Prize Bonds: Savvy Saving or a Risky Bet?

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What are Irish Prize Bonds and How Do They Work?

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In short Irish Prize Bonds are a savings product Instead of accruing regular interest, the funds invested in Prize Bonds purchase entries into weekly prize draws.

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Prize Bonds can be bought online via StateSavings.ie, by phone, or by post. Each bond is priced at €6.25. The minimum purchase is four bonds for €25. Draws are held weekly, featuring thousands of prizes. The vast majority of these are €75. In the last weekly draw of every month, there is a draw for a top prize of €500,000.

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If you want to know more about how Prize Bonds work and how to buy them, check our guides:

Prize Bonds Explained

How to Buy Prize Bonds in Ireland

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Lumpy or Consistent Returns?

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If consistent and more predictable returns are a priority, a standard savings account might be more suitable.

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When choosing Prize Bonds, it's important to understand that prize notifications are not a frequent occurrence for most holders, the prizes are, by nature, spread out. The total prize fund is currently equivalent to an annual rate of 1% (as of October 2023 – this rate can change, so check the official State Savings website for the latest info). 

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This 1% is the total value of prizes awarded annually, relative to the total value of Prize Bonds eligible for draws. For every €100 held in Prize Bonds, €1 per year contributes to the prize fund.

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Because the prize structure is heavily weighted towards a few large prizes and many smaller ones (€75 being the most common), most people will earn a return far below this 1%. The system is designed to generate substantial jackpots by pooling the forgone interest of all participants.

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For a detailed breakdown of your chances of winning with Irish Prize Bonds, check out our article: What Are Your Real Chances of Winning Irish Prize Bonds?

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Introducing Qache: A Different Approach to Prize-Linked Savings

Qache offers an alternative model for prize-linked savings. Our prize system does not offer fixed prizes but instead is directly tied to your individual balance. This means:

• More Frequent Prize Opportunities: Qache prizes can range from 0.1% up to 100% of your own balance. This means every week, there's a chance to double your savings. 
• High Probability of Winning Something: Over a year, it is very likely you will win at least a small prize, boosting your balance.
• A Tangible Chance to Double Your Money: Annually, Qache members have approximately a 1-in-3,200 chance of doubling their account balance.

Equitable Winning Chances: Because prizes are multiples of an individual's balance, every Qache user has the same probability of winning each specific prize category weekly, irrespective of their total savings amount.

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Tax-Free! So What?

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The tax-free nature of Prize Bond winnings is a significant feature. DIRT (Deposit Interest Retention Tax) in Ireland is currently 33%, reducing the interest earned in regular bank deposit accounts by this amount.

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But how can we assess the value of this? It would be nice to compare like with like when looking at the interest rates we get from traditional savings accounts. We need to calculate the taxable interest rate that is equivalent to the tax free interest rate

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To make a fair comparison with standard savings accounts, we need to determine the equivalent interest rate before DIRT that would yield 1% (prize bonds effective rate) after DIRT. In other words, what is the taxable interest rate that is equivalent to the tax free interest rate?

• Interest Pre-DIRT = Interest Post-DIRT / (1 - DIRT rate)
• Interest Pre-DIRT = 1.0% / (1 - 0.33) = 1.0% / 0.67 = 1.49% (approx.)

When comparing Prize Bonds to taxable deposit accounts, they can be viewed as having a tax-equivalent interest rate of around 1.49%. This positions them favorably against on-demand accounts.

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There is a 90 day holding period before you can withdraw your money. This means the real comparison is against the Fixed Term savings accounts offered by AIB, BoI etc. which have longer terms (6 months) than Prize Bonds.

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How Much Interest Would You Really Miss Out On?

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Prize Bonds can be thought of as lottery tickets that you are always entered into. Your ticket never loses its validity. And to enter this lottery you’re paying with the interest you might have otherwise earned. So given that you’re paying with your forgone interest, how much are you paying.

The trade-off you make is impacted by how much you want to save with Prize Bonds. Let’s take two extremes as examples.

Scenario 1: Saving €1,000

• Standard Bank Account: Placing €1,000 into a 12-month fixed-term account offering, for example, 2.00% AER:
  
  • Interest earned: €20
  • DIRT paid (33%): €6.60
  • Net interest received: €13.40
• Prize Bonds: With €1,000 in Prize Bonds (160 bonds at €6.25 each), you have 160 chances each week. The likelihood of a significant win over a year is low. Winning a €75 prize is a possibility (just under 10%), and definitely not guaranteed.
• Qache: With €1,000 in Qache, you have weekly opportunities to win prizes from €1 (0.1% of balance) up to €1,000 (100% of balance). While not guaranteed, the prospect of winning is designed to be more frequent. Qache's prize system aims for an average effective AER of 3% (variable).

