Funny Bonds.

Non-British followers and fans may not be familiar with UK "Premium Bonds." These "bonds", first marketed in the 1950s, can be bought by individuals (but not by institutions, trusts etc). in multiples of £10. The bonds are undated. Each bond is individually numbered, each number representing a £1 bond. Every number goes into a monthly draw - exactly like a lottery - except that non-winners do not lose their £1, the number goes forward to the next monthly draw. Top prize is £1M. So each and every month, HM Treasury makes some lucky geezer a millionaire and tens of thousands of the rest of us win prizes down to £25 - yours truly won 2 of these tiny prizes in the July draw, (and see previous posting). Prizes are free of all UK tax, which is supposed to make them attractive to high band tax payers. For further details of the scheme see National Savings website. So what's "funny" about these "bonds" First, from the Governments point of view, they are FANTASTICALLY CHEAP LOANS. At the moment the prize fund represents an interest rate of about 1%.- but HM Govt doesn't want to sell them to us except in penny numbers! The maximum holding is a pathetic, lamentable, derisory £30,000! It's not difficult just now to get 3% on a medium dated gilt, so bond fans with serious money simply laugh at Premium Bonds. Secondly, individual investors with money problems are not likely to buy into the chance of winning a piffling 25 quid - by far the most likely prize. Result - small investors flutter on them by buying £100 from time to time, and investors with the maximum holding grind their teeth and complain they can't buy any more. If the maximum holding were to be increased to (say) £500,000 serious investors might well take a serious interest, the number of £1M prizes could be increased to (say) 10 per month, making the scheme more attractive, at least to folk who don't understand probability . . cash would pour into the scheme and the National Debt could be cleared in a month or two. A minor irritation is that bond holders cannot nominate a bank account for their prizes to be paid into. Can you believe that! This is 2009 for Goodness sake! So HM Govt. spends millions every month sending out drafts for £25 through the post, which we all have to haul round to our banks with . . . etc, etc, grumble grumble goodbye.