Saturday 20 January 2018

They're flying high, but are Prize Bonds really worth it?

Ah go on, go on... Rugby star Peter Stringer pours tea for his mother Aileen at the launch of the €1m Prize Bond draw on March 27, just after Mother's Day.
Ah go on, go on... Rugby star Peter Stringer pours tea for his mother Aileen at the launch of the €1m Prize Bond draw on March 27, just after Mother's Day.

Tina Leonard

At the launch of its spring jackpot draw, the Prize Bond Company announced that consumers had purchased a record €279m worth of prize bonds in 2008, almost double the €143m bought in 2007.

Prize Bonds are a risk-free State-savings scheme. This means that any amount invested in the scheme is secure and State-guaranteed. Prize Bonds offer no interest but do offer the chance to win cash prizes. So is it the lure of big cash prizes that has inspired Irish people to invest so much in Prize Bonds? Or does it say something about a lack of trust in Irish banks at the moment?

Whatever the answer, is investing in Prize Bonds a good alternative to putting your money in the bank?

Dermott Jewell, CEO of the Consumers Association of Ireland, thinks it is. He says: "The fact that it is a trusted company, that your money never loses its value, that you can take it out whenever you want and that you may win money makes it a good option for consumers."

He also points out that although your money isn't earning any interest, in today's volatile market with interest rates abysmally low, that might not matter.

The Prize Bond scheme is Ireland's longest running draw established in 1957. In 1989, An Post and FEXCO took over the marketing, sales and administration functions from the previous operator, Bank of Ireland. The premise is very simple: You buy bonds in units worth €6.25 with a minimum purchase of four units worth €25.

After a minimum holding period of three months you can cash in your bonds at any time and they never lose their value. As no interest is paid they will not grow in value either, as the money would were it put in a bank deposit or savings account. However, all Prize Bonds are included in every prize draw, and this is the big attraction.

There are four €1m jackpots throughout the year and top prizes of €500,000 to be won in the other eight months. In addition, there are 40 prizes of €20,000, five weekly prizes of €1,000; 10 weekly prizes of €250 and over 3,500 weekly prizes of €75. All winnings are tax-free.

In 2008, the Prize Bond Company paid out €20.2m representing 148,429 prizes. This works out at €135 per prize, but obviously, as four people won a million and there were many more prizes for thousands of euro, not everyone wins large amounts.

The Prize Bond Company gives odds of 4.1 to 1 on winning a cash prize in a 12-month period but, of course, that cash prize could be small rather than big.

I asked some friends if they had Prize Bonds and whether they had ever won anything. Not many do, but one friend had won €150 in the past two years.

In the first year he had €500 worth of bonds and won €75 and in the second year he held €1,000 worth of bonds and also won €75. That is a return of 15pc in year one and 7.5pc in year two, which is a great return if you consider what the banks are offering.

However, nobody else I spoke to was as lucky. The mothers of two friends have held bonds for 40 and 50 years without winning anything. The parents of another friend had recently won €75 after years of not winning a cent.

Notwithstanding this, the Prize Bonds Company does see its product as an investment or savings scheme and direct debits for regular savers are facilitated.

A Prize Bonds spokeswoman also says that they make very popular gifts -- something to bear in mind with Mother's Day approaching.

When contacted, the Irish Bankers Federation (IBF) didn't comment directly on the Prize Bonds' scheme but Lisa Shevlin of the IBF says: "Notwithstanding interest rates falling there is considerable choice and competition across a wide range of saving products for consumers, as well as the added insurance and security of the guarantee scheme."

Interesting to note then that it was in autumn, before the Government stepped in to guarantee bank deposits that the biggest increase in the purchase of Prize Bonds was recorded. While Prize Bond purchases have returned to more usual rates, it will be interesting to see where Irish people put their money and trust in future.

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