Prize Bonds are looking attractive alternatives to deposits

dub_nerd - why 1.1% is the return not 1.6%.

Even is you negate the €1m and €20K and €1K prizes - it only drops to 1.3%.

Great posts by the way.
 
tidyweb said:
dub_nerd - why 1.1% is the return not 1.6%.

Even is you negate the €1m and €20K and €1K prizes - it only drops to 1.3%.

Great posts by the way.
Click to expand...

You're right -- it all boils down to which prizes you include. I've updated my figures based on the latest Prize Bond FAQ, which shows €1.9b total investment, 1.6% total prize fund, and the number of €100 prizes reduced from 1000/week to 500/week as of Jan 2014.

The prizes greater than €50 represent 0.5% of the total investment, leaving a hair under 1.1% of the 1.6% prize fund available for €50 prizes. I think we can agree that if we are looking at this as an investment we can discount prizes of €1k or over -- even with €100k invested you will only win a €1k prize every 73 years on average. So the question is do we include the €100 prizes, which represent an additional 0.1% of return? (The return is then 1.22%, down from about 1.3% after they reduced the number of €100 prizes in January).

This has to depend on how much you invest. For a €10k investment you will only win a €100 prize every 7 years on average, while for €100k it will be every 9 months. In the former case, I'd be nervous about assuming that you will achieve a longer run average of 1.22% because "longer" could be very long. In the latter case it's much more likely but could still be lumpy. If you invested €1m I'd have no hesitation saying the return is likely to be close to 1.22%, since you'd be expecting more than 7 x €100 prizes per year, along with your 217 x €50 prizes.

In summary, the average return for everyone is 1.6%, but you are practically certain not to achieve that because of the lumpiness in the high value prizes. You can reasonably discount everything down to the €100 prizes, leaving a return of 1.22%, but for investments of €100k or less you would be safer assuming a 1.08% return. Obviously you could be lucky or unlucky in any case, but as a conservative investor these are the numbers you could reasonably expect.

(By way of an actual example, we have The Ghoul's very excellent record keeping on the previous pages. He has 2 x €100 prizes in a 6 month period for a €100k investment, which was ahead of the odds even before they halved the number of €100 prizes in January. If his second half year matches his first he'll actually achieve a 1.6% return -- better than the best term deposit account after tax -- but the reduction in €100 prizes makes this a lot less likely. His eight week run without any prize at all is also a good example of how things don't have to even out in the short run. Also, for everyone who beats the odds there will be someone who is beaten by them).
 
Is it possible to upload pictures or excel sheets here?

I work out that with current returns you would need to invest €150,385 to return 100% chance of €100 prize (you would also get 36 x €50).

Where I struggle is this - if you toss a coin twice you have a 100% chance of throwing a head. But you probably wont - does that make sense? So can I count on the €100 prize or is this where "confidence" comes in. Can you send me you email address somehow Ill show you some workings.
 
I've been following this thread with great interest...pardon the pun!

Over the years I have gradually increased my Prize Bond holdings to the point where I now have a total value in the region of €30k invested. (I'm currently considering moving savings from a bank account and increasing (substantially) my total invested in Prize Bonds).

However I too have noticed that each time I purchase a new batch of bonds I win a few prizes for the initial months after purchase - then nothing?!

This seems to be a trend among you guys too?
What is going on with the PB fund?
(It's almost as if their policy is - 'Give him/her a few wins then he/she will leave the money with us in the hope of winning further prizes'!?)
 
That is just your imagination I would guess. But they seem shy to release any information. But €30K in nowhere near enough bonds to be able to see a trend.
It would be great of they would release all winning numbers in history.

If you invest €30K be prepared to see about 7 cheques per year for €50 euro hit the mat.

You should expect to win the €1m jackpot about once in every 11,000 years. But that said if you win it next week you wont mind waiting another 22,000 year for the next win.
 
My calcs say 1.26% return with just €50 and €100 prizes.
Not that it really matters but I would like to see where we diverge in our calculations. Do we have different assumptions
 

Yes, there is an average number of wins that you can calculate, and this has the highest chance of coming up (although the odds are certainly not 100%). The confidence level falls off either side of this. You can sum the odds for each individual number of wins to get the odds of your returns falling in any given interval.

Re: 100% odds -- you're adding the 50% odds of a head on each of two tosses to get 100%. Odds don't sum like that -- no matter how many times you toss the coin there is always a slim chance that you will never throw a head, so the odds can never be 100%. Perhaps counterintuitively, what you need to consider is the odds of not throwing a tail. Think about it like this: suppose I toss a coin ten times and want to know the odds of getting at least one head; I could get a head on the first toss with 50% probability, or on the second, or on both first and second -- when you think of all the different ways that you could toss at least one head over ten tosses, it gets complicated. But, there's only one way of getting zero heads -- by getting tails on the first toss, and tails on the second, and tails on the third, and so on. When you want to combine the odds of a particular outcome in each of a series of independent trials, you simply multiply them. So for a coin toss you have a 1/2 chance of getting tails on the first toss, 1/4 of on first and second, 1/8 on first and second and third, and so on. The odds are 1/(2^n) after n tosses. And, of course, since if you don't throw all tails you must throw at least one head, the odds of that are 1 - (1/(2^n)). So, for example, the odds of at least one head after two tosses is 3/4 or 75%.

