# Prize Bonds as a place to keep some money



## Piaras

I was considering putting some money into prize bonds. They appear to be a risk free way of putting money aside (www.prizebonds.ie) but it's not clear what my chances are of winning. If the odds were reasonable I'd seriously consider it given the poor interest I get now in the bank.

What are my chances?

Any thoughts?


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## rainyday

*Re: Prize Bonds as a place to keep some money?*

Hi Piaras - Don't forget to consider the risk of inflation eating away at the value of your money. While it may not drop in numerical terms, it is likely that it will drop in real terms (i.e. purchasing power).


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## ClubMan

*Re: Prize Bonds as a place to keep some money?*

There's no harm in having a little money in Prize Bonds but they are more a refundable ticket for a lottery than a real investment should not represent a large percentage of your overall wealth/portfolio. As _rainyday_ says the nominal value is guaranteed and you may win a prize from the c. 2.75% p.a. of the fund value redistributed in prize money but the real value of your money will be eroded by inflation. They are definitely a better option that playing the Lotto.


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## Brendan Burgess

*Prize Bonds as short term home*

I have a lump sum (c. 85k) recently liquidated from various investments, which will go into a new house which should reach completion in about 5 - 6 weeks.

Would prize bonds be a sensible short term home?


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## rainyday

*Re: Prize Bonds as short term home*

Note that the prize bonds 'cashing out' period can be a little slow (e.g. 1-2 weeks) - I wouldn't want to be depending on getting my hands on the hard cash in a matter of days.


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## SPC100

*Re: Prize Bonds for short term*

It is worth noting that from the day you buy your bond, you must allow 3 weeks before it can participate in a draw. So if you are thinking really short term there is no point.

They calculate their prizes based on 2.75% of the total amount of money. Currently there are about 55 million individual bond( at 6.25 Euro each) in the fund.

As there are some very big prizes - I assume a typical investor won't see a return of 2.75 per cent out of it. The longer you leave it in - I guess the better your "chance"

I had two bonds (~13 Euro) for the last 10 years or so and recently got a win of 75 Euro. I was happy enough with that return so I reinvested the entire win.

Also Angloirishbank.ie says 2.75 %  is effective from 26th June, so I assume that is their fixed rate for the next quarter.


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## SPC100

*Re: Prize Bonds for short term*

I guess I should have done the maths first!

But with my 250,000 on deposit (not) - it makes it 
just about worthwhile


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## pthec

*Prize Bonds as alternative savings plan*

I tend to view Prize Bonds as an alternative to drip feeding a PIP or PEP or other gradual contribution savings plan. 

I have an aversion to management fees, both in these plans and in tracker or index funds. So I buy say 500 quid's worth of Prize Bonds at the start of every month, then after 10 or 12 months, I will cash the whole lot in, and use the cash to add to my equity portfolio. Then I'll start saving the 500 each month once more. 

I tell myself that the effects of inflation aren't too bad in this case, as I only leave the money there for a year, and there's the added bonus of being in with a chance of a prize, however unlikely. I guess this appeals to my gambling side. But at the end of the year, I have the cash to add to my portfolio, or for a holiday, or whatever.


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## rainyday

*Re: Prize Bonds as alternative savings plan*



> I tell myself that the effects of inflation aren't too bad in this case, as I only leave the money there for a year,


You're fooling yourself. If you hold prize bonds most of the time, you are losting money to inflation most of the time. The fact that you cash out each year and start again impacts the amount of money you are holding, but the fact that you are losing out to inflation.


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## John

*Prize Bonds*

I agree with you Rainyday.


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## Shahid

*what is the logic of the draw of prize bonds*

Tell me please about the logic of prize bonds how the draw of prize bond should held, on which crieteria it should be done ,in which language.
                 Thanks
mshahidnawaz9@yahoo.com


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## <A HREF=http://pub145.ezboard.com/baskaboutmoney.s

*Re: what is the logic of the draw of prize bonds*

www.prizebonds.ie


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## cerberus

*missing one point*

The money is also safe.
With deposit interest - dirt you are also losing to inflation

So for example, say €40, not needed for 6 years which is the best way to go.


