Prize Bonds are looking attractive alternatives to deposits
- Thread starter Raging Bull
- Start date
I think The_Ghoul might have answered this when he bought a second tranche. Hopefully he'll answer it here for you.
I'll take that as high praise, coming from you. I followed (what became) your gambling thread with total fascination -- I could picture a lot of readers' jaws dropping at your description of your activities. I think you probably have the mathematical acumen and the talent / temperament to be able to deal with the gambling highs and lows. I don't think I could do it with such equanimity. But thanks for the thought.
I went through the full procedure for my second batch. I know that you can buy online using a debit card and there may be other methods too but in my case for my second batch I went to the post office with form, draft and proof of address/PPS/ID.
There is a section on the form where you enter your existing account number (if any)
I mentioned I'd prefer to invest a six-figure amount than most five figure amounts in Prize Bonds. Someone asked me what sort of five figure amount would be acceptable. My answer is that you can choose your own odds. Remember, for the purposes of this discussion, we are talking about the odds of achieving an "average" return in a year. Prize Bonds pay out 1.6% of the invested fund in prizes. But since some of that is in very rare high value prizes, you are best depending only on the most numerous €50 prizes, which represent 1.18% of the fund annually. That is what I mean by the average return. If you pay 41% DIRT this is equivalent to an APR of 1.99%. If you also pay 4% PRSI it grosses up to 2.14%. (All figures to two decimals).
So the question is what are your odds of getting that 1.18% net return? These odds are what vary depending on the size of your investment. On page 7 of this thread, I posted this graph:
The idea is that it shows you the chance of winning each particular number of individual €50 prizes for a given investment amount. Here is the same data in tabular form (there are more precise values in the attached .csv file which can be loaded in Excel):
So here's how it works. You have to win an integer number of prizes. You can't win half a prize. So, for any given investment amount, multiply by 1.18% and divide by 50. Round to the nearest integer. This gives you the number of prizes you have to win to get as close as you can to the average return.
Let's take €50k as an example. A 1.18% return is €590. Divide by €50 and round to the nearest integer. This gives us 12 prizes for a return of 1.2%, slightly better than average. So now look at the table above. Each column heading is a number of prizes that you could win in a year. Look at the €50k row. The values to the right of the €50k are the odds of winning that number of prizes. Since we want to win 12 prizes, lets add up the odds of getting less than 12, and the odds of winning 12 or more will be one minus that number. That's all the columns from 0 to 11. Using my more precise values, they sum to 48.93%. That means I have a 51% chance -- just about evens -- of achieving the average return.
That might be good enough for you, or it might not. It's up to you. Of course, don't ignore that if we include the 11, 10, and 9 columns, it gets us up to an 83% chance of winning at least three quarters of an average return. It's never all or nothing. And, of course, you have a non-negligible chance of winning more than the average return (which can be worked out in a similar way). If you want to improve the odds of achieving close to an average, invest more. You can use this approach for any amount in the above tables.
If you look at €100k, you will see that you only have a 49% chance of getting a 1.2% return, no better than the €50k amount. But you have a 90% chance of getting at least three quarters of that (which, as I mentioned earlier, is still better than the net instant access rate, which you have a 95% chance of beating). In general the odds of getting "near" the average improve with higher investments. Taking a glass-half-empty approach (as I tend to), and asking "how likely am I to get a very poor return?" ... the answer is "much more likely for small investments". As an extreme example, you can see that for €10k or €5k (and even more so for any amounts less than that) there is a substantial chance of winning nothing at all! (But, as I always point out, if you can wait decades or centuries, you'll still get your 1.18% eventually. Indeed, if you can wait millennia, you'll get your 1.6%).
EDIT: not sure how to do an attachment, so here's the csv data on PasteBin.
EDIT2: For the best net instant access rate for €100k I have been using the PTSB rate from the Best Buys thread of 2% on the first €50k and 1% thereafter. Deducting 45% tax from this give an average net rate of 0.825%. I see that there is a slightly better KBC rate which nets out to 1.01%, which affects my figures marginally. (I also see a Rabo 90 day notice rate which I must take up myself ... thanks as always, Ciaran T!)
So the question is what are your odds of getting that 1.18% net return? These odds are what vary depending on the size of your investment. On page 7 of this thread, I posted this graph:
The idea is that it shows you the chance of winning each particular number of individual €50 prizes for a given investment amount. Here is the same data in tabular form (there are more precise values in the attached .csv file which can be loaded in Excel):
So here's how it works. You have to win an integer number of prizes. You can't win half a prize. So, for any given investment amount, multiply by 1.18% and divide by 50. Round to the nearest integer. This gives you the number of prizes you have to win to get as close as you can to the average return.
