Prize bond fund soars as savers turn to draw amid falling rates

Some € 130 million flowed into prize bonds in the six months to June 30th 2015. This pushed the value of the state-run fund up to a new high of €2.3 billion, as savers increasingly turned to the draw to boost their returns amid plummeting deposit rates. However, a low interest environment means the available prize fund has also diminished.

New figures from the National Treasury Management Agency, which runs State Savings, show that as of the end of June, some € 2.3 billion was invested in about 371 million individual prize bonds. This compares with €2.06 billion in about 329 million individual bonds at the end of June 2014, an increase of 11.7 per cent and 12.8 per cent respectively.

Since 2011, the amount which has moved into prize bonds has soared by 64 per cent to almost €1 billion. This coincides with a deterioration in the deposit environment, as banks moved away from efforts to shore up their balance sheets by paying over the odds for deposits.

Lower rates

Banks now offer rates more in line with the historically low

European Central Bank

rate of 0.05 per cent, with most Irish savers finding it difficult to earn a return of more than 1.5 per cent on lump sums.

However, returns offered by prize bonds are also declining, despite the growth in fund assets.

The annual prize fund is determined as a percentage rate of the entire fund, but this also moves in line with general market interest rates. Last November, the rate was cut to 1.25 per cent, down from 1.6 per cent as of January 2014, and is now significantly lower than in the period from 2007 to December 2012 when it reached 3 per cent a year.

The lower interest rate means that as of June 2015, the prize fund stood at about €29 million a year, which would be distributed in about 392,000 individual prizes. In 2012, some €46 million was paid out in 438,682 prizes.

Peer-to-peer lending is also growing in popularity and LinkedFinance, which allows consumers to lend to small- and medium-sized businesses for a typical return of about 8 per cent, recently said it expects consumers to lend as much as €15 million through its portal this year.