30k into Premium Bonds

[Hatter The Mad]

AFAIK - it falls directly under the UK treasury and provides funding directly to the treasury.

No - like I said, it is a asset. The government borrows against it and can to an extent leverage itself. vonhelment is right - the government doesn't spend explicitly NS&I, it borrows against it.

 

[mehuk]

Why won't you put £15k it in one of these? http://www.nsandi.com/savings-index-linked-savings-certificates - essentially £800 or more guaranteed at the end of 12 months.

I can do both if its allowed?

Im not against other forms of saving I just like the punt feeling that this will bring, checking the post each morning for a cheque or whatever it is they do

 

[Hatter The Mad]

I can do both if its allowed?

Im not against other forms of saving I just like the punt feeling that this will bring, checking the post each morning for a cheque or whatever it is they do

You're allowed £15,000 in the NS&I inflation-linked certificates and it doesn't affect your premium bond or ISA allowance. It is still tax free. You'd be mad not to.

 

[Shimmyhill]

Just like Premium Bonds then.



Yes, lets ignore inflation, perhaps it'll go away and justify your decision to place money in a pointless 'competition' that erodes its value over time.

What would you do with the money, i assume savings are not an option as they also erode the value over time at the moment?

I assume the OP much like many people has used all tax free allowances and doesn't want the gamble of shares/stocks and its pretty natural to then look at Premium bonds.

The one thing they are not is a con, they couldn't be any clearer about what you are getting into.

 

[Greebo]

My parents put 20K into PB's years and years ago. We quite often had a cheque come throught the post for £100 or £200, We worked out that over the course of the 5 years the cash was in there they were getting 22%. Now It was just luck as with eveything to do with gambling, it just happened to pay out really really well.

Lucky people. The odds of them getting 22% is about 0.2% or 1 in 50.

So they would be 49 other couples getting much less than that.

EDIT: Just spotted you said years and years ago. It was only in the last couple of years the payout dropped to 1.5%. Before then it was 5%. So in fact your parents were below average (if you meant they got 22% over the 5 years = 4.4% per annum). Of course if they got 22% each year then they were very lucky!

 

[ThundyCat]

i didnt say it was good advice as said the odds of actually making a return on scratchcards is better than the odds of actually hitting it big with bonds

your almost garunteed atleast to get your money back on scratchcards just as you are with bondsthey let you win enough to keep tempting people to buy more.

bonds are a waste of time is what im saying

Agreed.

We have had 5K in Premium bonds for the last 2 years and have won zip!

Time to put our money elsewhere me thinks.

 

[dowie]

No - like I said, it is a asset. The government borrows against it and can to an extent leverage itself. vonhelment is right - the government doesn't spend explicitly NS&I, it borrows against it.

Sorry but how is it an asset? NS&I exists to provide funding to the government, from the pov of NS&I(the treasury) a lot of these products are deposits - they are all essentially liabilities. Its an alternative/supplement to issuing gilts.

 

[Participant]

No - like I said, it is a asset.

So when you borrow money it's an asset?

 

[[TW]Fox]

So when you borrow money it's an asset?

Your 'debt' is an asset of the person who lent you the money, yes.

 

[Participant]

Your 'debt' is an asset of the person who lent you the money, yes.

But to the borrower it's not, which is what Hatter The Mad was referring to.

 

[Hatter The Mad]

But to the borrower it's not, which is what Hatter The Mad was referring to.

The cash the government has on the NS&I books the government can borrow against.

 

[dowie]

But to the borrower it's not, which is what Hatter The Mad was referring to.

exactly.

It is not an asset it is a liability - NS&I is effectively a govt bank used for funding - the products sold are essentially deposits - they're liabilities NOT assets.

 

[dowie]

The cash the government has on the NS&I books the government can borrow against.

Sorry mate I'm not trying to be antagonistic here but would you mind providing a breakdown of how you believe that works? I don't know whether we're arguing over semantics or whether you mean something entirely different to what I'm interpreting your post to mean so that might help to clarify.

edit - just to clarify - if NS&I were a regular bank they'd then lend out money against those deposits, take more deposits, lend more etc...

They're not however a regular bank - their business is taking deposits in order to fund the deficit.

As for borrowing against those deposits... that's the bit that I'm slightly unsure of in terms of what you mean by that - a conventional bank lends against deposits. I don't believe NS&I even does that - it would be rather pointless as they'd have lent out money that they were supposed to be raising meaning more of the defect then needs to be covered by issuing more expensive debt.

 

[dowie]

Your 'debt' is an asset of the person who lent you the money, yes.

And in this instance the asset is held by the people who purchased premium bonds (the people who essentially lent to the govt). The government has a liability - its taken deposits from people and has to pay out 1.5% interest into a prize fund.

Govt has a sweet deal as compared to its other liabilities NS&I products are often quite cheap for them.

 

[Pudney]

Sorry mate I'm not trying to be antagonistic here but would you mind providing a breakdown of how you believe that works? I don't know whether we're arguing over semantics or whether you mean something entirely different to what I'm interpreting your post to mean so that might help to clarify.

From my reading:

NS&I has £Xmillion.

Government borrows £Ymillion using X as effective security (sort of security).

Therefore X creates asset Y.

Perhaps.

 

[dowie]

Government borrows £Ymillion using X as effective security (sort of security).

That's the issue though - how do you use a liability to borrow against? And why would they even want to - given that they've already borrowed the cash in the first place...

 

[Pudney]

That's the issue though - how do you use a liability to borrow against? And why would they even want to - given that they've already borrowed the cash in the first place...

Because in addition to the liability of X you owe to the public, you have the cash of Y which is what the public gave you that made the liability. So you have an asset which matches the liability until you spend it. Which is actually more likely what they mean. The wording was just weird when I first looked at it.

 

[dowie]

Because in addition to the liability of X you owe to the public, you have the cash of Y which is what the public gave you that made the liability. So you have an asset which matches the liability until you spend it. Which is actually more likely what they mean. The wording was just weird when I first looked at it.

Sorry, still doesn't make sense - you've got cash in the form of deposits (a liability) - you're then going to use the cash to borrow cash.... why?

Secondly the government doesn't require a specific asset to borrow against (after all they've got the ability to print more money) they're able to issue debt at will (within reason - i.e. not like certain EU countries).

Anyway this is getting to be a bit pointless - the original point I had contention with back in the thread was the post stating that they make money investing the cash which is clearly not true. Restructuring it with swaps etc.. would likely cost not make money and there wouldn't be much point and the cash is there to be spent not invested.

Edit - anyway cheers for your post - I guess this is a bit pointless carrying on as you're just trying to interpret what someone else might have meant and tbh.. maybe they did mean something different...