about national savings and
investments and specifically premium
bonds
let's take a look at your chances of
winning and whether compared to other
investments they're worth it
i just want to say thanks to peter
savile for suggesting our cover nsni
no messing about let's get to it the
first thing we need to understand is who
are ns and i
national savings and investments can
trace its history back to 1861.
they offer a range of savings and
investment accounts and estate owned
meaning they are controlled and operated
by the government they have a huge
150 billion under management and the
idea here is that the government
guarantees any of the investments that
you make in these products
meaning these investments are as secure
as you can get the government can then
use this part of cash whenever they like
to pay for things
like covid19 ns and i currently fund
about nine percent of the total uk debt
making it a massive proportion of the
overall uk wallet
over half of all the funds invested with
the nsni are stored in their flagship
product
premium bonds with a total of around 91
billion invested which is up from 70
billion two years ago
but what are premium bonds to put it
simply it's a lottery
each bond you buy for a pound is one
ticket for the lottery
the maximum amount of tickets anyone can
have is currently fifty thousand pounds
worth
prize draws are monthly and prizes range
from twenty five pound all the way up to
a million
but this lottery acts a little
differently to the national and euro
millions
in those lotteries whenever you buy a
ticket if you don't win your money's
gone
with premium bonds it acts like a
savings account so for every one pound
bond you buy as long as you don't cash
it in that's entered into the draw
every single month and you can sell your
one pound bonds and take them out
whenever you like
i've got a golden ticket
i wasn't really sure whether to use the
cartman scene there or the original
charlie and the
i've chocolate a golden ticket
but i went with cartman i guess now i've
just shown both anyway
moving on 22 million people have premium
bonds with a total value of 91 billion
pounds
let's just stop and think about that for
a second for a financial product that's
only available in the uk to have 22
million people using it when the uk
population is only 60 million people
that means one in three people have
premium bonds in the uk
and not just one or two the average
holding is around 4 100 pounds
90 billion divided by 22 million that
officially makes them the uk's most
popular investment
but popular don't pay the bills so let's
figure out if they're worth it
in order to come to a decision on
whether premium bonds are worth it or
not we need to dissect the reasons that
they've historically been so popular
and see if they're still relevant today
let's start with
security this is a government-backed
investment meaning you can always get
out exactly what you put in
from an investing perspective it doesn't
get much safer and this is why a lot of
people love putting their cash here
but on balance in the modern world that
we live in all banks and building
societies are protected by the financial
services compensation scheme
meaning if the bank went under the
government guarantees to give you back
your funds up to the tune of 85 000
pounds
you can only put 50 000 pounds into
premium bonds so to put it simply you
can store more money in a bank account
securely than you can in premium bonds
which makes the security element of the
decision kind of null and void
so let's move on to the next one tax
incentives one of the best things about
winning money
is that it's tax-free historically this
was a massive plus for premium bonds
as even a basic rate taxpayer could
expect to pay 20 on any interest they
receive on cash
eating away at the total return that
they make but any amount of money that
you win with premium bonds you don't pay
a single penny in tax
sounds great right but in april 2016 the
government introduced the personal
savings allowance
allowing all lower rate taxpayers to
receive up to a thousand pounds a year
in interest
tax-free with the current best high
interest savings account available
that is around 65 to 70k in cash savings
that you could have and the gains would
be tax-free you need to be winning about
84 pounds a month in premium bonds in
order to hit this level
but even with 50 000 pounds invested the
chances of doing this in a year are only
about 5.6 percent
if you're a higher rate taxpayer earning
over 150k a year
then you don't get a personal savings
allowance and for that reason the
tax-free incentive of a premium bond
might be attractive
but for 95 of people watching this video
the introduction of the personal savings
allowance has really leveled the playing
field and removed the advantage away
from premium bonds
and the tax incentive only really
matters if you're a high earner or
you've already used up the personal
savings allowance elsewhere
sorry premium bonds next the returns
the current advertised rate of return is
one point four percent
meaning of the total pot one point four
percent of it is paid out in price funds
each year
so that means if you have a hundred
pounds invested in premium bonds
theoretically you should expect to see
one pound forty a year in returns
the problem is there are no one pound 40
prizes the minimum price is 25 pounds
so what that means is for someone to win
25 pounds a lot of other people have to
lose their 1 pound 40.
