Questions about prize bonds.

M

Max Weber

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Hi folks

I am thinking about putting some of my money into prize bonds, not really to earn anything, just to have it safe in another account, in case anyone was to hack into my current account. I have a few questions though:

1) How do prize bonds generate the money that the reward in prizes? Like, where are they getting the prize money from?

2) Are they safe? Could i ever lose the money in the account?

3) Can you take out the money as soon as possible or do you have to wait a while?

Like i say, i am just looking to put some of my money someplace safe, in case my current account is hacked into or something.

Thanks in advance.
 
Max Weber said:
1) How do prize bonds generate the money that the reward in prizes? Like, where are they getting the prize money from?
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The state. The prizes are like paying interest on the cash you’ve deposited.
Max Weber said:
2) Are they safe? Could i ever lose the money in the account?
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In cash terms as safe as anything for the retail investor.
Max Weber said:
3) Can you take out the money as soon as possible or do you have to wait a while?
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Whenever you like.
 
Anyone know if the prize bond fund is due a review ? I know it was revised downwards a few years back but no review or increase since despite multiple interest rate rises. Wonder who audits the fund and what is it generating in interest currently ? What are the staff salaries like ? I know someone who holds quite a lot and never wins anything. They also hold UK bonds and win regularly despite a smaller investment. Where is the interest going on this stack of prize bond cash ?
 
Mamamia22 said:
Wonder who audits the fund and what is it generating in interest currently ? What are the staff salaries like ?
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Mamamia22 said:
I know someone who holds quite a lot and never wins anything.
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The chances of winning are slim.
The chances of winning anything significant are miniscule.
About the best thing that can be said about them is that they're better than playing the Lotto because at least you get your nominal ticket price back.
That's faint praise.
Mamamia22 said:
Where is the interest going on this stack of prize bond cash ?
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The prize fund is about 0.35% at the moment.
If they are earning additional interest on the funds then I presume that they're going to run the operations?
 
The prize fund has halved since 2014. It’s now at 0.34%. Around 16 million annually.
No million euro prizes. Top prizes are 250,000 quarterly.
Not great really considering there is now a record of over 4 billion € invested.
 
Apparently UK prize bonds NSANDI are increasing their prize fund to 4% from August.
Why is the Irish Prize Bond fund still so low at 0.34% ???
 
Mamamia22 said:
Why is the Irish Prize Bond fund still so low at 0.34% ???
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The fund is part of State Savings - so investing in them is a loan to the State with the draw as an inducement. With the amount of money currently invested in PBs there is little incentive to increase the level of inducement, particularly as the State is under no great pressure to raise money (borrowing) for itself at the moment.
Also, raising the prize fund would draw in more money and put pressure on the banks to raise deposit rates to compete. Raising bank deposit rates would lead to pressure on mortgage rates, which the government does not want. So another reason not to increase the prize fund.
 
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Mamamia22 said:
Apparently UK prize bonds NSANDI are increasing their prize fund to 4% from August.
Why is the Irish Prize Bond fund still so low at 0.34% ???
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Yes, indeed, The UK have been consistently aligning their state savings rates with wholesale rates.
In essence, state savings are a social service - not really a way for governments to raise money. They were targeted at those who either did not access bank deposits or where getting poor returns on them. In a sense they were used to put manners on the commercial banks' deposit rates. But as @Early Riser has pointed out the social priority, especially as we move into election mode, has shifted to keeping down the mortgage rate and there is no doubt that if we raised the state savings rates to those consistent with the past it would have knock-ons for the mortgage rate.
4 year Irish government bonds currently yield 5 times more after tax than 4 year National Solidarity Bond. That is unprecedented and Prize Bonds have been treated even worse, not benefitting from the recent meagre rise in other state savings rates.
A consideration here is that in the UK the max holding of Premium Bonds is £50k whilst for Prize Bonds it is €250k. There is anecdotal evidence that with the collapse in deposit rates there was quite a flow of joint Prize Bond holdings of €500k. At this level they were a very viable alternative to deposits as by the law of large numbers the number of €50 prizes in a year is quite predictable*. Maybe it is policy to shake this constituency out as there are certainly better alternatives now available.
*I attach a spreadsheet for illustrating the range of possible outcomes for current holdings in prize bonds.
 

Attachments

  • Prize Bonds.xlsx
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Mamamia22 said:
Anyone know if the prize bond fund is due a review ?
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It is unlikely. State Savings reviewed and increased the interest rates on their medium/long term products (5 year Savings Certificates, 6 year Instalment Savings and 10 year National Solidarity Bonds) on Sunday 26th March 2023. The rates for demand and shorter term products (Prize Bonds, Post Office Savings, 3 year Savings Bonds and 4 year National Solidarity Bonds) were left unchanged. If an increase was under consideration, it is likely that it would have been announced at that time.
 
31 July 2017
By Tom Collins
[email protected]

Fianna Fáil Spokesperson on Finance, Michael McGrath (Cork South Central) has said that the decision of the NTMA to reduce again the prize pool available for Prize Bond owners and the number of chances of becoming a millionaire per year is short-sighted and disappointing.

