I just checked the website of National Savings and it turns out I won £50 in the October draw. I only invested in Premium Bonds five weeks ago so this represents an annualised return of 5.11% (or thereabouts). (Actually, that probably allows the astute reader to figure out how much I invested which violates one of my self-imposed rules for this blog but I'll let it pass.)
I'm a little upset that I allowed myself to ignore this intriguing financial vehicle for so long. The effective interest rate isn't hugely competitive but the combination of the reasonable expectation of an "OK" return with the potential of winning £1m is really quite sweet.
I always had a deep suspicion of those who played the National Lottery and my belated discovery of the merits of Premium Bonds has reinforced this.
I have pitched the benefits of premium bonds to two lottery-playing acquaintances thus: "If you spend a pound on the lottery, you may make a large return, but your stake is lost if you don't. The expected return if you play for the long term is £0.50 per £1 invested, or so. If you invest in premium bonds, you could win a million pounds each month or some other sum. And even if you don't, your stake stays in the game. Your expected return is greater than the original stake! (we ignore inflation in such arguments, of course :-) ). My argument may be slightly inaccurate but it has worked... they will both soon be "ex-customers" of the "tax on the stupid" (Deliberately ambiguous link chosen). Hurrah for Macmillan! (I never thought I'd ever say that)
Of course, the odds of winning a prize (any prize) are somewhat greater with the lottery but that doesn't bother me. I am now officially in love with premium bonds.