David Prosser: Take the Sugar ad with a pinch of salt

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The Independent Online

The Apprentice, last year's surprise hit TV show, will be back on our screens later this month, the BBC is delighted to announce. But here's a tip for competitors battling it out for a job from Sir Alan Sugar: don't question him too closely about his advertisement for Premium Bonds that has been relaunched for the new year.

It's not just that the ads are intensely irritating, though they drive me up the wall. I'm more concerned about the misleading sales pitch that Sir Alan makes for Premium Bonds.

"I'm not a gambler," Sir Alan tells us, explaining that this is why he believes in Premium Bonds (so much so that he is donating his appearance fee to charity, though why this should make us any more inclined to invest is not clear).

In fact, investing in Premium Bonds is a huge gamble. Unlike the National Lottery, you don't lose your stake after every draw. But if you don't win any prizes over the next 12 months, the purchasing power of your cash will have been eroded by inflation. In other words, you'll lose money in real terms.

Over time, of course, it's fair to expect to win an average number of prizes. But the way the Premium Bond prize draws are currently set up, that would mean earning an annual return of just 3 per cent on your money. It's barely enough to cover the cost of inflation - currently around 2.5 per cent.

The best bank and building-society accounts, by contrast, pay 5 per cent a year. And while savings providers have the right to cut interest rates at any time, they're guaranteed to pay you something, unlike the Premium Bond prize fund.

National Savings & Investments (NS&I), the government-backed savings bank that runs the Premium Bond draws, points out that winnings are tax-free. But so are cash individual savings accounts (ISAs), which will pay you more than 5 per cent a year in the best cases.

The truth is that the only way you'll really be better off with Premium Bonds is if you win one of the big prizes. But don't bank on it - for example, the chances of a single bond picking up one of the two £1m jackpot prizes awarded each month is around 13 billion to one.

Don't be misled by NS&I's claim that each bond has a one in 24,000 chance of winning each month, which looks good for investors who have the maximum holding of 30,000 bonds. Some 87 per cent of the prize fund goes on small payouts - £50 or £100 - so winners still won't be quids in.

In fact, Premium Bonds represent exactly the type of gambling that Sir Alan says he dislikes, even before you consider the opportunity cost of missing out on something better. If, like him, you're not keen on uncertainty, Premium Bonds are one to avoid. The only sure thing is that for all but the luckiest of bondholders, far better value is available from other savings products.

Here's a great idea we should import from Ireland as soon as possible. Regulators there are to ban credit-card companies from increasing people's credit limits without first asking them whether they want to be allowed to borrow more.

It's certainly a sensible step. Lenders in the UK routinely write to customers to say that their credit limits have been raised. Borrowers don't have to take up the extra lending on offer, of course, but why give them the option of going further into the red if they haven't even solicited the facility?

Credit-card companies are quick to claim that they're responsible lenders. But one of the most significant factors in Britain's consumer credit boom has been the aggressive marketing campaigns of many lenders, whose interests are well served by encouraging us all to borrow more.

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