Why Irish Prize Bonds are a Fools Game

  • By: Walter Dunphy ACCA
  • Date: April 10, 2022
  • Time to read: 3 min.

Who knew Prize Bonds were still a thing? The last time I remember hearing about a prize bond was about 15 years ago when my Father was frantically rummaging in the attic to see if he could find his certificates to see if he had won anything in the last few decades of holding on to them.

Well you might be surprised to know that Irish people have have over 4 billion euros invested in Prize Bonds according to the latest NTMA (National Treasury Management Agency) Annual Report which was for the year 2020. No doubt it has grown again significantly in 2021.

So what exactly is a Prize Bond for anyone unsure of the details??

A normal State-backed bond involves you lending money to the government over a fixed term and in return, you receive annual interest payments and your full principal amount back when the fixed term ends.

Prize Bonds are a non interest paying bond – instead of receiving interest for lending your money to the issuer (NTMA), you are entered into a weekly lottery where you could win a cash prize. Prize Bonds are guaranteed by the State and are a savings mechanism for the Irish citizens.

Once you purchase a Prize Bond there is a minimum hold period of 90 days, after which you can if you wish to redeem the full value of the bond. You can also hold onto an Irish Prize Bond indefinitely if you please.

How much does a Prize Bond cost?

One unit of a prize bond will set you back €6.25.

Min/Max InvestmentValue
Minimum Investment €25 ( 4 units )
Maximum Investment (Single Person) €250.000 (40,000 units)
Maximum Investment (Jointly) €500,000 (80,000 units)

How much could you potentially win with a Prize Bond?

Draws are held weekly with the total approximate weekly prize amount of €280k (FEB 2022).

Here is how the weekly prizes are distributed:

Prize Value Number of Winners Total Value €
€50,000 1 €50,000
€1,000 10 €10,000
€500 10 €5,000
€50 4,407 €220,350
Total 4,428 €285,350
Results of the Feb 18th 2022 draw.

There are also 4 quarterly draws for €250,000 that are separate from the regular weekly draws.

As we can see from the data there are only a handful of big weekly winners from the draw, 99.5% of winners will just receive €50.

What are my odds of winning something?

Every week 21 people will an amount that is €500 or greater, lets now try and estimate the probabilities for each scenario.

This calculation assumes that the person owns just €25 worth of prize bonds and the total value of prize bonds are €4.1bn.

Scenario Probability
Winning €250,00041,000,000/1
Winning €50,000 in a particular week164,000,000/1
Winning €50,000 in a year3,153,846/1
Winning €500 or more in a particular week7,809,524/1
Winning €500 or more in a year150,183/1
Winning €50 of more in a particular week37,037/1
Winning €50 or more in a year712/1

Everyone one will have a different perception of what odds are worth it but it is clear to see from these stats that the odds of winning big are really remote.

What do you need to consider before buying Prize Bonds?

If you hold a prize bond over a long period and do not win anything your money will be losing its buying power over time due to inflation. Current inflation rates in Ireland are 5.7% (Dec2021) which is particularly high, this means you are losing buying power at a faster rate than usual when inflation rates are normally around 2%.

There are many other investments that you could choose to invest in with actual guaranteed returns to combat these inflation rates and maintain your buying power.

The risk of you actually losing your original face value of the investment is minimal as all prize bonds are guaranteed by the state.

One benefit, if you do manage to win something with your prize bond, is that any prize money is not taxed. But you of course need to beat the odds and win to get this benefit.

The NTMA only payout 0.35% of the total amount invested as a Prize Fund (approx €4.1bn) as prize money during the year. This is a very low cost of servicing the bonds for the NTMA, it has consistently dropped over the last decade as the interest rates in the Eurozone have fallen.

Disclaimer: this blog post is for informational and educational purposes only and should not be construed as financial advice.

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