Are prize bonds a better bet than the Lotto?

In 1986 I was given £100 in prize bonds by my father and I was delighted with myself.

In the nearly 40 years since then, I have won only once – receiving a cheque in the post just over 20 years ago for €50 – and, as a result of my terrible fortune, I have largely forgotten about the investment.

It was only this week I realised how terrible my fortune has been.

Had my father decided to invest the100 quid in the S&P 500 in New York instead of in prize bonds for his delinquent son, the £100 would now be worth more than €5,000.

Had he had the prescience to buy me €100 worth of shares in a struggling tech company called Apple, which had not long earlier set up a base in Cork, I would be sitting on a cash mountain of more than €300,000.

Looked at through that prism, the £100 he spent was a poor investment that has served me poorly.

But it is actually worse than this suggests.

Had the cash been left in even a low-interest rate bank account in Ireland, it would have been worth about €350 today and not worth exactly what it was the day the bonds were bought when Garret FitzGerald was taoiseach, Charlie Haughey was the leader of the opposition and Ray Houghton had not even had a whiff of an English net.

In fact, when inflation is factored in, it is worth less than half what it once was.

Bearing all that in mind, it is a wonder that prize bonds remain as popular now as they have been at almost any point since they were first sold to Irish people in 1957, but they do.

But maybe their popularity is dimming?

According to recent figures from the Prize Bond Company, sales of prize bonds were a “strong” €489 million in 2023, with the value of the fund reaching €4.65 billion.

While on the surface these sales look pretty decent, they are actually down 20.6 per cent on the previous year, when €615 million in new prize bonds were sold.

And repayments to people who decided to cash in their prize bonds jumped 46 per cent to €532 million, according to the recently released annual report from the company.

The figures point to a net outflow of just under €43 million in the amount invested by Irish consumers in prize bonds, with the overall value of the prize bond fund falling for the first time in at least a decade.

But missed opportunities to invest in Apple in the 1980s aside, are prize bonds a good idea or a good investment?

That depends.

Last Friday just over three-quarters of a million euro was won in prizes, with all the winnings tax free. There is a weekly €50,000 prize up for grabs and then a monthly prize of €500,000

But the chance of that it could be you – to borrow a phrase from the Lotto people – is pretty low.

If you have €25 worth of bonds, your odds of winning the jackpot is over 100 million to one or roughly the same odds as winning the Euromillions.

The Lotto has odds of 10 million to one. And, of course, the Euromillions and Lotto jackpots – even at their smallest – will go a lot further than the biggest prize-bond wins.

The odds change quite significantly depending on how many prize bonds you have. If you invest €10,000, the chances of winning the top prize falls to 350,000 to one, which is still a long way from likely, and given the impact inflation is having on savings, you would need to have won at least €1,200 from your €10,000 worth of prize bonds last year just to have kept ahead of rising prices.

But wins aside, how do the prize bonds stack up as an investment?

Well, they have some serious advantages over the Lotto. For starters, you can never actually lose.

Prize bonds, like An Post savings, are a Government-guaranteed investment, so they are one of the safest investments you can make. Although your money does not earn interest, you can cash in the bonds whenever you want at face value and they are included in each of the regular draws. Even if you win a prize on a particular bond, it is entered in subsequent draws.

The value of the prize fund on the table is determined by the National Treasury Management Agency (NTMA), which applies an interest rate to the value of outstanding prize bonds, with lower rates meaning lower value prizes.

At the moment, an interest rate of 1 per cent is applied, so 1 per cent of the total is paid out. In 2009, the rate of interest attached was 3 per cent, whereas until late last year in was just half a point

If you place your savings with a retail bank on their higher-interest rate accounts you can get more than 2 per cent now, although you’ll have to pay Dirt (at 33 per cent) on that.

It is also worth noting that while the average rate of return on prize bonds is 1 per cent, it is not a guaranteed rate of return and you might actually get nothing.

It is also worth considering the inflationary impact on prize bonds. Back when inflation was at zero – or even less than zero – it wasn’t an issue, but over the last two years it has certainly become one.

If you put €100 into a prize bond 10 years ago, it’s still worth €100 today, but what you can buy with it is less, a lot less.

And where do you buy them? An Post is the primary point of sale although online sales at prizebonds.ie are growing.

And then there is the issue of tracking the prizes.

At the end of last year the value of prizes not claimed after six months decreased to €3.3 million from €3.4 million at the end of 2022.

The Prize Bond Company does write to winners to inform them of their good fortune, but if you move house and forget to notify them – and, let’s face it, remembering to tell the Prize Bond Company we’ve moved house is a long way down most people’s to-do list – there’s not really a lot they can do to put you in touch with your winnings. Prizes for the last six months are listed on prizebonds.ie or can be checked by phoning 0818 20 50 60 / 01 705 7200.

And if you have lost your prize bonds or think you might have won years ago you can call them and give them key information such as your name and the last address at which the bond were registered, and they will help you out.

I did that this week and spoke to a very pleasant woman who is – as I type – sending me out the forms I need to change my address and find out if I have won a fortune.

If the next time you hear from me I am on a beach in South America, you’ll know I won big.

And good luck yourself!

You can contact us at OnTheMoney@irishtimes.com with personal finance questions you would like to see us to address. If you missed last week’s newsletter, you can read it here.