Prize Bonds are looking attractive alternatives to deposits

joe sod

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You would be better off just buying government bonds than these , the 10year irish government bond yield isnow 2.6% and this is likely to go alot higher as interest rates keep rising
 

ClubMan

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You would be better off just buying government bonds than these , the 10year irish government bond yield isnow 2.6% and this is likely to go alot higher as interest rates keep rising
But, unless you buy a new issue (something that's probably not an option for a retail investor?), won't such expectations/projections be already factored into the market price for a bond so there's no free lunch here?
 
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jpd

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If you buy a Government Bond on the secondary market, the interest you earn is built-in at the time of purchase assuming you hold the bond until maturity.

So future rises in the interest rate will not increase the interest you earn at all and, if you have to sell the bond before maturity, you will probably make a capitial loss as the price will be below what you paid to buy it
 

joe sod

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1,768
If you buy a Government Bond on the secondary market, the interest you earn is built-in at the time of purchase assuming you hold the bond until maturity.

So future rises in the interest rate will not increase the interest you earn at all and, if you have to sell the bond before maturity, you will probably make a capitial loss as the price will be below what you paid to buy it
yes but its still a hell of a lot better than a prize bond, if you only buy a relatively short dated one not greater than 10 years, you dont have to worry about bond price fluctuations you just hold it to maturity, Yes interest rates will probably continue to rise so just gradually invest the money to take advantage of falling bond prices, I'm just introducing government bonds to point out what a lousy deal prize bonds are
 

peemac

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You would be better off just buying government bonds than these , the 10year irish government bond yield isnow 2.6% and this is likely to go alot higher as interest rates keep rising
Prize Bond prizes will increase in the next few months as the prize fund is based on interest rates
 

Marc

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Two year Irish government bonds are currently yielding 1.952% assuming a marginal tax rate of 52% that’s 0.94%pa net of tax.

By contrast the prize bond fund is currently paying 0.35% but you won’t earn that rate unless you have a very large holding for an infinite period. So assume less than this in practice.

But the real issue is that inflation is currently running at or near 9%pa and interest rates are increasing around the world.

interest rates peaked in about 1990 and have been broadly falling ever since. That’s 30 odd years since we have had to deal with a period of rising interest rates and high inflation.

Some thoughts

Think of your mortgage like a bank account with a negative interest rate. As rates increase your mortgage gets more expensive.

Many people have stretched their borrowings to the max based on the affordability of previously zero interest rates.

So, even a small increase in mortgage rates will impact many households already stretched financially and even more so given higher energy costs.

Don’t think you can beat the bank. If you have cash lying around in deposit accounts or state savings think about knocking some off the debt. But try and keep your mortgage payment the same.

That will accelerate the debt repayment.

Equally don’t be persuaded to invest in a unit linked insurance bond and keep your mortgage or other debt.

The tax is 41% of the profit and it’s therefore highly unlikely that you would ever profit from this.

Bond markets move inversely to interest rates so while we now see, for example, many US corporate bonds now paying yields of more than 4% in order to get there the price of bonds has fallen sharply this year.

Deposit rates should creep up slightly but don’t expect miracles. A one year fixed deposit is typically only paying 0.05% currently.

Look out for new issues of state savings certificates at higher interest rates than currently available. Again don’t expect miracles but we should see new certificates coming out at higher rates in the future.

Annuity rates for pensions have shot up this year from albeit historically low levels. We are monitoring this market extremely closely.
 
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