Is it worth taking a punt on the Prize Bonds?

Imagine if someone offered you the chance to enter the Lotto every week but with a guarantee that you can get your money back anytime you like? It may sound too good to be true, but that’s effectively what you can get when you buy Prize Bonds.

For a €25 minimum spend you get four Prize Bonds which are entered into a draw every week of the year with a maximum prize of €50,000 and numerous smaller prizes of between €50 and €1,000. And four times a year they get entered into a draw for a maximum prize of €250,000.

It may not offer the eye-watering and life-changing jackpots that you can win with the Lotto, but you haven’t actually lost any money on your wager. You can leave your €25 in for a whole year and have a chance of winning something every week and then get your money back. That same €25 would get you eight lines with a quick pick in one Lotto draw – oh, and you’d get a euro back in change.

Looked at like that the Prize Bonds are pretty good value, even if the odds against winning something are pretty stupendous. The odds of someone with €25 worth of bonds winning the top prize in any draw have been estimated at around 141 million to one. About the same as the odds against winning the Euro Millions lottery and considerably worse than the 10.7 million to one against winning the Irish Lotto.

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Then again, the difference between mind-boggling odds like that is hardly worth thinking about

The question for many people is if Prize Bonds make a good investment. In pure investment terms, the answer must be a resounding no. If you are looking for returns on your money, prize bonds are a pretty lousy investment.

When you buy Prize Bonds you are actually lending money to the government, and the potential return on your investment is set by the National Treasury Management Agency which is responsible for setting the interest rates on State savings products.

In the case of the Prize Bonds, the interest rate used to generate the prize fund is 0.35 per cent. In other words, if you bought every prize bond on issue, that’s the return you could expect for your money.

It’s tax free of course, so that makes it worth about 0.5 per cent. Still nothing to write home about and among the worst rates available from State savings.

Of course, you can improve the odds of winning by buying more bonds. If you have €10,000 handy you could reduce the odds on winning the top prize to a mere 350,000 to one but you have to consider the impact of inflation on your money. If you held onto the prize bonds for a year before cashing them in, inflation at 9 per cent would have reduced the value of your money to €9,100.

If you didn’t win at least €900 during the year you’d have lost money on your investment.

But that really is the wrong way to think about it. It’s not an investment, it’s an extremely low risk way of gambling. And you just might be one of the lucky ones who win enough to put a deposit on a house or go on a holiday of a lifetime.

There are also some practical uses. Lots of workplaces and community groups run Christmas clubs and other savings schemes where members put in a set amount every week and get their money back at the end of the year. Why not put the money into prize bonds instead of the bank at a negligible interest rate. You’ll get just about the same amount back at the end of the year and you just might win a few prizes along the way. Much more fun.