Is Ernie still worth the gamble?

By DAILY MAIL REPORTER
Updated: 19:00 EST, 29 June 1999

On 1 July, more than 23 million people stand the chance of winning £1 million as Ernie, the Premium Bond computer, picks July's jackpot winner.

But Ernie is picking fewer and fewer winning bonds than at any time in his 42-year history. The number of £100 prizes has fallen from 111,000 to 26,000 in a year. This month, the return on the prize fund fell to just 3.25 % - its third fall this year and the lowest-ever return on Premium Bonds.

It's even lower than when Premium Bonds first went on sale in 1956, when the return on the prize fund was 4 %. In the first draw in June 1957 the top prize was £1,000. Any bond entering the monthly prize draw now stands just a one-in-24,000 chance of winning a prize of any sort, from the lowest £50 to the top £1 million.

Only last month, the odds were a much shorter one in 19,000.

And the chance of picking up the top prize is even more remote. If one of your £1 Premium Bonds wins the £1 million prize tomorrow, count yourself very fortunate. You've beaten odds of one in

12.44 billion - that's more than double the world's population.

In comparison, the odds on picking six winning numbers in the National Lottery are one in 14 million. The chance of getting three numbers right and picking up £10 is one in 57.

However, Premium Bonds beat the National Lottery hands down in that,with Premium Bonds, your stake is safe.

If you don't win on the Lottery, you have lost your money. But with Premium Bonds, you can always get your stake back if you decide you're just not the winning type.

Yet that doesn't stop Premium Bonds being less attractive than they have been for years. In February, the prize fund return was 5 %. This fell to 4.5 % in March and again to 4 % in April, before reaching its low point of 3.25 % this month.

National Savings, which runs Premium Bonds, says it bases the returns on medium-term fixed rates, which have been falling over the past year.

The return on the prize fund is a bit of a misnomer. Just because the return is 3.25 % doesn't mean that if you've got, say, £100 invested you'll get back £3.25 a year. It means the return on all the money invested in Premium Bonds.

Indeed, you could easily go for years without winning anything on Premium Bonds, as many holders will testify. It's down to luck: although the luck is very much skewed in favour of wealth-ier investors.

If you aren't prepared to leave the return on your hard-earned savings to chance, then you should get a far better return from a good bank or building society.

Prudential's Egg account, for example, is paying 5.5 % (4.4 % after tax) on instant access, although you'll need internet access to open it. However, Premium Bond prizes are tax-free.

Since the monthly jackpot was increased from £250,000 to £1 million, there have been 63 £1 million winners. Eleven of the winners have held the maximum £20,000 in Premium Bonds, and a further 23 had holdings of at least £10,000.

The smallest holding to win the £1 million was the Essex man or woman who won in March 1995 - he or she held only £476 in bonds.

While an investor with £100 in Premium Bonds - the minimum purchase allowed - stands a onein-240 chance of winning any prize in a monthly draw, one with the maximum £20,000 invested stands a better than one-in-two chance.

On average, someone with £20,000 in Premium Bonds should win ten prizes of any size a year. At the old odds of one in 19,000, a £20,000 holder should have expected 13 prizes a year.

The lengthening of the odds of winning from this month's draw is as a result of the decrease in the prize fund. What it also means is that the number of prizes has been adjusted.

Each month's prize pot is split so that 10 % goes in the big prizes - the £1 million to £5,000 prizes. A further 10 % goes on the medium-size prizes - £1,000 to £500 - with the remaining 80 % going on the £100 and £50 prizes.

Now, the share- out has been adjusted, so there are more £50 prizes and fewer £100 prizes.