PRIZE Bonds are a regular source of interest to Family Money readers. Recently, Mr D from Delgany and Mr L from Kinsale both wrote with a number of questions, ranging from the fairness of the Prize Bond draw, the odds of winning a prize to whether prize bonds are a good investment.

Prize bonds are sold in units of £10 and can be purchased from any post office, bank, building society or stockbrokers office. They are jointly administered by An Post and the Irish Prize Bond Company based in Killorglin, Co Kerry. The value of the prize fund is based on the level of interest rates secured on the bonds by the Irish Treasury Management Agency. Unlike the National Lottery, the prize bond is entered in every weekly and monthly draw, regardless of whether your ticket wins.

The question is: are prize bonds a good investment?

The odds of winning a weekly or monthly prize - ranging from £100 to £100,000 - are considerably higher than winning the Lottery. The holder of £1,000 worth of bonds, we were told, has about a 60 to 1 chance of winning a prize in any given month, rising to nearly 6,000 to 1 for just £10 stake.

However prize bonds are not a capital investment, no interest is paid on the bonds which, over time, lose value to inflation. Today's low inflation rate will reduce the real value of your holding by less than three per cent a year. The bond holder is effectively paying three per cent per annum to participate. Further, as the bond funds attracts lower rates of interest on the market the prize fund decreases.

Like every financial transaction, prize bonds come with their own form of small print. Bond holders cannot encash their bonds for three months after purchase. There are also rules governing inheritance of bonds a beneficiary must ensure the name in which the bond is held is changed within three years of the death of the original owner.