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Old 03-04-2014, 02:19 PM   #1
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Prize Linked Savings

An uncle of DW's passed away recently and she is listed as a beneficiary. The solicitors dealing with the estate sent her a list of assets which included £22,000 of UK premium bonds (~$35k). We know all about premium bonds as they were popular gifts to new borns in the 50' and 60's, and are still being sold today. Each bond is worth £1 and can be cashed in back to the government for their face value at any time. The big difference with them over regular government bonds is that the interest from them goes into a big pool and there is a monthly drawing with tax free cash prizes ranging from £25 to £1 million. The most bonds anyone can own is £30k and as of Feb this year the chances of winning something in any given year is 99% if you own £10k.

It reminded me of a freakonomics podcast I listened to last year, although the original air date was 04/26/2012. I've put a link to the podcast below, but it says that other countries have tried similar things to try and get folks to save and it has been extremely successful. It was so successful when tried in one State in the USA that the government shut it down after initially approving it. The reason being that it re-directed too much money away from the State lottery. The model tried was similar to South Africa where savers gave up part of the interest to go into a pool from which cash prizes were drawn (e.g. instead of getting 3% from bank "A" you can get 2% from bank "B" with the chance to win big prizes)

Freakonomics » Lottery Loopholes and Deadly Doctors: A New Freakonomics Radio Podcast

Not asking a question here, just thought it was an interesting subject, and this uncle was a pretty astute guy, used to own his own business before selling up and being an accountant in a local council for 20 years before ER'ing at age 60. He obviously got enough returns over the years to keep him coming back for more.
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Old 03-04-2014, 02:29 PM   #2
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I remember that podcast and loved it. Hate that the banks weren't able to roll that out in the states, thanks to the lottery lot.
Very cool share.
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Old 03-04-2014, 02:34 PM   #3
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Originally Posted by Sarah in SC View Post
I remember that podcast and loved it. Hate that the banks weren't able to roll that out in the states, thanks to the lottery lot.
Very cool share.
Yes, we were never tempted with UK premium bonds, or with lottery tickets, but I could definitely see going for a lower interest rate with the small chance of getting rich, and enough small prizes to keep the adrenalin up. Somehow, foregoing money I don't have would be easier than actually handing over cash for a lottery ticket.
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