# Prize Bonds,



## deco87 (1 Aug 2019)

Have 70K to invest. Work Payoff , leaving. Is there ANY risk to putting it into Prize Bonds?

Just to keep try get a bit of "interest" no immediate plans to use it.

Adverse to any risk.

Deco


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## noproblem (1 Aug 2019)

If you don't need it then go ahead. There's no risk and you just might get lucky You'll get nothing in the banks for it


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## Brendan Burgess (1 Aug 2019)

There is no such thing as a no risk investment. 

Prize Bonds are a low risk investment. 

But they are a loan to the Irish state which had to be rescued from bankruptcy in 2008 and is heading that way again now.

Brendan


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## deco87 (2 Aug 2019)

noproblem said:


> If you don't need it then go ahead. There's no risk and you just might get lucky You'll get nothing in the banks for it


Thanks I wont now I'm nervous see Brendan's comment ...have to think about it ,thks


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## SparkRite (2 Aug 2019)

deco87 said:


> Thanks I wont now I'm nervous see Brendan's comment ...have to think about it ,thks


Putting it under your mattress carries a higher risk.


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## Brendan Burgess (2 Aug 2019)

SparkRite said:


> Putting it under your mattress carries a higher risk.



And this is a very good point. There is no risk-free option. 

Brendan


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## noproblem (3 Aug 2019)

Is the €100,000.00 goverment guarantee not given on Prize Bonds?


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## Monbretia (3 Aug 2019)

It is but sure if the Government/Country went wallop what good would any guarantee be!


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## noproblem (3 Aug 2019)

Putting people off buying Prize Bonds by saying the Goverment might go belly up is in my opinion scaremongering. I say that with respect to others, it's just not going to happen. Am I certain? No, that's because we could all die in the next hour.


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## SparkRite (3 Aug 2019)

Agree 100% @noproblem .


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## deco87 (3 Aug 2019)

I think I will do it anyway I cant see any other viable choice ,under best is not a runner!


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## noproblem (3 Aug 2019)

Good man deco 87, just send me on 10% commission of any big pots that come your way.


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## Brendan Burgess (3 Aug 2019)

noproblem said:


> Putting people off buying Prize Bonds by saying the Goverment might go belly up is in my opinion scaremongering.



Countering the widespread myth that there are risk-free investments in not scaremongering.  It really is important that people understand this.

I do not expect the Irish government to go bust but it's a real risk that people should be wary of.

For example, anyone relying on a government pension , should absolutely not have their assets subject to the same risk.

Brendan


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## Monbretia (3 Aug 2019)

I don't expect it either but as Brendan says it's not risk free and any guarantee is only as good as who is giving it!  I hold a lot of Prize Bonds myself as it's as handy as anywhere else when there is no return on interest to be made.  Mind you it seems like that 'myth' that new bonds always win a couple of prizes initially might be true.  I have some oldish bonds on which I won a couple of 50s and maybe a 75, nothing then for years until I bought some more back in April and low and behold as soon as they are eligible for a draw after 3 months I win 50.  

Cheque sent out with very helpful forms to convert future winnings into more bonds  or lodge to bank.  Lodging is fair enough but if that win is a carrot given to all new bond holders to encourage more purchases then it's a bit irritating.  Someone did tell me at one stage you should be continually cashing them in and taking out new ones to get these new bond wins!


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## deco87 (4 Aug 2019)

Interesting thks


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## Zenith63 (4 Aug 2019)

Did you consider the 10 year solidarity bond? 1.5% interest instead of the average 0.5% of prize bonds. Similar level of risk; both safe unless the government defaults. As easy to buy as prize bonds.


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## mc-BigE (4 Aug 2019)

Why not split it in two, get 35k prize bonds and 35k something low to medium risk


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## NoRegretsCoyote (5 Aug 2019)

They are not *zero *risk, they are *extremely low *risk.

Greece went bankrupt and reached two settlements with bondholders in 2012 and 2015. This was the largest default by a government ever. In both cases retail investors were not touched. A prize bond is a retail product.

Several posts are just scaremongering. There is a much greater risk of loss of theft or loss from keeping it home in safe.

The bank is basically the same. Everything up to €100k is just guaranteed by the same government which issues prize bonds.


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## Brendan Burgess (5 Aug 2019)

I don't think that anyone has suggested keeping one's savings under the bed. 

We are agreed that there is no such thing as no risk.  That is important for everyone to understand. 

While they are low risk, the outcome would be catastrophic for someone who also depends on the state for their pension, so they should not be investing all their assets in things dependent on the continued solvency of the Irish state. 

Very few people seem to appreciate the parlous state of the Irish national finances. 

Brendan


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## NoRegretsCoyote (5 Aug 2019)

Brendan Burgess said:


> We are agreed that there is no such thing as no risk.  That is important for everyone to understand.
> 
> While they are low risk, the outcome would be catastrophic for someone who also depends on the state for their pension, so they should not be investing all their assets in things dependent on the continued solvency of the Irish state.
> 
> ...



