​Bonus Bonds are an investment, and the interest or return you receive comes down to luck, as it does with any lottery. You can invest or withdraw without penalty, and each bonus bond is worth $1. A bonus bond will not increase or decrease in value, so if you invest $1,000 you buy 1,000 bonds, and will receive $1,000 when you withdraw your investment. Each $1 bond has the same chance of winning a prize. As it is a lottery, the more bonds you hold, the higher chance you have of winning. It’s important to know that a bond has the same chance of winning in another draw if it has already won, so a winning bond is still relevant for future prize draws.

What you need to know:

• Minimum investment $20
• Anyone individual of any age can buy a bond.
• Prizes are paid in cash into your bank account, or you can choose to have bonus bonds issued for the value of your prize, i.e. $50 = 50 bonus bonds, which then increases your odds of winning for the next draw.

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​Bonus Bonds is run by ANZ via their “ANZ Investment Services (New Zealand) Limited” company, and it’s heavily regulated by the government. The government determines the return on investment by setting the maximum odds of winning. Bonus Bonds are mandated to invest your money into cash deposits, and currently invests all its funds in deposits with New Zealand registered banks (50%), bonds issued by New Zealand registered banks (45%) and New Zealand Government debt (5%). Together, this represents a risk-free investment – your money sits with banks and the government.
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​The exact number of prizes award each month does vary; here is November 2017’s distribution which is typical of an ordinary month.

The table makes one thing clear – the odds are not great. With a $1000 investment, you’re looking at a 1 in 3.4 million chance every month of winning a prize above $5,000. 99.996% of bonus bonds return $0 to their owners.
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​Bonus Bonds pays all tax on the prizes (the interest), which means whatever you win won’t be treated as income. For bond holders who pay tax, that gives some advantage to the investment. However, despite the overall return on investment being 1.5%, those with average luck won’t win cash prizes anywhere near that rate.
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The median prize is $0, which accounts for 99.96% of all bonds. The median cash win is $20, which accounts for 98% of all cash prizes awarded. So, almost every bond wins nothing or at best, next to nothing, with their investment . For every lucky bond that wins $1m, there are 3.4 billion bonds that win nothing.
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ESTIMATED CASH PRIZES WON OVER ONE YEAR WITH AVERAGE LUCK

Assumptions:
(1) Chance of winning: 1 in 25,003 per draw (source: Bonus Bonds November 2017 disclosure)
(2) Annual chance of winning: 1 in 2084 (i.e. 25,003/12)
(3) As 98% of prizes distributed every year are for $20, we’ve made the assumption that an investor with average luck will only win $20 prizes rather than $1m or other cash prizes.
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• The only way to increase your chances of winning is buying more bonds – the more you hold, the lower the odds.
• Despite rumours and urban myths, newer or older bonds have equal chance of winning in a monthly cash draw. Each bond has the same chance, irrespective of when it was purchased.
• And, a Bonus Bond is only eligible to be included in the monthly prize draw after you have owned it for at least one calendar month. For example, if you buy a Bonus Bond in March, that Bonus Bond won’t be in the monthly prize draw in April, but it will be in any monthly prize draws from the first day of May onwards. This means that your investment sits earning nothing for up to two months.

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The marketing talks about the wonderful things “Bonus Bonds $1 MILLION winners” do, and the impulse is to invest to “win” big. Yet the cash prizes are merely the interest paid on everyone’s investment. We all know a friend which says “I win with my Bonus Bonds quite often”.

But if they’ve got $10,000 invested and “win” $75 in a year, the same investment in a bank would “win” $300, and that “win” is guaranteed. Despite this, everyone loves to win things, so there is a strong psychological pull towards keeping money in Bonus Bonds even if the return is relatively poor.
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Consumer prices in New Zealand increased 1.9% year-on-year in the third quarter of 2017, meaning general goods and services cost 1.9% more today than they did this time last year. Bonus Bonds, unlike a term investment, don’t pay a guaranteed amount of interest. This means that as inflation increases, your money loses value in real terms. What you could buy for $1,000 last year would cost a lot more next year. Most saving and term investments beat inflation levels, but Bonus Bonds do not.
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If Inflation averages 2.5% over 10 years (since 2000 inflation has averaged around 2.7 percent in New Zealand), in the most simplest terms your investment will be worth 25% less if you don’t receive any interest on the principal.

For example, if you invest $1,000 in Bonus Bonds for 10 years and don’t win anything, you’ve lost in real terms $250. This can add up the more you invest, eating away at the value of your savings.
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Bonus Bonds compete with other low risk investments such as term deposits and cash saving offers. It’s easy to compare the overall rate of return of Bonus Bonds to other savings. Firstly, the Bonus Bonds cash prize fund rate is currently 1.4% (although this can change at any time, for better or worse to bond holders). Compare this to:

• Top easy-access cash (anytime access): 2.10% with Rabo Premium Saver
• ​Top six month term deposit: 3.35% with Rabobank
• Top 12 month term investment: 3.50% with Kiwibank
• Top five-year term deposit: 4.25% with Rabobank

Our table below presents the estimated “return” on Bonus Bonds for differing investment amounts – we know that Bonus Bonds prizes are awarded in set amounts ($20, $50 etc) so we’ve used some assumptions in our calculation to see how it compares in real terms with the best savings and deposit rates available.

HOW BONUS BONDS COMPARE TO CASH SAVINGS (UPDATED FEBRUARY 2018)

​Assumptions
(1) For all cash deposits listed, we’ve used an effective tax rate of 10.5% to calculate the return
(2) Given there are fewer than 80 prizes above $500 awarded every month, we’ve excluded these as a standard bondholder has an almost certain chance of not winning a top prize. In doing so, we calculate an after tax return of 0.89%
*(3) An investor with “average luck” is estimated to win less the stated amounts as the odds of winning a prize are 1 in 25,003 per draw. Furthermore, the nature of Bonus Bonds and the specific prize distributions  made (i.e. $20, $50, $5,000) means you cannot win the amounts calculated.