Are prize bonds still a good investment?

Irish Times

2 days ago

I have been a steady holder of
prize bonds
over the last number of years, and, together with winnings, have built up a fair amount.
A few months ago,
State Savings
changed their policy by introducing larger prizes each week. (€50,000 each Friday, with €500,000 on the last Friday of the month).
This has reduced dramatically the number of winners, and it has become like a lottery, except you do not lose your money! This has probably been further influenced by interest reductions.
State Savings also started to notify winners by email, as well as sending winnings by mail the following Tuesday/ Wednesday. I am disturbed to see emails used to be sent at 2.40pm
on the Friday, but now have become totally irregular, sometimes taking a few days.
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As this prize-winning has become a lottery, are there independent observers as for the National Lottery, and previously with the Irish Sweepstakes? In addition, has the holding of brize bonds, lost its attractiveness?
Mr M.T.
Are prize bonds a good investment? That seems to be the kernel of your query. To be fair, your personal experience, at least until recently, appears to suggest they have been for you. I'm not sure that's a universal view.
Certainly, in recent years, prize bond investors have been voting with their feet and walking away.
Figures released a couple of weeks ago show that just shy of €351 million of new prize bonds were sold last year. That's a sharp 28 per cent fall on the previous year. That 2023 figure was itself down 20 per cent year-on-year and annual sales are now less than half the €735.7 million sold at the company's peak during Covid in 2020.
An even bigger number came from people selling their investments. Requests for repayment came to €538.2 million last year. That is up just over 1 per cent year-on-year but 90 per cent up over the past five years.
Having fallen for the first time in a decade in 2023, the overall prize fund fell for a second successive year. For all the company's guff about the figures 'reinforcing the product's long-standing appeal as a unique and secure savings choice', they're clearly worried.
The number of prizes awarded last year was up more than 53 per cent and that followed a 31 per cent rise the previous year. There was an even bigger jump in the value of those prizes – 89 per cent last year on top of a 51 per cent rise in 2023 – bringing them to a level not seen since 2012.
You talk about changes in the prize structure but those are not that recent. They date back to October 2023 and in fact the number of prizes on offer has increased sharply in recent years as you can see above.
The key factor affecting the number of prizes is not the headline figure for prizes at each level but the interest rate that determines the size of the prize fund. This is currently 1 per cent – hardly over generous but almost three times the 0.35 per cent rate that applied immediately before October 2023.
The other factor, obviously, is the size of the fund and that, as the figures show, is falling in recent years.
Essentially, 1 per cent of the fund is given in prizes each year. As the top prizes – €500 and above – are set, the real difference is in the number of €75 prizes drawn each week.
So, what are your odds?
With 713.6 million prize bonds in issue at the end of last year, your chances of winning a prize in any draw is comfortably more than 20,000/1 – on the basis of the minimum investment in bonds of €25 for four €6.25 bonds. Winning the weekly jackpot is a 178.4 million-to-one shot.
For comparison, the chances of winning the jackpot in the
Lotto
since 2015 when it was expanded to 47 numbers is one in 10.74 million – although, in fairness, as least you do not lose your stake with the prize bonds.
Clearly, the more bonds you hold, the better the odds, though they are still fairly daunting.
If you don't win, you do have the right to get your investment back at full face value but it will be worth less than when you bought those bonds due to inflation.
Inflation over the past five years in Ireland means that the €25 you choose to withdraw this year by redeeming that minimum level of prize bond investment is worth just €20.20 in buying power – barely 80 per cent of what it was if you bought those bonds back in 2020.
If you bought the bonds back in 2000, your €25 is worth just under €15 in terms of 2025 prices.
So for the hundreds of thousands of bondholders who do not win a prize, this is a poor investment.
If that gives the impression that I'm not a massive fan, you'd be right. Unless you are averse to taking any level of risk at all, you'd be better looking elsewhere. Even the risk-averse can get a better return on their cash with other State Savings options – unless they're lucky, and then we're back to the Lotto analogy.
Oversight
As to oversight, the Prize Bond Company is apparently a joint venture between
An Post
and
Fexco
to run the scheme on behalf of the State – or more precisely the
National Treasury Management Agency (NTMA)
, which is the State agency charged with managing the State's debt.
An official from the NTMA oversees each weekly draw, which is done electronically – with the numbers generated randomly – and the results of those draws are apparently then analysed by another company that specialises in statistical and data validation, according to the Prize Bond Company.
At the time of writing, the most recent draw was the last weekly draw in June when there were a total of 8,823 prize-winners who shared almost €1.24 million in prizes. Obviously this was skewed by the monthly €500,000 win. The prize fund in other weekly draws is just shy of €740,000.
Once a month (the final draw of the month), there is one winner of €500,000, as you say. Otherwise, there is a weekly winner of €50,000, 20 winners of €1,000 each, and another 20 who get €500.
After that there is a much larger number of winners of €75. How many precisely is based on the size of the price bond fund. As of now, it is 8,781 winners each week.
Prizes are paid into your bank account if that is the option you have chosen or, as a default, used to purchase more prize bonds.
Part of the issue, especially for people with small holdings of prize bonds, is that they are passive investments, rarely looked at. The Prize Bond Company does notify winners by post and, more recently, by email but if you have not updated your details with the Prize Bond Company – and especially if the bonds were acquired before email details were relevant – any information about winnings may have gone to a long-irrelevant address and the bin.
This is especially true, I'm guessing, for people who were not active buyers of bonds but who received them instead as gifts from family.
Clearly, that group does not include you but, for other readers, that is why it is important if you own prize bonds to make sure the operators have your correct details. You can find and download a change of address/change of name form
here
.
What happens any unclaimed prizes? After six months, they are put in a special fund of unclaimed prizes. A winning bondholder can still claim that prize at any time. At the end of last year, there was €3.4 million in unclaimed prizes.
That might sound like a lot but when you consider that €45.6 million was issued in prizes last year alone and that the unclaimed prize fund dates back to 1957, it's clear the vast majority of prizes do find their way to the bond owners.
You can check with the Prize Bond Company by phone or online and the site also has a Check My Numbers feature although this can be a little more finicky.
So is it worth the investment? The bottom line is that the State is paying just 1 per cent 'interest' for 'borrowing' the money you pay for the prize bonds. And unless you're a winner, you're not even getting the benefit of any part of that 1 per cent.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to
[e-mail]
, with a contact phone number. This column is a reader service and is not intended to replace professional advice