I don't think it's wise to say that prize bonds carry a risk while not pointing out that the alternatives for a retail investor (bank deposits, state savings) rely on exactly the same state backing and are not any lower in risk.

For someone resident in Ireland with €70k who wants to preserve their nominal value then prize bonds are as low risk as is possible.

The Irish sovereign never defaulted on a creditor btw. All the stuff about pension liabilities is a distraction from the question posed by the OP.


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## Duke of Marmalade (5 Aug 2019)

It is an axiom of quantum physics that nothing is 100% risk free.  Nonetheless, State Savings are the *most* risk free investments on the planet for an Irish investor. Let me explain.  In financial markets German Bunds are priced as the least risky asset.  But there is a small political risk in an Irish person holding Bunds.  If Ireland had burnt German bond holders as many had called for, it would not have been a huge surprise if the German authorities seized Irish assets within their jurisdiction.
But what about Irish sovereign risk?  People mistakenly think that if Ireland was forced to default it would have to behave like a private agent and treat all its creditors pari passu.  Not at all.  State Savings, representing 8% of National Debt would be the last obligations the government would welch on.
And as already been commented on, they are genuinely less risk than under the floorboards.  Fires do happen, burglaries do happen, loss of memory does happen.


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## NoRegretsCoyote (5 Aug 2019)

Duke of Marmalade said:


> Let me explain. In financial markets German Bunds are priced as the least risky asset. But there is a small political risk in an Irish person holding Bunds. If Ireland had burnt German bond holders as many had called for, it would not have been a huge surprise if the German authorities seized Irish assets within their jurisdiction.




This is wrong but even if it wasn't there are logistical and cost issues with holding German bonds for an Irish retail investor. For all practical purposes state savings and prize bonds are the most risk free option for someone who lives in Ireland and has €70k in cash.



Duke of Marmalade said:


> But what about Irish sovereign risk?  People mistakenly think that if Ireland was forced to default it would have to behave like a private agent and treat all its creditors pari passu.  Not at all.  State Savings, representing 5% of National Debt



State savings are now over 8% of outstanding Irish debt. They were very popular during the period about the health of the Irish banks.



Duke of Marmalade said:


> would be the last obligations the government would welch on.



Debatable. I doubt our EU lenders would accept that.


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## PMU (5 Aug 2019)

NoRegretsCoyote said:


> I don't think it's wise to say that prize bonds carry a risk while not pointing out that the alternatives for a retail investor (bank deposits, state savings) rely on exactly the same state backing and are not any lower in risk.


I'm not certain this is correct. It is my understanding that currently EU deposit guarantee schemes are funded by the banks, not by the state, i.e. in Ireland each covered institution is required to maintain a deposit protection account with the Central Bank to fund the scheme.  So the State, i.e. the taxpayer, is not funding the guarantee, the financial institutions are.

On prizebonds, you are basically buying a dream, i.e. that you will win a big prize, the cost of which is the risk your savings may be eroded by inflation. While inflation is and has been low since 2008 there is no guarantee this will continue.  So by buying prize bonds you are betting that your prizes will be in excess of the ECB's target inflation rate of 2%. A better strategy might be to spread your capital over a series of deposits with different time durations based the fixed term deposits Best Buys https://www.askaboutmoney.com/threads/term-deposits-fixed-lump-sum-savings.101813/


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## NoRegretsCoyote (5 Aug 2019)

PMU said:


> I'm not certain this is correct. It is my understanding that currently EU deposit guarantee schemes are funded by the banks, not by the state, i.e. in Ireland each covered institution is required to maintain a deposit protection account with the Central Bank to fund the scheme.  So the State, i.e. the taxpayer, is not funding the guarantee, the financial institutions are.



The banks jointly pay into a deposit protection fund. In the event of a shortfall the exchequer would lend the fund the balance, which would then be clawed back from the banks over time. By "guarantee" I mean the institution that will protect the value of your deposits in extremis. This is the taxpayer. So in essence the same taxpayer is guaranteeing bank desposits (<100K) as is guaranteeing prize bonds and other state savings.



PMU said:


> On prizebonds, you are basically buying a dream, i.e. that you will win a big prize, the cost of which is the risk your savings may be eroded by inflation.



Of course. But due to low rates at the moment (ironically) you have to accept negative rates if you want protection from inflation!


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## PMU (5 Aug 2019)

NoRegretsCoyote said:


> The banks jointly pay into a deposit protection fund. In the event of a shortfall the exchequer would lend the fund the balance, which would then be clawed back from the banks over time. By "guarantee" I mean the institution that will protect the value of your deposits in extremis. This is the taxpayer. So in essence the same taxpayer is guaranteeing bank desposits (<100K) as is guaranteeing prize bonds and other state savings.



While this is getting a bit away from the topic of the thread, depositors should be aware that under the EU's DGS regime it is the financial institutions and not the taxpayer that are the guarantors.  That's the point of the scheme. Here's the regulation https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32014L0049&from=EN#d1e1291-149-1.