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## Marc

*Re: Key Post: Prize Bonds as a place to keep some money*

Prize Bonds
 The company was set up in 1989 to operate the scheme for the Minister for Finance. The scheme is now operated on behalf of the National Treasury Management Agency (NTMA) which manages the national debt on behalf of the Minister for Finance. In 1999 the company submitted a successful tender to operate the scheme for a further 10 years until September 2009. 

An Post is responsible for the accounting, marketing and the conduct of the draw. The administration is carried out by FEXCO in Killorglin, Co.Kerry. 
Prize Bonds are a flexible, secure, state guaranteed investment. The top prize in the monthly Jackpot prize draw is €1,000,000 or €500,000. A €1,000,000 Jackpot prize will be awarded in three draws throughout the year, with the fourth awarded in the draw held on the last Friday before Christmas. A top prize of €500,000 is awarded in the other eight monthly Jackpot prize draws. A top weekly Star prize of €20,000 is awarded each week, other than when the monthly jackpot prize is awarded. With a minimum purchase of €25, that's a huge return on your investment.


 Draws are held every Friday with over 2,500 prizes ranging between €75 and €20,000. Every eligible €6.25 Prize Bond is automatically entered in the weekly draw no matter how old.


  The more Prize Bonds you hold the greater the possibility of you getting a substantial return on your money. 


The Prize Bond Company Ltd. is a joint venture operated between An Post and FEXCO. 

The number of prizes awarded each week depends on the total size of the Prize Bond fund. It is currently calculated at a variable rate of 3% of the fund size per annum. This provides over 2,500 prizes every week.
        Tax-free
All winnings are tax-free. In Ireland winnings are not liable to Income Tax, Capital Gains Tax, or D.I.R.T. (Deposit Interest Retention Tax).

Prize Bond holdings at 31 December, 2007 

  Number of separate Prize Bond holdings 5.43 million
      Fund value €631.1 million 

  Source: The Prize Bond Company Limited Annual Report 2007

  Analysis
The capital is very safe. You don’t risk the money you put in, only what interest you’ll get, and Prize Bonds are operated by An Post which is backed by the State.


What are the odds of winning :
The odds of any single bond winning the top prize are about 1 in 5.4 million (the number of bonds in circulation)
  However the minimum investment is €25.
  Furthermore, the draw for €1m only takes place 4 times a year.
  The other 8 months, the prize is €500,000
  In comparison the odds of winning the UK Premium bonds are 18 billion to 1.
  You’re likely to win even less than the interest rate.
The value of prizes paid out is determined by an interest rate, which is currently 3%. This means if you owned every Prize bond in existence, the amount won over a year would be equal to 3% of what you put in. 
  So very roughly, on average for every €100 put into Prize Bonds, you'd expect a €3 annual return.


  Yet because of the way the prizes are allocated, the majority of people will win much less than the interest rate anyway. 


  Don’t think of it as ‘winning’
 The great attraction is ‘the lottery effect,' the chance of winning a dream, and there is of course the chance of winning a million. Equally you could be the next space-walking astronaut, and you’re odds probably aren’t that dissimilar! 


The fact the payouts are commonly referred to as a ‘win’ rather than an ‘interest payment’ is psychologically devious. Comments like, “my friend wins €75 every few months” mislead; on clinical evaluation, someone with €10,000 of Bonds should ‘win’ €300 a year; that’s roughly €25 every month; yet the same cash in a savings account could ‘win’ over €41 every month or €500 a year.


Worse still, compare the Prize Bond interest to the current rate of inflation, which is almost certainly higher than the Prize Bond interest rate, so any cash you have in bonds is increasing more slowly than the prices of everyday goods. This means by holding bonds the real amount of money you have is decreasing. 


Are they ever worth it?
 Look at Prize Bonds with a clinical financial eye. Some will win more than the average, not many, but a few. And if you're that lucky person, this is a great return. Yet the odds of winning big get very long.


