Prize Bonds are looking attractive alternatives to deposits

[Duke of Marmalade]

I would imagine they are a good place to dump money when equities are expensive but now the stock markets is declining so it's surely the wrong time to be buying prize bonds or any low risk assets.

The conventional wisdom in these parts is that you can never make any inference about whether stock markets are expensive or otherwise. No one can tell.
What almost any commentator would say though, is that the future for stockmarkets is hugely uncertain at the present time - from V shaped bounce to worst depression since the 30s. So it is valid to assume that they are much riskier than usual at the moment and therefore low risk assets are especially to be favoured by anyone of a nervous disposition.
Bravehearts on the other hand will argue that the elevated perception of the risk of equities will have fed through to the price - the risk reward argument.

 

[cmalone]

Understand that their new system is they ‘credit’ you with additional prize bonds - but you can ‘cash out’ at any time....

 

[RobFer]

The conventional wisdom in these parts is that you can never make any inference about whether stock markets are expensive or otherwise. No one can tell.
What almost any commentator would say though, is that the future for stockmarkets is hugely uncertain at the present time - from V shaped bounce to worst depression since the 30s. So it is valid to assume that they are much riskier than usual at the moment and therefore low risk assets are especially to be favoured by anyone of a nervous disposition.
Bravehearts on the other hand will argue that the elevated perception of the risk of equities will have fed through to the price - the risk reward argument.

The idea that it is near impossible to predict the value of equalities is a fair theory and it might be true but if it is true, then it is still a terrible time to increase your money in prize bonds. People have been talking about overdue bear markets for years now. Now the bear is here, it seems to me that risk is less but yes highly debatably.

 

[Saavy99]

Yes, I see your point but not everyone has an appetite to invest in stork market, interest rates are at zero so might as well gamble on the prize bonds.

 

[Monbretia]

Understand that their new system is they ‘credit’ you with additional prize bonds - but you can ‘cash out’ at any time....

I got a letter recently from them where they said they will not be sending out cheques for small prizes in future and there was two alternative options, have it transferred to a bank account or have it issued in new prize bonds. I take the cash

 

[Duke of Marmalade]

.. it seems to me that risk is less...

Perception of risk by market practitioners is actually measured in the US by what is called the VIX index. It is a complicated animal but if you want to take it at face value it measures how risky practitioners view current market prices. It is dubbed the Fear Index. See it here.
You will see that the Fear Index has been greatly elevated in recent times and whilst it has eased a little it is still around 3 times higher than before the crisis. However, that is just what the folk on Wall Street think and you may be right.

 

[RobFer]

Perception of risk by market practitioners is actually measured in the US by what is called the VIX index. It is a complicated animal but if you want to take it at face value it measures how risky practitioners view current market prices. It is dubbed the Fear Index. See it here.
You will see that the Fear Index has been greatly elevated in recent times and whilst it has eased a little it is still around 3 times higher than before the crisis. However, that is just what the folk on Wall Street think and you may be right.

I agree. My comment was basically invest when there is blood on the streets, which is riskier now but that kind of risk is less a concern to a sit and hold man, especially with a long horizon like myself and I didnt clarity that.

 

[Duke of Marmalade]

Fair point. The huge short term fear factor might indeed point to equities being a long term steal.

 

[EmmDee]

Perception of risk by market practitioners is actually measured in the US by what is called the VIX index. It is a complicated animal but if you want to take it at face value it measures how risky practitioners view current market prices. It is dubbed the Fear Index. See it here.
You will see that the Fear Index has been greatly elevated in recent times and whilst it has eased a little it is still around 3 times higher than before the crisis. However, that is just what the folk on Wall Street think and you may be right.

VIX is Volatility IndeX - it is derived from the implied volatility measure from equity options. Increased implied volatility might imply more risk but it isn't a direct measure of how practitioners feel about risk. Implied volatility is partially derived from historic price volatility along with current option pricing - so it isn't completely forward looking

 

[Duke of Marmalade]

VIX is Volatility IndeX - it is derived from the implied volatility measure from equity options. Increased implied volatility might imply more risk but it isn't a direct measure of how practitioners feel about risk. Implied volatility is partially derived from historic price volatility along with current option pricing - so it isn't completely forward looking

I beg to differ though it may be mere semantics. I appreciate that VIX is not some sort of poll of how practitioners “feel” about current risks. It is more tangible than that, it is how they price the risk.
Like all market prices it is completely about future prospects, albeit informed by the past. Just as the ante post odds on a horse race will take into account past form, they are still 100% about the outcome of the future event.