Let's take €50k as an example. A 1.18% return is €590. Divide by €50 and round to the nearest integer. This gives us 12 prizes for a return of 1.2%, slightly better than average. So now look at the table above. Each column heading is a number of prizes that you could win in a year. Look at the €50k row. The values to the right of the €50k are the odds of winning that number of prizes. Since we want to win 12 prizes, lets add up the odds of getting less than 12, and the odds of winning 12 or more will be one minus that number. That's all the columns from 0 to 11. Using my more precise values, they sum to 48.93%. That means I have a 51% chance -- just about evens -- of achieving the average return.
That might be good enough for you, or it might not. It's up to you. Of course, don't ignore that if we include the 11, 10, and 9 columns, it gets us up to an 83% chance of winning at least three quarters of an average return. It's never all or nothing. And, of course, you have a non-negligible chance of winning more than the average return (which can be worked out in a similar way). If you want to improve the odds of achieving close to an average, invest more. You can use this approach for any amount in the above tables.
If you look at €100k, you will see that you only have a 49% chance of getting a 1.2% return, no better than the €50k amount. But you have a 90% chance of getting at least three quarters of that (which, as I mentioned earlier, is still better than the net instant access rate, which you have a 95% chance of beating). In general the odds of getting "near" the average improve with higher investments. Taking a glass-half-empty approach (as I tend to), and asking "how likely am I to get a very poor return?" ... the answer is "much more likely for small investments". As an extreme example, you can see that for €10k or €5k (and even more so for any amounts less than that) there is a substantial chance of winning nothing at all! (But, as I always point out, if you can wait decades or centuries, you'll still get your 1.18% eventually. Indeed, if you can wait millennia, you'll get your 1.6%).
EDIT: not sure how to do an attachment, so here's the csv data on PasteBin.
EDIT2: For the best net instant access rate for €100k I have been using the PTSB rate from the Best Buys thread of 2% on the first €50k and 1% thereafter. Deducting 45% tax from this give an average net rate of 0.825%. I see that there is a slightly better KBC rate which nets out to 1.01%, which affects my figures marginally. (I also see a Rabo 90 day notice rate which I must take up myself ... thanks as always, Ciaran T!)
postman pat
Registered User
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Yes I am beating the deposit rate comfortably..and i must say as I said before there is a sense of excitement/expectation ever Friday brings is as the ad for a certain credit card says is "priceless"
I'm going to withdraw my 33k batch this week not because I'm unhappy with how things are going but because I need the cash to pay a tax return soon which was the plan from the start.
33,000 invested for 14 draws (not 20 as I mistakenly said in a previous post)
Wins 4 x 50 = 200 euro
That works out at an annual rate of 2.25% net
For comparison, the best 3 month fixed term deposit in the best buys thread is the KBC 3 month fixed term with an annual rate of 1.85% gross minus 41% DIRT. I calculate that would have paid about 90 euros interest. Now with dropping interest rates maybe I would have gotten a better rate 3 months ago but not by much.
3 months is a very short time period but on this occasion at least, PBs have done well compared to a deposit account.
I will shortly be buying another batch of PBs to the value of 75k
33,000 invested for 14 draws (not 20 as I mistakenly said in a previous post)
Wins 4 x 50 = 200 euro
That works out at an annual rate of 2.25% net
For comparison, the best 3 month fixed term deposit in the best buys thread is the KBC 3 month fixed term with an annual rate of 1.85% gross minus 41% DIRT. I calculate that would have paid about 90 euros interest. Now with dropping interest rates maybe I would have gotten a better rate 3 months ago but not by much.
3 months is a very short time period but on this occasion at least, PBs have done well compared to a deposit account.
I will shortly be buying another batch of PBs to the value of 75k
postman pat
Registered User
- Messages
- 332
I'm going to withdraw my 33k batch this week not because I'm unhappy with how things are going but because I need the cash to pay a tax return soon which was the plan from the start.
33,000 invested for 14 draws (not 20 as I mistakenly said in a previous post)
Wins 4 x 50 = 200 euro
That works out at an annual rate of 2.25% net
For comparison, the best 3 month fixed term deposit in the best buys thread is the KBC 3 month fixed term with an annual rate of 1.85% gross minus 41% DIRT. I calculate that would have paid about 90 euros interest. Now with dropping interest rates maybe I would have gotten a better rate 3 months ago but not by much.
3 months is a very short time period but on this occasion at least, PBs have done well compared to a deposit account.