For the odds of winning any given number of coin tosses, say m wins out of n tosses we have to resort to slightly more complicated calculations using the binomial coefficient. For prize bond wins the approach is the same, it's just there is a very much greater number of trials -- hundreds of thousands per year -- and your odds in each independent trial depend on what percentage of the total issued prize bonds you hold. Another complication is that the binomial coefficient calculation involves factorials, and for the prize bond calculation they are of very high degree -- higher than a spreadsheet is typically able to handle (e.g. Excel blows up above 10^309 ~ 170!). I found I had to use Stirling's approximation, which allows you to work in logs.

But if we're only interested in averages, that's much simpler -- just calculate the percentage return delivered by each category of prize, that is, the prize amount multiplied by the number of prizes divided by the €1.9b total fund. I get:

€1m -- 0.3158%
€20k -- 0.0484%
€1k -- 0.0137%
€100 -- 0.1368%
€50 -- 1.0853%

So just start at the bottom and add percentages for whichever prizes you want to include to get the average return -- the bottom two sum to 1.22%.

I'm open to correction. You can mail me your workings at s3923-fb2@yahoo.ie. If required I can stick up a shared Google spreadsheet that we both can edit. Independent validation would be welcome.
 
One of the posters mailed me their calculations. I noticed that I haven't factored in the reduction in €100 prizes from Jan 2014, which actually improves the odds for the small investor because these are added to the more winnable €50 prizes. The poster also pointed out that using the number of prizes announced for the Mar 14th draw implies a total fund of €2bn, instead of the €1.9bn in the prize bond FAQ. This is more good news for investors because an increase in fund size increases the more winnable €50 prizes. I now get:

€1m -- 0.3000%
€20k -- 0.0460%
€1k -- 0.0130%
€100 -- 0.0650%
€50 -- 1.1760%
€50 + €100 -- 1.2410%

For investments up to a few tens of thousands, use the 1.176% return figure. For 100k+ use the 1.241% figure. The latter is comparable -- after grossing up -- to the best term deposits, with the advantage of instant access (after the first three months).
 

Got my letter from The Prize Bond Company Limited today - I do own 4 prize bonds (since either 2000 or 2001) but yeah, like most people with small amounts for years, still haven't won anything. Oh well. It was nice to have a couple of weeks of daydreaming and I'll still be able to have the thrill of checking them every once in a while, now that I know the numbers.

I have to say I'm impressed with the service. I filled out the form and emailed it to them and two or three days later got a reply that my query had been forwarded to the Prize Bond company. The following day I got another email that my query had been passed to their customer service section. Short, but friendly and courteous responses. The letter with details, including exactly how to update my address with them and sort out about getting replacement bonds, arrived today having been posted on 9th April.

So, four down, fifteen thousand nine hundred and something to go before I can anticipate the kind of returns dub_nerd is talking about.
 
Not to worry Janet -- with four prize bonds you can already expect to win a €50 prize on average once every every ... ehem ... 170 years!!!
 
There was a draw today, presumably 1 day early due to Good Friday. Nothing for me anyway, that's 3 weeks in a row now.
 
Another tip off from a poster:

http://www.independent.ie/business/...-despite-cut-to-weekly-winnings-30194119.html

The article mentions lots of money flowing into prize bonds "despite three cuts to weekly winnings". What it misses is that two out of the three "cuts" were actually good news for the investor. The bad type of cut is when they reduce the percentage of the fund paid out in prizes. But the good type is when they reduce the higher prizes in favour of more lower prizes without cutting the overall return. It would be great if they got rid of the headline €1m prizes. The high number of small prizes is what makes Prize Bonds viable as an investment and not just a gamble. Clearly lots of people out there have worked this out for themselves (or are avid readers of AAM).

If sales of Prize Bonds continue on their current trajectory, and in the absence of further cuts to the prize fund percentage, by the end of the year you could be seeing returns of 1.23% to 1.29% (depending on investment level). I've just noticed that my Rabobank returns have fallen to 1.5% and are about to be slashed to 1% before tax as of May 1st. I'll be down to the Post Office Tuesday morning to look at putting a very significant sum into Prize Bonds.
 

Good post Dub,i was going to withdraw from prizebonds at the end of this month,but looking at shares etc its nice to know your money is safe and wont drop 10% overnight im going to stick with them for another while....
 
I have 15k in Prize Bonds - 25 goes in every month for the last number of years and I put in a lump sum in January of 10k. First one was bought by my parents in 1973. I have won once around the time I was in college.

Am I just unlucky?
 
amtc said:
I have 15k in Prize Bonds - 25 goes in every month for the last number of years and I put in a lump sum in January of 10k. First one was bought by my parents in 1973. I have won once around the time I was in college.

Am I just unlucky?
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With your current holding you stand to win about three times per year. Before your lump sum investment it was about once per year. Before that it would depend on how quickly you built them up, but a multi-year run without a win may not have been too unlikely. I would say that your current holding is just above the absolute minimum at which prize bonds make sense as an investment, where your chances of winning less than the hoped-for 1.1% return in a given year fall to about one in three, and the chances of winning nothing at all fall below 10%.
 
dub nerd - what is the absolute minimum in your opinion? I was thinking of giving the purchase of 10 year solidarity bonds a break and buying some prize bonds.

I'm finding it hard to convince myself to get some prize bonds. I don't see the point in say €1,000 in bonds if I can't win and I'm certainly not willing to go to €100,000.
 
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