Winning with Bonus Bonds
Who's winning? What are your odds?
Since Bonus Bonds started in 1970, hundreds of thousands of Kiwis have bought them, or purchased them as gifts for relatives or friends. You might have been given some at some point, possibly only to lose track of them over the years. Though Bonus Bonds were started by the New Zealand government, the management of them was later sold in 1990 to ANZ Bank.
What are Bonus Bonds?
The Bonus Bonds is big business and there has been increasing focus over the years on how much money it makes for the ANZ Bank, who runs it.
People buy Bonus Bonds (with a minimum investment of $20 to buy 20 Bonus Bonds) to have the chance of winning money prizes each month. One Bonus Bond buys one chance of winning. However, with over $3 billion of Bonus Bonds on issue, the chances of winning the $1 million big monthly prize are far less than the statistical chance most of us have of being killed in a road accident.
“Investors” into Bonus Bonds (speculator is probably a more accurate term) only receive a return if they win a monthly draw – i.e., there is no interest. This overall concept is sometimes referred to as prize-linked savings, which is the concept of using the chance to win a prize to incentivise personal savings.
Many people think Bonus Bonds are a savings account, but underneath it’s a conservative investment fund. The management fee on this fund is higher than we’d expect, at 1.23 per cent. Such a fee has even been called “bizarre” by one prominent financial commentator, especially when the funds are all invested in New Zealand cash, bank deposits and government securities. It pays to compare the 1.23 per cent Bonus Bonds fee with the ANZ Default KiwiSaver Scheme Conservative Fund fee, which is just 0.57 per cent and includes a portion of investment assets including Australasian and global equities (shares).
Instead of distributing investment earnings equally based on how many Bonus Bonds people have (comparable to paying an interest rate), they give out prizes, which you most likely won’t win.
Your Bonus Bonds therefore have no natural growth, and in fact depreciate over time thanks to inflation. That is unless you are lucky and win small prizes frequently, or a big one-off prize.
Bonus Bonds - chance to win
Most of the prizes are $20 each but there are some much larger ones with the granddaddy of them all being the $1 million prize.
The Bonus Bond website as at May 2019 states the chance of winning a Bonus Bond prize will range from 1 in 25,000 to 1 in 50,000.
Of course, ANZ, who manages the Bonus Bonds, has a 100% chance of getting 1.23 per cent of all funds “invested” with them each year. As this sum is based on the total value of all Bonus Bonds, over $3 billion worth, 1.23 per cent is a substantial annual sum!
There is an argument that Bonus Bonds are a "fun investment" and there is the prospect of a $1 million win each month. In addition, “investors” get their money back, Lotto gamers don't.
Forgotten Bonus Bonds
The nature of Bonus Bonds is that people usually buy them then hold them for several years hoping to win a prize. In cases where a customer has died and ANZ hasn’t been informed, then ANZ continue to manage the Bonus Bonds on the basis that the estate will benefit from it when it contacts ANZ. That could well be never, due to the law about unclaimed monies not applying to Bonus Bonds. For the Unclaimed Money Act to apply, the funds need to have been unclaimed after maturity. As Bonus Bonds do not have a maturity date, they do not meet the definition of unclaimed money. That means that unclaimed monies just build up in the Bonus Bonds system, which includes forgotten Bonus Bonds.
Of course, if Bonus Bonds haven't been cashed in or transferred to someone else, they've been eligible for tax free cash prizes every month since they were purchased. While statistically unlikely, this could lead to a pleasant surprise for someone with ‘long lost’ Bonus Bonds.
Naturally, the more unclaimed winnings there are, the larger the base for ANZ to charge its fees.
The bottom line
The continued support for Bonus Bonds is highly unusual as they offer no return unless a prize is won, and there is only one $1 million prize per month among such an immense group.
While Bonus Bonds might enjoy a fun factor, it is a stretch to call it an investment when “returns” are just a matter of chance, and the fees are so high. Every year you don't win a prize means inflation is eroding the value of your investment.
Anyone who believes that they may have some forgotten Bonus Bonds should contact ANZ to find them.