Carrigaline TD Michael McGrath
Deputy McGrath added: “The National Treasury Management Agency has made the short-sighted decision to reduce the prize pool from 0.85% of the money put into Prize Funds to 0.5%. This follows on from a reduction from 1.25% in 2016. It would be interesting to know whether the commercial banks lobbied the government in favour of this move.

“The net result of this decision is a reduction in the number of opportunities to become a millionaire. Previously, there were six opportunities per year to win €1 million. Last year, it was reduced to four and with this planned prize fund drop, it will drop again to just two.

“The Prize Bond was established to encourage small individual savers to invest in the State’s funds. Each Prize Bond is placed into a draw every month and has a chance of winning a tax-free cash prize.

“Despite their investments not accruing interest, many small investors chose Prize Bonds specifically in the hope of winning a large cash prize. Reductions in the number of opportunities to win such prizes will, I have no doubt, reduce the attractiveness of Prize Bonds to small investors.

“Many people who have Prize Bonds are elderly people or people who have inherited them from a loved one. Many other people have put their money into Prize Bonds in order to save and to assist the State in raising vital funds.

“Removing the attractiveness of the product is short sighted decision by the NTMA, and one which should be reviewed,” concluded Deputy McGrath.
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Perhaps there is hope after all - Now if only Deputy Michael McGrath was in a position to influence the situation. Oh Wait.......
 
Freelance said:
Perhaps there is hope after all - Now if only Deputy Michael McGrath was in a position to influence the situation. Oh Wait.......
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I find it hard to believe that NTMA have total call on state savings rates. What is their mandate? We know what it is for government bonds - "fund the government in the most economical and sound financial basis as possible", basically as cheap as you can get it. Whilst it looks like that is indeed their approach to state savings just at the moment, in certainly wasn't always so. For example why would NTMA put a maximum on individual holdings?
There is a social dimension to state savings, as well as implications for deposit rates and mortgage rates, and I can't see this as being totally devolved to the NTMA, or rather it shouldn't be. It would be good to see the NTMA's terms of reference for their management of state savings rates.
You will find TORs online for its 4 sub-committees but nothing resembling a TOR for managing state savings.
 
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I can’t see the point in holding prize bonds now. It’s hard to believe they hold 4 billion under the circumstances. Are people just too busy to think of other options ? Or do they not realise the return is so poor.
 
Mamamia22 said:
I can’t see the point in holding prize bonds now. It’s hard to believe they hold 4 billion under the circumstances. Are people just too busy to think of other options ? Or do they not realise the return is so poor.
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They have other attractions. The capital guarantee is as good as it gets, the return is DIRT free and they are a convenient parking place for short term deposits (e.g. I know a number of self employed people who receive taxable income throughout the year, park the tax element in PB and withdraw it when the tax bill is due in November).
 
Mamamia22 said:
I can’t see the point in holding prize bonds now. It’s hard to believe they hold 4 billion under the circumstances. Are people just too busy to think of other options ? Or do they not realise the return is so poor.
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People are financially illiterate, which allows their wealth to be stealthily stolen from them via inflation, until inflation gets too high and they start to notice.
 
Duke of Marmalade said:
There is a social dimension to state savings, as well as implications for deposit rates and mortgage rates, and I can't see this as being totally devolved to the NTMA, or rather it shouldn't be.
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I think you are spot on here. In particular, the Book Based Deposit Accounts and Prize Bonds are often used by the state's least financially sophisticated citizens, particularly the elderly who still have a lingering trust in the state to look after them. An example being when collecting the pension from the post office on a Friday the extra tenner is squirrelled away into a Post Office Deposit Account. These are people who have had these accounts all their lives and who have no knowledge or access to BUNQ, Raisin or the ilk. The March round of interest changes was particularly despicable in its treatment of this cohort - They got nothing.

The state is now paying:
Per June Bond Sales - 1.3% to 1.5% (Yield 2.84% and 3.36%) to its bond holders
Since March - 1.5%, 1% and 1% respectively on 10 year National Solidarity Bonds, 5 year Savings Certificates, 6 year Instalment Savings
A miserable .35% on Prize Bonds, which is more truthfully .25% when the unattainable large prizes are excluded
And a despicable .05% on the Book Based Deposit Accounts

So the big boys win out. And those with excess capital who want a secure long term home don't fare too badly either. While the pensioners, small savers etc get a return that is up to sixty times less. And this from a FF Finance Minister, who got his self congratulatory press release about the March rate changes out an hour before NTMA announced them.

Regarding the NTMA TOR, its an interesting point. Prize Bonds are were introduced in the Finance (Miscellaneous Provisions) Act, 1956. I've looked at this again and there is no mention of a social dimension (though it was talked about a lot at the time in the Dail and elsewhere). There has been a substantial amount of subsequent legislation (both Primary and Statutory Instruments) but I have no recollection of ever seeing anything along the lines you mention. I'd be surprised if it was put in writing in NTMA's TOR, as it could end up being a stick to beat them and the Government with.
 
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