Prize Bonds are looking attractive alternatives to deposits

dub_nerd

Frequent Poster
Messages
1,968
I have decided to start tidying up some of my odd purchases of Prize Bonds over the years and to encash these.
My first batch being sent off today were purchased in 1985. A lot of 15. I have never won any prize from any of this batch, even though a rough calculation would show that they would have participated in about 24,000 draws during that time. So a nil return for my €95 investment in just over 30 years.
This sounds about right. It's not quite correct to say that 15 held for 30 years has the same odds as 15 x 30 held for one year, but it's a rough approximation. Throwing that number into my calculator tells me that you had a 51% chance of winning nothing, a 34% chance of winning a single €50 prize, a 12% chance of winning 2 x €50, and 3% distributed among all other possibilities. You'd have to hold them for 100 years before your chance of winning something went to 90%. As has been said ad nauseam on this thread, a low number of prize bonds really makes no sense as an investment, because the time horizon in which you are likely to achieve the average return is too long for most people. (And recently, the average return has become not worth it anyway).
 

postman pat

Frequent Poster
Messages
333
a question...why are people still buying prizebonds?,It kinda makes no sense at the moment at least until interest rates start to rise again.


Pat
 

dub_nerd

Frequent Poster
Messages
1,968
a question...why are people still buying prizebonds?,It kinda makes no sense at the moment at least until interest rates start to rise again.
Most prize bond purchases probably never made any sense, unless you were buying at least several tens of thousands of euros worth. I'd say the short answer is people aren't very good at assessing probabilities, and the thought of having a permanent entry in a draw in which you never lose your stake is tantalising (even though you actually do lose your stake ... to inflation).
 

postman pat

Frequent Poster
Messages
333
Yes I think maybe people buy into the dream of winning a large amount on prizebonds.Im my case when i had some, it was exciting at 12 30 on Friday checking the winning numbers etc,now i just do the lotto...:)
 

The Ghoul

Frequent Poster
Messages
335
Nothing today

However there is a news item on the PB website which I have just seen and is significant - as of 1st November, there is now a maximum holding of 250k euros per person. It is not retrospective so if you already have more than 250k you won't have to cash them in.
http://www.statesavings.ie/Downloads/Prizebonds_HomepageNotice.pdf

I am trying to figure out the implications of and reasons for this and whether it is a good or bad development for investors. I think its probably bad. Anyone have any thoughts?
 

Fella

Frequent Poster
Messages
374
I bought some a couple of weeks ago and won 2 x 50 today . I don't think the maximum holding will make any difference to investors , only factor that matters really is the interest rate they are paying out , I could be wrong though.
 

Grizzly

Frequent Poster
Messages
796
The only reason I purchased mine was because interest rates are so low from the banks at the moment it is hardly worth while getting it. I might have a win on the Prize Bonds so it's a bit of fun.
If interest rates do rise and the prize fund rises accordingly it would not tempt me to hold them and I would cash them in.
Investing in a few Sterling based shares, paying good yields in Sterling has proved a better return for me. I am aware that share prices can fall as well as rise.
 

Grizzly

Frequent Poster
Messages
796
I have decided to start tidying up some of my odd purchases of Prize Bonds over the years and to encash these.
My first batch being sent off today were purchased in 1985. A lot of 15. I have never won any prize from any of this batch, even though a rough calculation would show that they would have participated in about 24,000 draws during that time. So a nil return for my €95 investment in just over 30 years.
Received the above funds 9 days after I sent them in.

Next batch being redeemed today. 40 Prize Bonds that I have owned since 1984. Not one winner amongst them, despite being included in about 62,400 draws. So a nil return on my £200 purchase in 31 years on top of the previous nil return on a £75 lot held for 30 years.
 

DirectDevil

Frequent Poster
Messages
620
I read the new situation to be that you can add up to €250,000 in purchases over and above anything you held already before 1 November 2015. Is this right ?

I too am curious to know why this has been done. Is it to limit the potential prize fund liability for NTMA ?
 

dub_nerd

Frequent Poster
Messages
1,968
Next batch being redeemed today. 40 Prize Bonds that I have owned since 1984. Not one winner amongst them, despite being included in about 62,400 draws. So a nil return on my £200 purchase in 31 years on top of the previous nil return on a £75 lot held for 30 years.
If the number of prize bonds in issue was the same as today, there'd have been nearly half a trillion other entries in those same draws. Allowing for historical fund growth, there might well have been a hundred billion. Sixty-odd thousand really isn't even a drop in the ocean by comparison. It would be a surprise if you had won anything. The government won big though -- allowing for inflation they're only giving you half your money back.
 

The Ghoul

Frequent Poster
Messages
335
50 on Friday, first win for a few weeks.

If I look at how my 100k euro batch has performed in 2015 with 3 weeks to go.
21 x 50 euro prizes
1 x 100 euro prize
1150 euro total
1.15% net

However my 75k batch that I cashed in a few weeks ago did worse than that.

I think that 1.15% net is pretty good in the current interest rate environment. Also, the PB prizes can be reinvested within a week of winning them whereas that is obviously not the case with a 1 year fixed term deposit or any other type of account where you have to wait for your interest.
 

The Ghoul

Frequent Poster
Messages
335
Not much to report
1 x 50 today
1 x 50 in the month of January
1 x 50 in the month of December

Three measly wins seems very little but it is a return of about 0.78% which is better than pretty much anything that the banks are currently offering
 

dub_nerd

Frequent Poster
Messages
1,968
From July, the Prize Bonds prize structure changes. The number of €1m prizes has been reduced from six to four, and the €100 prizes have been replaced by a much smaller number of €500 prizes. That is the good part of the news about these changes, since a reduction in large prizes increases the proportion of the fund paid out in €50 prizes. Furthermore, the total amount invested in Prize Bonds (which also affects payouts) has increased from €2.3bn at the time of the last prize structure change in October 2014 to €2.6bn now.

Unfortunately the fraction of the fund paid out annually in prizes is changing from 1.25% to 0.85%. Taking all the changes into consideration, the average weekly number of €50 prizes will change from 7,200 to 5,700. And your chance of winning them goes down too, due to the 12% or so more prize bonds on issue.

In summary, the average return for an investor of €100k will fall from 0.81% to 0.58% tax free. Grossed up to the equivalent rate on a deposit account incurring DIRT, this is a fall from 1.5% to 1.0%.

Since rates have been dropping everywhere it's still ahead of most of the deposit products out there, but for me not worth the administrative hassle.
 

postman pat

Frequent Poster
Messages
333
I agree Dub_nerd,Its a shame really as i kind of liked the anticipation every Friday brought, maybe when interest rates start to rise a little prizebonds will be worth a punt again.

Pat
 

DirectDevil

Frequent Poster
Messages
620
Those are fairly severe cuts to the rates but I see the point about the relative value against other products.

Out of curiosity why are the rates being cut ?
 

Cowpat

Frequent Poster
Messages
46
Hey dub_nerd. Long time follower here. Know you don't have a crystal ball and the stats look fairly bleak. €100k PBs 0.58% vs 5 years State Savings @ 0.98% guaranteed tax-free. Still tempted by PBs. So how much do you reckon statistically is a worthwhile investment in PBs to give an equivalent/ better return?
 
Top