 

[Allpartied]

I would imagine they are a good place to dump money when equities are expensive but now the stock markets is declining so it's surely the wrong time to be buying prize bonds or any low risk assets.

No-one knows if equities are cheap or expensive, right now. The nature of equities is that they can fall and continue falling till they reach zero. Remember the blue chip Irish banks?
If you have a sum of money and you don't want it to depreciate, putting it in Prize Bonds is reasonable. There is a small chance of increasing your money and no risk of losing any. Plus you don't have to pay someone, as you do in equity funds, for the privilege.

 

[Mad Boy]

Guys,
Just wondering if anyone has purchased prize bonds or their equivalent from any other country & what is their experience. I have heard the premium bonds in UK are much better option than Irish prize bonds as prizes are higher & there are more weekly prizes. The top prizes in the Irish prize bonds have lowered significantly in the last few years & there are a lot more bonds purchased so chances of winning are greatly reduced.

 

[Archer1]

Guys,
Just wondering if anyone has purchased prize bonds or their equivalent from any other country & what is their experience. I have heard the premium bonds in UK are much better option than Irish prize bonds as prizes are higher & there are more weekly prizes. The top prizes in the Irish prize bonds have lowered significantly in the last few years & there are a lot more bonds purchased so chances of winning are greatly reduced.

It doesn't seem like you can download the purchase form at the moment.
I'd be curious to know if prize bonds in other European countries are attractive too??

 

[STEINER]

Other half has won €1,200 from 120k worth of prize bonds over 2 years approx. Bought out of curiosity after reading this thread, a no brainer compared to deposit interest.

 

[RedOnion]

I have heard the premium bonds in UK are much better option than Irish prize bonds as prizes are higher & there are more weekly prizes.

GBP interest rates are higher than Euro Interest rates, so it's not surprising that premium bonds pay a higher rate.

Why would you expose yourself to currency risk?

& there are a lot more bonds purchased so chances of winning are greatly reduced

The prize fund is calculated as a set percentage of the total funds, so more prize bonds means more prizes. Less chance of winning big, but there are extra small prizes. The maths is all explained earlier in the thread.

 

[Saavy99]

Other half has won €1,200 from 120k worth of prize bonds over 2 years approx. Bought out of curiosity after reading this thread, a no brainer compared to deposit interest.

That's really good, and it's all DIRT free too. Well done!!

 

[Saavy99]

It doesn't seem like you can download the purchase form at the moment.
I'd be curious to know if prize bonds in other European countries are attractive too??

I'm sure you must be resident in the UK to be eligible to purchase prize bonds, same as opening a bank account really.

 

[Duke of Marmalade]

Other half has won €1,200 from 120k worth of prize bonds over 2 years approx. Bought out of curiosity after reading this thread, a no brainer compared to deposit interest.

The average outcome over the two years would have been c. €750. I calculate that €1,200 would be in the top 6% of outcomes, so he mightn't be as lucky in future. Better than deposits for sure.

 

[PM9999]

I'm sure you must be resident in the UK to be eligible to purchase prize bonds, same as opening a bank account really.

This is not the case. There is no restriction on Irish residents buying UK Premium Bonds. See https://www.nsandi.com/i-live-outside-uk-can-i-invest-with-nsi

From the link:

If you live outside the UK, you should check whether local regulations permit you to hold Premium Bonds. For example, the US has strict gaming and lottery laws which mean that it may not be possible or practical to hold Premium Bonds while in the US.

If you are allowed to hold them, you will have to apply in the first instance by post. Once your holding has been set up you can register for our online and phone service.

I checked with the Irish Revenue some time ago. Buying UK bonds is fine and they treat UK Premium Bond prizes for Irish tax residents exactly the same way as Irish Prize Bond prizes - tax free.

It looks as if the block on downloading an application form is temporary and due to coronavirus. I would also guess that they are not currently processing any new paper applications using the forms available at UK Post Offices. From a pop up on the NS&I entry page:

Our phone and postal service is limited and experiencing delays during the coronavirus outbreak, as we’re working with much smaller teams. We’re asking our customers to do everything they can online. This will help us keep our teams available to help those who need us the most.

You would be OK to purchase bonds if you already have a working online/phone account, but new applications from overseas (which must be written applications) seem to be on hold for the moment.

 

[Saavy99]

Oh that's great news, I have lump sum sitting in UK current account earning nothing. I will look into putting it into the prize bonds.