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Our word is our Windfall Bond

Perusing The Sunday Times this weekend (January 18, 2016) I was titillated to read that a writer, who will be 50 this year, was given £10 in Premium Bonds by a relative in 1966.

I wonder what happened to them, asked Ross Clark. Answer: Nothing at all. The value of his 50-year-old Premium Bonds bought when an Englishman last had his hands on the World Cup, is still £10. “I don’t want to be a party-pooper,” he wrote, “but could there be a worse investment for your children or grandchildren – or even for yourself – than Premium Bonds?”

I can tell you from bitter experience that Mr Clark will not enjoy opening his mail on Tuesday morning. It won’t be any fun at all. Years ago, when I wrote a column in The Financial Mail on Sunday I questioned the validity of Premium Bonds since I had cashed in my late mother’s 40-something year-old bonds for the same £300 her benefactor had paid for them in 1963. A great many of the newspaper’s millions of readers took terrible and immediate umbrage at my impertinence for dissing a savings product which holds national treasure status – even if it may yield no treasure. The level of fury was almost as if I had broken into their houses and stolen the wretched things myself. But the reality is that in recent years the effective yield on Premium Bonds has been small.

The yield is calculated using a quite complicated formula but the result usually comes out at slightly less than the prevailing average decent deposit account rate. Currently, it is 1.35 per cent. This yield theoretically arises when winning prizes in the monthly random number draw are reinvested in the individual’s bond holding thus creating inflation in the cash value of the holding. (This is unless the winnings exceed the amount of the maximum holding, £50,000, in which case the winners get a cheque from Her Majesty’s Government). Yet the chances of a winning number and therefore making a yield on your savings are not great.

The highly useful website www.moneysavingexpert.com has an excellent breakdown of the odds of winning. The chance of a £1m win is slightly in excess of 27bn to 1 and the chance, according to the site is a mere 26,000 to 1 to win even the minimum prize of £25.

You can check your chances on this fun calculator: http://www.moneysavingexpert.com/savings/premium-bonds-calculator/

There are big advantages to Premium Bonds – winnings are tax-free and all your savings, being as they are underwritten by the government, they are safe – and this may explain their popularity.

The Family Building Society offers a unique Windfall Bond (a variable rate notice account) based on the same principles of generating growth after a qualifying period by way of monthly prize draw but with odds of winning of 64/1 in the course of the first 12 draws. The breakdown of the draw ensures there are 13 opportunities to win each month – which equates to 156 in each calendar year.

Each bond is £10,000 and the interest rate is linked to the Bank of England bank rate but the draw structure – 10 prizes of £1000, two of £10,000 and one of £50,000 greatly enhances the chance of an, erm, windfall.

And that’s got to be more fun.

For more information, or if you want to apply for a Windfall Bond visit www.familybuildingsociety.co.uk/Savings/Accounts/Windfall-Bond.aspx  or call 03330 140140.

By Stephen McDowell 

 

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