Prize Bonds aren’t as good as they first appear
  It's all about the actual prize distribution.  The following is the prize structure:

Monthly   Jackpot Prize
4 x €1,000,000

A €1,000,000 Jackpot prize will be awarded in three selected monthly Jackpot prize draws throughout the year, with the fourth awarded in the draw held on the last Friday before Christmas.

8 x €500,000

The €500,000 Jackpot prizes will be awarded in the monthly prize draws held on the first Friday of the other eight months.

Weekly star prize €20,000 is awarded each week, other than   when the monthly Jackpot prize is awarded.

5 prizes @ €1,000

10 prizes @ €250

Over 2,500 @ €75

Why most people win less than the interest rate

Even though Prize Bond rates stack up poorly compared to decent savings rates, even that’s still misleadingly generous; the real expected payout is much less, as it's massively skewed by the distribution of the prizes.

This is tricky to understand, so let me start with a simple example. Suppose there a contest offered a €1,000,000 prize and allowed a million people to buy a ticket costing €1. It could then be argued the average winnings per ticket were €1, even though 999,999 people would win nothing. 

A similar, though less drastic, effect is happening with the Prize Bond interest rate; it says the payout is 3%, so you'd expect to win €3 per €100. Yet of course this is impossible, there isn't a €3 prize; you can either win nothing, €75, or more than €75. The big jackpot prizes, won by a miniscule number of people, skew the payout average and make the interest rate look much more generous than it is.

The situation that this throws isn’t a pleasant concept for Prize bond holders expecting an average of 3%pa.

On the surface Prize Bonds don’t look to be too complex. The winners are happily listed on the website with enough data to allow anyone with a calculator to work out the chances of any one bond winning a single prize over a month.

Yet to work out the chance of someone with a larger holding say five thousand bonds winning more includes countless variables. To win €1000 in one go could be one €1000 prize, or four €250 prizes, or a combination of smaller prizes; yet to win more than €500 holds scores of variables. 

Plus of course, the draws are monthly but the €1,000,000 prize is only every quarter, so if you’re calculating the assumed winnings over 5 years; it actually means you’re calculating the interaction of probabilities for over 60 draws to get the various answers. 

To calculate the probability of winning is virtually impenetrable. You would need to use a very advanced multinomial probability equation.


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## Bronte

*Re: Key Post: Prize Bonds as a place to keep some money*

As we are apparently going to go into deflation next year how will this impact on the value of prize bonds?


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## themoneyman

*Re: Key Post: Prize Bonds as a place to keep some money*

I have €19,000 worth of prize bonds and have won €225 since I bought them around 80 days ago, that's works out at about 5.5% interest witch is more then double what the banks give and I don't have to pay DIRT on it.

I also prefer short term deposits becuse if banks introduce competitive rates I can move it around to the best one whist still adding other funds to the "lump sum" I may have to spare but I just decided to try out Prise Bonds becuse the banks had very low rates on short-term.


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## ctlsleh

Hello Moneyman,
What has been your return in the intervening period?
eoin


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## COLAKO

*prizebonds*

guys, you're all forgetting that you can't cash prizebonds in until you have had them for 3 months, so they cannot be used as a very short term place to park some cash.


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## SPC100

I just reviewed quickly the prizebond site, the million euro draw are now monthly, and the pay out rate is now 3%....here is a copy/past from another post of mine.

There is no guarantee you will win anything with prize bonds, but there is an expected return based on probability.

According to the last annual report on the prize bond website, they pay out 3% of their holdings as prizes.

About a third of their payout goes on high value prizes which only a very small number of people will win. Leaving 2% remaining as the common prizes.

So excluding the rare large wins, a typical investor/gambler would have an expected return of 2%. 

That said variance could result in a significantly higher or lower actual return.


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## kavvie

im just wondering does the tax man know if you got money in prize bonds or whats the story there?..if i walked into a po and invested 5k cash whats the trail after it?


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## Palerider

Your PPSN number is provided on the account opening documentation, all activity is traceable as it should be, that said €5k is a small sum, I cannot see revenue staff having the time to go chasing shadows but always best to assume the first place anybody would look is your tax records via PPSN, if it adds up there it most likely adds up everywhere, if it looks out of sync then anticipate having to answer a question or two.


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