NoRegretsCoyote said:


> Of course. But due to low rates at the moment (ironically) you have to accept negative rates if you want protection from inflation!


 According to the AAM's Best Buys for the State Savings 5 year savings cert issue 22 "A normal deposit account would need to be paying *1.46%* to match this rate if your deposit interest is currently taxed at 35%*.”  This is (ever so slightly) above the current 12 month inflation rate, so investors in State Savings are not into negative rates,  not just yet.  This guaranteed return and risk free investment (i.e. the risk is carried by the taxpayer)  is one reason I think why state savings should be favoured over Prize Bonds.


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## Duke of Marmalade (5 Aug 2019)

PMU said:


> According to the AAM's Best Buys for the State Savings 5 year savings cert issue 22 "A normal deposit account would need to be paying *1.46%* to match this rate if your deposit interest is currently taxed at 35%*.”  This is (ever so slightly) above the current 12 month inflation rate, so investors in State Savings are not into negative rates,  not just yet.  This guaranteed return and risk free investment (i.e. the risk is carried by the taxpayer)  is one reason I think why state savings should be favoured over Prize Bonds.


Yes the longer term State Savings give a higher return than the State Savings Prize Bonds if you hold them for that longer term.
But Prize Bonds beat ordinary deposits.  The best deposit (PTSB) pays €227 p.a. net for €70K.  The same amount in Prize Bonds would carry an *expectation* of €350 p.a. net.  True €100 of this €350 is the value of the dream win.  I see this as merely the icing on the cake.  The other €250 is the expectation of 5 €50 wins.  Okay, that number is not guaranteed though it is fairly certain to be between 2 and 8 wins and if you hold them for several years these variations will smooth themselves out. 
OP is well advised to consider only State Savings either of the term variety or Prize Bonds; a matter of taste and time horizons.


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## NoRegretsCoyote (6 Aug 2019)

PMU said:


> While this is getting a bit away from the topic of the thread, depositors should be aware that under the EU's DGS regime it is the financial institutions and not the taxpayer that are the guarantors.



No. The banks are the contributors. The state guarantees that the funds will be there. For example, in the event of a DGS shortfall, the taxpayer *guarantees *that the funds are used to make good deposits up to €100k, and levies the banks afterwards:




			
				EBA said:
			
		

> Besides the funds currently being built up, Member States must ensure that DGSs have adequate alternative funding arrangements in place to enable them to meet any claims against them. *These alternative funding arrangements can, for instance, include temporary State financing (which will ultimately be repaid by the DGS).*





PMU said:


> According to the AAM's Best Buys for the State Savings 5 year savings cert issue 22 "A normal deposit account would need to be paying *1.46%* to match this rate if your deposit interest is currently taxed at 35%*.”  This is (ever so slightly) above the current 12 month inflation rate, so investors in State Savings are not into negative rates,  not just yet.



Inflation protection adjusts for inflation outturn over the lifetime of the bond, not expectation. A French bond which adjusts the coupon for inflation has a negative yield.


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## PMU (6 Aug 2019)

NoRegretsCoyote said:


> No. The banks are the contributors. The state guarantees that the funds will be there. For example, in the event of a DGS shortfall, the taxpayer *guarantees *that the funds are used to make good deposits up to €100k, and levies the banks afterwards:


Apart from the provision of deposit protection if a bank fails, the purpose of the deposit guarantee schemes is to ensure that the state does not become the guarantor of banks' liabilities, i.e. a repeat of our bank guarantee scheme of 2008. Otherwise  banks' deposits would be regarded as liabilities of the state. If run correctly a DGS should never fail, but in the event of a temporary shortfall, a DGS can e.g.  borrow from other DGSs in the EU, etc. and levy the financial institutions afterwards.  There should be no need for state financing.


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## NoRegretsCoyote (6 Aug 2019)

PMU said:


> If run correctly a DGS should never fail, but in the event of a temporary shortfall, a DGS can e.g.  borrow from other DGSs in the EU, etc. and levy the financial institutions afterwards. * There should be no need for state financing.*



In an ideal world yes, but in practice there are legislative arrangements for the (temporary) provision of state financing if needed. So an arm of the state is 1) administering and 2) ensuring that funds will always be there in the DGS. This looks to me very like a *state guarantee!*

Likewise at EU level it is likely that the SRF will be allowed to borrow from the ESM if necessary to fund a very big bank resolution.

You can weaken the link between bank liabilities and the sovereign, but it is hard to completely sever it.

Apologies if anyone else is still reading.


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## elacsaplau (6 Aug 2019)

Duke of Marmalade said:


> It is an axiom of quantum physics that nothing is 100% risk free.



Really?


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## Duke of Marmalade (6 Aug 2019)

elacsaplau said:


> Really?


I was being satirical.  _Boss _says nothing is risk free.  And the fact is that this is not contestable.  But to all intents and purposes State Savings are risk free.


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## elacsaplau (6 Aug 2019)

Ah - I see. I guess I've been spending too much time in the US lately...…...my satireadar may be a bit off...…..(I genuinely thought that you were just making things up again).


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