Prize and premium bonds - is the Duke about?

H

Hooverfish

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Dear @Duke of Marmalade

Have you updated that wonderful spreadsheet you did back in 2023 for returns on €50k in Prize Bonds?

As none of us know anything other than that the next while could be "interesting", and we should never try to time the markets, 73 yo husband is wondering what to do with NTMA 5 year savings that have just matured... 9% if he puts them back in for another 5 years (AER 1.74%), but of course it's set up so if you have to cash them in early for any reason, it doesn't work out much in your favour.

He has Prize Bonds and enjoys the Friday letters occasionally arriving, also a UK current account, so he was considering a shift to Premium bonds?
Yes we do have other "sensible" investments...

Thank you for any more information I can print out so he can decide?
 
Hooverfish said:
Have you updated that wonderful spreadsheet you did back in 2023 for returns on €50k in Prize Bonds?
Click to expand...
I presume that you're referring to this?

Prize Bonds are looking attractive alternatives to deposits

You would be better off just buying government bonds than these , the 10year irish government bond yield isnow 2.6% and this is likely to go alot higher as interest rates keep rising
www.askaboutmoney.com
Has anything happened in the meantime that renders this out of date?
 
Hooverfish said:
It's post 709 on page 36 of that thread...
Click to expand...
That's what I linked to... Unfortunately the XenForo URL "unfurling" feature only previews the first post in the relevant page of the thread and not the post that is actually linked.

Prize Bonds are looking attractive alternatives to deposits

You would be better off just buying government bonds than these , the 10year irish government bond yield isnow 2.6% and this is likely to go alot higher as interest rates keep rising
www.askaboutmoney.com
 
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I have €200k of Prize bonds and I am winning 1 x €75 prize per month if I am lucky. A paltry return.

I parked some money in them about 8 years ago, originally €400k. Eight years later and half of it went to the Bank of Mom and Dad and I am now left with the €200k.

Our plan, similar age as your husband, is to spend the last bit on ourselves rather than re-invest.
 
Hooverfish said:
Have you updated that wonderful spreadsheet you did back in 2023 for returns on €50k in Prize Bonds?
Click to expand...
Thanks for the kind words. I had to check whether you were my wife's AAM pseudonym. Not that she has many kind words for me but she does have a 73 year old husband.
It seems that there has been no change in the Prize Bond rules, 1% etc. since October 2023. What will have changed is the total prize fund and thus the number of balancing €75 prizes; but this would be a very second order effect so that spreadsheet is perfectly suitable for today.
 
I have been buying a handful of prize bonds on a monthly basis as a kind of non-easy access emergency fund, and I have only ever once won €50 in the last 3 or 4 years.
 
PoundMan said:
I have only ever once won €50 in the last 3 or 4 years.
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There's no €50 prize, €75 is the smallest prize.

How do Prize Bonds work? | Ireland State Savings

www.statesavings.ie
 
The UK increase their Premium Bonds in line with wholesale bond markets. It is 4% now and due to reduce to 3.8%. The NTMA used to do the same sort of thing and Prize Bonds were a genuine alternative to deposits/bonds. But the difference is that max holdings for a couple is €500k Prize Bonds whilst it is £100k for Premium Bonds. My theory is that Prize Bonds became stuffed with €500k joint holdings and, possibly under pressure from the banks, NTMA have decided to make Prize Bonds uncompetitive.
 
Definitely tempted to move the 50k from NTMA 5 yrs state savings to UK Premium Bonds but any downsides apart from low interest that anyone knows of? I will say that of the three relatives estates I have had to administer in the past decade, the hardest and most annoying task, despite having all the right documentation, was extracting Premium Bond investments, administered at that point by the UK arm of Bank of Ireland, though I think they lost the contract since that time. Eir customer service springs to mind...
 
Hooverfish said:
any downsides apart from low interest that anyone knows of
Click to expand...
Definitely FX risk as @ClubMan has mentioned.
Tax?? Not sure at all. I guess some people play dumb and either believe or are prepared to say they believe that all Prize Bond style creatures are tax free.
If it were in the tax net, which cage? Quasi deposit? Or an asset like any other? I would say the latter is the more likely and so the CGT tax free threshold should cover any holding in Premium Bonds, if you argue that the prizes are capital gains and not dividends.
 
How are UK premium bonds taxed for an Irish resident

ChatGPT said:​

As an Irish resident, your UK Premium Bonds are subject to Irish tax laws, not UK tax laws. Here's what you need to know:
  1. No UK Tax: The UK does not apply tax on Premium Bond prizes, so you won't pay UK tax on any winnings.
  2. Irish Tax on Winnings: In Ireland, Premium Bond prizes are considered taxable income. The Irish Revenue Commissioners treat them as a form of investment income, which means:
    • You may need to pay Income Tax, Universal Social Charge (USC), and PRSI on winnings.
    • Prizes should be declared on your annual tax return.
 
Hooverfish said:
any downsides apart from low interest that anyone knows of?
Click to expand...

If Liz Truss returns to power and tanks the brit economy again, your Premium Bond holding could be outlived by a head of lettuce. The forex risk is significant, especially if you intend holding for a long period and could more than wipe out any wins. There is also the possibility of a forex gain of course. Winnings are taxable if you are taxed in Ireland which Prize Bonds aren't, and the total holding allow is considerably smaller. You also must have a bank a/c with a UK bank.

I have a sizeable Prize Bond holding and the return has consistently been .8% over the last 18 months (since the prize structure and notional interest rate changes in October 2023), exactly in line with the spreadsheet posted by @Duke of Marmalade

If using the spreadsheet, changing the value in cell B4 (Total Prize Bond Fund) to €4.450,000,000 to reflect the drop in the size of the fund over the last while; this will give a slightly more accurate figure in respect of the €75 prizes. The remainder of the prize structure and the notional interest rate are unchanged.
 
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Freelance said:
If using the spreadsheet, changing the value in cell B4 (Total Prize Bond Fund) to €4.450,000,000
Click to expand...
Thanks, I couldn't find this figure. As you say it doesn't move the dial much, but €350m fall since October 23 is probably due to withdrawals of the larger amounts.
Freelance said:
this will give a slightly more accurate figure in respect of the €75 prizes
Click to expand...
it has reduced the payout in €75s from 0.79% p.a. to 0.77% p.a. with a corresponding slightly higher chance of the higher prizes, keeping the 1% p.a. overall payout unchanged.
 
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Duke of Marmalade said:
Thanks, I couldn't find this figure.
Click to expand...
State Savings, bless their lazy hearts, haul out their abacuses once a year as part and publish the year end value of the fund in the Prize Bond Annual Report, which usually appears 5 or 6 months after the year ends. Timely or what !

It is however possible to accurately calculate the value of the fund based on the results of the weekly prize draw as the number/value of prizes is based on the total value of the fund on the last day of the previous month. Using the weekly prize draw results, the value of the fund over recent months is as follows:



The likely payout for any holding is impossible to calculate exactly as it is subject to a number of variables, such as the slightly higher higher chance of winning that applies to bonds which were issued denominated in Irish pounds (and given that we don't know what percentage of the fund these are). Something in the region of .77% and trending downwards is accurate enough for guidance and for comparison with other market offerings. This is comparable to 1.15% gross on a product where the return is liable for DIRT.
 

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