It needn't be a Lottery

It's fun to have a flutter on the big draw but, as Steve Lodge says, there are safer bets for your pounds 20 a month

THE 130-plus millionaires created by the one-year-old Lottery can hardly knock its returns. But for most of the rest of us, the Lottery has been a bad bet. Collectively we've staked pounds 4.5bn for just over pounds 2bn back in prizes. The bigger share has gone to the charities, the taxman, the organiser Camelot, and to retailers.

In investment terms the Lottery is very high risk. Most people lose the money they stake. The chances of winning the jackpot are one in 14 million, the chances of winning any prize at all are one in 54. And even when players win, the likelihood is they're still down overall. On average, 30 million players have won two prizes each in the Lottery's first year of operation, according to Camelot. But most of these have been for pounds 10. Meanwhile, the average punter has been betting more than pounds 2 a week - pounds 10 a month, with a further pounds 10 a month on scratchcards. Small beer for a bit of fun, it might be argued. But pounds 20 a month put elsewhere can also make a real difference to your financial well-being.

However healthy you currently are, there is more chance of you contracting cancer than the Lottery solving all your financial worries, according to Bhupinder Anand of independent advisers Caroline Banks Associates. Yet few people insure themselves against the likely financial disaster that contracting a serious illness can also be. And the stock market is a relatively sure thing, if invested in for a reasonable time, using a unit or investment trust.

Here are some ideas of what you could get for your pounds 20:

A tax-free nest-egg of nearly pounds 3,500 after 10 years. Small savers can put as little as pounds 20 a month into some top-performing PEPs and unit trusts, in particular those managed by Perpetual. Stretching to pounds 25 a month will bring plenty of choice, among them unit trusts managed by Schroders and Morgan Grenfell and investment trusts managed by Foreign & Colonial. While investing as little as this will not give you access to the best of the discounting deals on offer, saving regularly does dull the risks of the stock market.

A reduction in a 25-year repayment mortgage's term of two years or more; slightly reduced mortgage interest payments after year one for an endowment-type mortgage plus a lump sum up to thousands bigger at maturity. For most people pounds 20 a month is insignificant when compared with their mortgage payments. Most lenders won't immediately credit any extra pounds 20- a-month payments. But saved up and paid as an end-of-year lump sum , you could reduce subsequent payments on an interest-only loan by perhaps pounds 20 a year. With the debt and interest payments reduced in this way year-on- year, you stand to have a bigger lump sum left over from any endowment policy when the loan is repaid, according to Ian Darby of mortgage brokers John Charcol. Repayment loans will benefit from a reduced term.

Cover to pay a pounds 40,000 mortgage if you lose your job or cannot work. But such protection policies might only pay your mortgage for a year.

pounds 783 after three years from a building society. Ironically it was only a year ago, as the Lottery had just been launched, that the Government put a stop to an attractive savings scheme called Save As You Earn which offered a fixed tax-free return of 8.3 per cent a year for people saving pounds 20 a month for five years. But a number of societies now offer copycat schemes with good rates, albeit taxable. The Bradford & Bingley leads the pack, offering 7.3 per cent on its Monthly Saver account for people saving for three years. A tax-free alternative is Tessas. Many of these allow monthly savings of even less than pounds 20, and offer tax-free interest of up to 7 per cent.

The possibility of a pounds 1m jackpot or a lesser prize from premium bonds. Premium bonds are commonly compared to the Lottery. In fact they're different animals - in investment terms premium bonds are the equivalent of a money- back guarantee while the Lottery bears more resemblance to a high-risk derivative investment. Unlike the Lottery your stake is always safe and you can get it back at eight days' notice. The odds of winning a prize in any draw are worse than with the Lottery - one in 15,000 for any prize, one in 5.5 billion for the pounds 1m jackpot - but you are automatically re- entered in the monthly draw. No extra purchase is required. The total prize fund amounts, in effect, to an overall interest rate on premium bonds of 5.2 per cent a year.

A pounds 140,000 payout to your family if you die within the next 10 years. That's the sort of life insurance cover a 37-year-old non-smoking man could buy for pounds 20 a month, says David Norman of KPMG Personal Financial Services.

A pounds 100,000 tax-free payout if you contract, for example, cancer. That's the amount of critical illness cover a 30-year-old man could get, but to get the payout you would typically need to survive 28 days, says Mr Anand, and the premium is subject to increase after five or 10 years.

A more tax-efficient way of giving to charity than the Lottery. Supporting charities through playing the Lottery is pretty unfocused and not tax- efficient. Two ways to give regularly that allow you or the charity of your choice to benefit from tax relief on the payments are Payroll Giving and Deeds of Covenant. Hardly a lottery win for either, but the regularity and tax relief help make it potentially less painful and that much more welcome for charities' planning.