another way to explain this is for every
20 people that have 100 pounds in
premium bonds over the course of a year
19 of them will earn nothing so that one
can receive 25 pounds
and even grim a thought is how many
people have to lose their 1 pound 40s in
order to pay out the 2 1 million
prizes literally thousands of people
will win nothing a month so that two
people can win a million pounds
the problem is while they can advertise
a rate of return in reality it all comes
down to luck
a person with a hundred pounds invested
could theoretically win the top prize
and a person with 50k could hold premium
bonds for 60 years and never win
anything
let's look at the odds in a little more
detail the table on screen shows the
amount of prizes paid out at each
funding level
and the chances of winning those prizes
if you have one ticket for one month
you'll notice that 90 of all of the
prizes are in the lower category
of 25 50 and 100 pounds and ultimately
the odds of winning any prize in one
month are pretty poor
with the chances of you winning a prize
being one in 24 500
with the chances of you hitting a
million sitting at 1 in 45 billion
it's only really once you have multiple
bonds invested over a long period of
time that the odds become more
attractive
but remember every bond you buy enters
the draw each and every month
it's not like you buy it and then it's
gone so of course it's possible to build
up your holdings over time and increase
your chances of winning as you go
for example someone with a thousand
pound invested for a month has a 1 in 25
chance of winning a prize
or a 1 in 45 million chance of winning
the big prize and if you had this
thousand pound in bonds and held it for
five years then the odds of winning a
million dropped to one in 775
000 so you're telling me there's a
chance
money supermarket has a really useful
calculator we can play around with the
amounts and timelines
so you can see what the odds are of
winning just enter the amount the time
period and then click the green box to
see the odds
just remember though this is all based
on average look it's easy to whack in
50k and put five years
and think sweet have a one in fifteen
thousand chance of winning it big
just remember you could have that 50k in
premium bonds for 60 years and never win
a single thing
you could put the same 50k into fixed
income investments such as corporate
bonds
and get a much more reliable and
predictable income or you could invest
the 50k into high yielding dividend
stocks
and probably receive an expected income
of around 2 000 pounds a year
which knocks the socks off the expected
return of premium bonds
not to mention that the original one
pound doesn't grow in value so if you're
not winning anything inflation
decreases the spending power of your
pounds over time
inflation the increasing price of goods
and services over time anywhere you
slice it the return on premium bonds is
pretty terrible
there's plenty of other places that you
could invest for a much better return
so the tax incentive is basically null
and void unless you earn over 150k or
strike it very lucky
the security element is outdated and is
now standard with all uk banks protected
by the financial services compensation
scheme
and the returns are poor and
unpredictable at the low end
and seemingly impossible at the high end
it doesn't look good does it
so why do people continue to use them
and can they ever be justified as an
investment
i think they can so much so i use them
myself
but in the face of everything i've just
said how could that be the case why
would i use such a poor investment
let's take a look first of all the
reason that such a high proportion of
the uk population uses premium bonds
can be understood through gambling
psychology we all know the house always
wins
but gambling is still as popular as ever
just take the owner of bet 365 denise
coats
who paid herself a modest 323 million
last year
wonder what the student loan deduction
was on that a cambridge university study
into the psychology of why people with
gambling problems continue to gamble
highlighted two key triggers for the
behaviour near misses
and personal choice some near misses
first
in traditional gambling like the lottery
this is looking at your ticket and
seeing the number 23 came up when you
picked 24.
ah so close i nearly picked the number
23 as well i picked 24.
in reality no you didn't in premium
bonds 95
of all other prizes are made up of lower
end prizes millions and near misses
as each bond has an equal chance of
winning the million pound prize as the
other
a 25 pound win feels so close to a
million it's almost like you got picked
out of the hat at the wrong time and if
your ticket had just been next
maybe you'd have won the million so i
might as well see what happens next
month because this month i was so close
then there's personal choice this is the
belief of gamblers that they somehow
have
influence over the game a study done in
las vegas found that if you took a
gambler to a roulette table and said to
them that they could put the ball on
themselves instead of the croupier
the gambler would bet more money because
they believed that they were in control
of the result
a more relatable example is the fact
that most people don't trust the lucky
dips
and always use the same lottery numbers
every single week this is your personal
choice
this is your element of control does
anyone want to play a game that they
feel that they don't have control over
the personal choice characteristic
manifests itself in my opinion through
the security element the premium bonds
offer
the fact that you can withdraw your
funds at any time gives you the
perception of control
you reassure yourself with the notion of
well if i'm not happy with the results
i'll just take my money out
the reality is you find it tough to do
that because the one week you don't play
the lottery what happens if your numbers
come up
the reason one third of the uk
population has on average four thousand
pounds invested in premium bonds is
because no one ever takes their money
out
demonstrated by the fact that two years
ago the average holding was three
thousand one hundred
so not only do people not take their
money out they increase how much they
have
the logic there is okay i'm not winning
at the minute so i'll have more money
because that improves my chances of
winning
it's these emotional triggers that make
premium bond so popular
it's a lot sexier waking up one day and
seeing that you've won 25 pounds
versus checking your bank statement and
seeing the same amount of interest going
in
every month from a fixed income
investment that you purchased
but we can also never underestimate the
power of what if one of my favorite
things to do on a friday afternoon at
work is sit chatting to my colleagues
about what we do if we won the lottery
which normally sent us around first
class fights to vegas and buying lots of
cheap terrorist houses in manchester
satellite towns
such as berry we all like to dream and
premium bonds are an investment for
dreamers
and this is where i feel the
justification for using them comes in
leave all the statistics odds and
probabilities at the door
everyone has a little room in their life
for something that might just change it
all
the national lottery is a perfect
example of this while it might not be
the tv spectacle it once was
shout out to mystic meg okay we
know seventy percent of uk adults play
the lottery every week
because we all know my thoughts are
rather than playing the lottery
set up a regular direct debit into
premium bonds each month that's what i
do
i have 30 pound a month going into
premium bonds a fraction of what i save
on a monthly basis
i have a chance of winning a million
quid but most importantly
you haven't just thrown the crit down
the drain
[Music]
the perfect way to build up an emergency
fund in my opinion while still
scratching that very
human itch of dreaming of hitting the
big time let's face it statistically
speaking premium bonds are not going to
be a good investment
and they're probably not going to make
you rich for that i'd use other types of
asset classes
for an overview of the options that are
available just click here
or maybe it's here it's going to be one
of the two so just click that
i personally use premium bonds as a
place to build a rainy day fund and i
just like the fact that i might hit the
big time
one last fact for you turns out 85 of
people watching this video won't be
subscribed
that's like seeing there's a party going
on on the other side of the road and
rather than going over and knocking on
the door so you can go inside
you just stand on the garden and look
through the window don't stand on the
drive
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