What percentage interest rate is paid in prizes on Prize Bonds

Peanuts20 said:
The interest rate on Prize Bonds is 0%. There is a chance you might get a prize but they are, in essence, raffle tickets. Most people never see a return, just an asset with a reducing value year on year due to inflation.
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There is an argument that the really low probability prizes aren't really relevant when working out investment return.

The 2024 number from the table give these results


PrizeCountPaid Out
500000126,000,000.00
50000522,600,000.00
100010401,040,000.00
5001040520,000.00
7547295835,471,850.00
Total45,631,850.00
Funds (1%)4,563,185,000.00

If you invested 100k in prize bonds, then you get (100k)/(4.563 billion) =0.00002191 of the entire fund.

You can fill that into the table (all counts gets multiplied by 0.00002191).


PrizeCountPaid Out
5000000.000263131.5
500000.0011457
10000.022822.8
5000.022811.4
7510.365777.38
Total1000

100k gives 1000 (1%) per year on average, including contributions from the high prizes.

However, in practice you are really unlikely to get a 500k or 50k payout (odds of 0.000263 and 0.00114). Even with a 50 year horizon that is still pretty unlikely.

From an investing viewpoint, this is pure gambling rather than having much hope of getting that return. The 1000 and 500 prizes are also low chance. You get one or other of them every 22 years. Maybe with long term 30-40 investment time-frames you could include those.

In practice, only the 75 prizes are reliable enough to consider for investment return. You should get roughly the expected payout in that case.

This reduce the return from prize bonds from 1% to around 0.777%. That is return that also everyone who has prize bonds actually gets.

The average is still 1%, but that is due to being pushed up by lucky people.

ClubMan said:
Seems a bit confusing...
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Are they saying that it is deterministic? You could work out the numbers for the next year if you knew the rule?

If that is true, then someone who knew the algorithm could buy bonds, see if they win, and then return them if they are losers.
 
LarryScott said:
There is an argument that the really low probability prizes aren't really relevant when working out investment return.
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Good analysis.
I attach my updated spreadsheet for calculating the probability distribution of the annual return for a given "investment" in Prize Bonds. As to PBs being akin to a raffle ticket there are two key differences (1) expected return is positive not negative (2) the chances of loss are zero (both points ignoring inflation of course).
Equities also have an unpredictable outcome but again, unlike raffle tickets, analysts' consensus is to expect a positive return in the statistical sense. Unlike PBs though, you have a fair chance of getting a negative return.
But I agree that currently PBs are a very poor investment, though investment nonetheless. It wasn't always so which is why the banks were not at all happy. PBs in the UK are calibrated from time to time to pay (on expectation) the current Gilt yield and since they are tax free a UK citizen (such as live 100 miles up the road) should max out on their PBs.
Perhaps it is more appropriate to compare with deposit interest foregone. If after tax deposit rates are higher than 1% (0/77%?) then one could argue that PBs are akin to raffle tickets with the interest foregone.
 

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Just wondering from the above post is it unwise to invest 15,000 euros in Prize Bonds. I have looked at PTSB who offer 2% on their fixed term deposits which equates to 200 euros after DIRT. Wondering if you managed to win 3 by 75 euros prizes in Prize Bonds in the year, it would be better and you would have option of cashing in after 3 months in case you needed funds
 
Haille said:
I have looked at PTSB who offer 2% on their fixed term deposits which equates to 200 euros after DIRT.
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There are better deposit rates on offer.

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Haille said:
Wondering if you managed to win 3 by 75 euros prizes in Prize Bonds in the year, it would be better
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And you might well win nothing. I think that somebody estimated the "average" return earlier.
 
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Haille said:
Just wondering from the above post is it unwise to invest 15,000 euros in Prize Bonds.
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If the return is your sole criteria when deciding between Prize Bonds and PTSB Fixed Term at 2% over say 12 months, then your likely return is as follows:

PTSB - €300 before DIRT, €201 after DIRT - so you know in advance exactly what you are going to get

Prize Bonds **
0 x €75 - zero return - 21%
1 x €75 - 33%
2 x €75 - 25.4%
3 x €75 - 13.0%
4 x @75 or greater - 7.1%

So you have approx 20% chance of doing better by putting your money into Prize Bonds rather than the fixed term PTSB A/C (after DIRT). Or 80% chance of being worse off.

One other consideration is that Prize Bonds can be cashed in anytime after the first 3 months subject to 7+ days notice and State Savings general inefficiency, whereas with the PTSB option your money is not available to you for the duration (12 months)

For what it's worth I have two €15k batches in my Prize Bonds portfolio. One purchased in Dec 2024 which won €75 in Aug 2025, the other purchased in May 2021 which won €50 in December 2022 and €75 in April 2025.

** This is based on the current Prize Bond fund, the current prize fund, the current prize structure and the current notional rate of 1%
 
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