For a sum like €1,000, forgoing a guaranteed €13.40 in bank interest for the chance of a €75 Prize Bond win, or potentially more frequent smaller wins with Qache, might be seen by some as a reasonable trade-off for the element of chance.

Scenario 2: Saving €100,000

• Standard Bank Account: €100,000 in a 12-month fixed-term account at 2.00% AER:
  
  • Interest earned: €2,000
  • DIRT paid (33%): €660
  • Net interest received: €1,340
• Prize Bonds: This means forgoing €1,340 in certain, post-tax interest. While you'd have significantly more entries in Prize Bond draws, the odds for major prizes remain long. The few smaller prizes (€75) you’re sure to accumulate are unlikely to match this guaranteed bank interest.
• Qache: With €100,000, weekly prize potential ranges from €100 (0.1%) up to winning another €100,000.

With larger sums, the guaranteed interest forgone becomes more substantial. Nevertheless, the remote possibility of a major jackpot (€500,000) with Prize Bonds, or the more frequent, potentially substantial wins with Qache, may still appeal to some savers.

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Ease of Access & Holding Periods: Prize Bonds vs. Qache

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The ability to access your funds quickly is a key consideration for many.

• Irish Prize Bonds:
  
  • Initial Holding Period: Prize Bonds must be held for a minimum of 90 days (approximately 3 months) from the purchase date before they are eligible for prize draws or can be cashed in.
  • Withdrawal Notice (after holding period): After the initial 90 days, you can request repayment. This process usually takes 7-10 working days from the time the request is processed. Applications can be made online or by post.
• Qache:
  
  • Initial Holding Period: A significantly shorter 7 days.
  • Withdrawal Notice: 0 days (Instant). Funds can be withdrawn instantly from within the Qache app after the initial 7-day holding period.

Here’s a direct comparison:

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For savers who prioritise swift and straightforward access to their funds, Qache presents a more flexible option than Irish Prize Bonds.

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UK Premium Bonds currently have a higher prize fund rate and quicker access post-initial holding compared to Irish Prize Bonds. Qache offers a competitive AER and very rapid access.

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Note: The UK Premium Bond prize fund rate is set by NS&I and can change. Qache's effective AER is based on average prize payouts and is also variable.

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Who Should Consider Prize Bonds (Who Might Prefer Qache)?

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Determining if Irish Prize Bonds are a suitable option depends on individual financial goals and preferences.

Irish Prize Bonds might be considered if:

• You appreciate the excitement of a lottery but insist on keeping your principal
• You have a modest sum you're comfortable allocating to a very long-shot chance of a major win, where the forgone bank interest is not a primary concern.
• You have already maximized other tax-efficient savings and investment opportunities.
• You value the comprehensive Irish government guarantee for sums up to €250,000.

However, Qache could be a more suitable choice if:

• You want a higher chance of winning prizes regularly, adding an element of consistent excitement to your savings.
• You value faster access to your money without extended notice periods. Our 7-day holding period and instant withdrawals offer significant convenience.
• You are attracted to a system where your prize potential is linked to your own balance, ensuring fair winning chances, including the weekly opportunity to double your money.
• You are open to an innovative, app-based savings platform aiming to provide a competitive return (currently an effective 3% AER).
• You find traditional low-interest savings accounts uninspiring and seek more engaging financial products.

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Conclusion: Weighing Your Options

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Irish Prize Bonds provide a unique, state-backed, tax-free method for saving, incorporating an element of lottery-style prize draws. They can be a source of mild entertainment, and for certain individuals—particularly higher-rate taxpayers or those with very large sums requiring absolute security—they might form a small part of a broader savings strategy.

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The trade-off, however, includes a low effective interest rate, infrequent winnings for most participants, and relatively slow access to funds.

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For those seeking a more dynamic and potentially more frequently rewarding prize-linked savings option, Qache presents a strong alternative. Our model of frequent, balance-based prizes, a tangible chance to double your money weekly, an 3% AER (variable), and unmatched instant access after just 7 days, is designed to make your savings journey more engaging and potentially more profitable.

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Considering how your savings could perform differently? Explore Qache to discover a new approach to saving, winning, and growing your funds. Visit www.qache.io to learn more.

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