Shares for children

[kiwico]

Did Bonus Bonds actually give a return? I heard that most of them don't, so your money just got eaten away by inflation.

They used to, there would often be an envelope (remember those?) arriving with a $20 to $100 tax free prize. I likely still have a few but took almost all out a few years back to use for better purposes. I'd perhaps better follow up on my Premium Bonds in the UK too.

[Cricketfan]

Yeah I understand there were prizes, but typically what would the annual return have been? More than a term deposit?

[Scrunch]

Yeah I understand there were prizes, but typically what would the annual return have been? More than a term deposit?

There was a chance when returns on TD's were a lot higher than how (so a lot more RWT would have been paid on the TD alternative). ANZ investing in a mix of TD's and government stock guarantees that expected returns are less than TD's in a low interest rate environment with the extremely high management fee that applied (Stuff quoted 1.28%!!). With higher TD rates of at least 4%, bonus bonds could have had an expected return equal or better than TD's but that would depend on what return ANZ got on the invested monies and therefore the prize fund compared to the TD options available (and of course whether you won prizes).

4% less 33% tax is 2.68%
4% less 1.28% management fees is 2.72%

With TD rates around 1.4% this becomes 1.4% less 33% = 0.94% from TD's. Bonus bonds are 1.4% less 1.28% = 0.12%. Add some government stock at under possibly under 1% into the funding mix and ANZ doesn't have the money to even generate a prize pool after paying its management fee.

[Cricketfan]

(and of course whether you won prizes).

That's kinda the critical bit though - what was the probability of winning prizes each year? Was it such that if you stuck at it long enough, you should win enough to do better than TDs? Or would only a small percentage of people do better, with the majority winning bugger all?