I will shortly be buying another batch of PBs to the value of 75k
Ok Ghoul,
Could you let us know on here,how easy/hard it is to cash in your bonds and how long it takes to get the money into you bank account etc.I havent sold any yet so I dont know about this.
anyway thanks in advance
Incorrect, it's not a "month". There are 4 draws most months and 5 in some months. On both my recent purchases I missed 1 draw between handing in my form and draft in the post office and having it entered in a draw.
eg for the first batch
Date of draft: 24th September 2013
Date on PB cert: 30th September 2013
My first draw: 4th October 2013 (won 50 euro)
Missed draw: 27th September 2013
Had I timed my purchase better or bought online I may not have missed a draw at all.
On the way out, based on the PB FAQ I expect to miss 1 draw at most.
So add 2 missed draws to my 14, that reduces my return to 1.97% NET on my 33k - still ahead of what I'd get GROSS from the best currently available deposit account for the same period.
And the longer the term, the less significant the two missed draw would be. 3 months is very short, in fact it's the minimum investment period for PBs.
If you choose the electronic payment option, do you still get a postal notification on each win in the post, i.e. a letter per week if you win that often? I haven't seen an option to be notified by email.
I don't know dub - when I purchased I chose to have them send me a cheque when I win. It is a waste of paper as I get a free post envelope and a PB brochure with every cheque. I'm not even sure what the envelope is for as it goes straight in the bin.
When I get a cheque I just bring it to the PO with my National Solidarity Bond card and buy a SB which handily has a min amount of 50 euros. This will likely result in more paper when those SBs start to mature! So I might revise my approach and go for electronic payments or automatic reinvestment for future PB purchases - particularly if I'm going for larger amounts with the expectation of more wins.
When purchasing SBs using the card the PO will combine cheques but not cheques with other payment methods. So If I have two 50 euro cheques and also want to get a SB for 1500 euro with my debit card, I get two SBs, one for 100, one for 1500.
For clarity, when I mentioned electronic payments in the previous post I was talking about the option on the repayment form for return of capital rather than the option for the prize payment method on the purchase form.
Thanks Ghoul.
Another question popped into my head about the way the Prize Bonds draw is conducted. Having just re-read the Prize Bond FAQ I think I've been making a wrong assumption. Is each bond entered into a separate draw for each individual prize?
There are two (main) ways it could be done. There are over 9,000 x €50 prizes each week. You could have a separate draw for each one. The logistics of this would be no problem since it's computerised. You would draw a winning bond randomly from among all the bonds for the first €50 prize. Then repeat for the second, and so on.
The alternative is that there is a single weekly draw. 9,000+ bonds are drawn randomly from the full set to be the winners for the €50 prizes. The major difference would be that in the first scenario, a single bond could win more than once. (In theory it could win all the prizes in one week, although the odds would be one in some number with over 75,000 zeroes after it). In the second scenario, each bond can only win once per week.
FAQ #7 says: "With Prize Bonds you are eligible to win not just once, but every week for as long as you hold your bonds. Each individual bond is eligible to win one prize in every draw."
That doesn't answer it conclusively, but then #8 suggests that there is a single weekly draw, not 9,000+. Furthermore, the single weekly draw would seem to include not just the €50 prizes, but all the others too.
This will make some sort of difference to the odds. Quite likely it won't be a significant one ... but I need to go back and figure out how you would even mathematically model the second scenario.
Another question popped into my head about the way the Prize Bonds draw is conducted. Having just re-read the Prize Bond FAQ I think I've been making a wrong assumption. Is each bond entered into a separate draw for each individual prize?
There are two (main) ways it could be done. There are over 9,000 x €50 prizes each week. You could have a separate draw for each one. The logistics of this would be no problem since it's computerised. You would draw a winning bond randomly from among all the bonds for the first €50 prize. Then repeat for the second, and so on.
The alternative is that there is a single weekly draw. 9,000+ bonds are drawn randomly from the full set to be the winners for the €50 prizes. The major difference would be that in the first scenario, a single bond could win more than once. (In theory it could win all the prizes in one week, although the odds would be one in some number with over 75,000 zeroes after it). In the second scenario, each bond can only win once per week.
FAQ #7 says: "With Prize Bonds you are eligible to win not just once, but every week for as long as you hold your bonds. Each individual bond is eligible to win one prize in every draw."
That doesn't answer it conclusively, but then #8 suggests that there is a single weekly draw, not 9,000+. Furthermore, the single weekly draw would seem to include not just the €50 prizes, but all the others too.
This will make some sort of difference to the odds. Quite likely it won't be a significant one ... but I need to go back and figure out how you would even mathematically model the second scenario.