Prize bonds - if the government defaults

maps and atlas

If the state defaults, what would happen prize bonds?

How safe are they actually?

RoadKillTs

If the state defaults,

Thats a huge if. The state is not going to default.

what would happen prize bonds?

Even if the state did default they would still owe the debt so more than likely you would not be able to cash in the bond until the country was back making money and able to repay its debts / bonds.

How safe are they actually?

Very safe imo and a good idea as well with the way interest rates are at presently.

maps and atlas

RoadKillTs wrote: »

Even if the state did default they would still owe the debt so more than likely you would not be able to cash in the bond until the country was back making money and able to repay its debts / bonds.

Thanks RoadKillTs.

They're too risky in the current climate so.

Comordha

The fear is palpable, citizens questioning Prize Bonds!

Amik

I contacted the PB people about the default issue and got the reply below. Should I cash in ASAP?

Prize Bonds are an integral part of the wider range of NTMA State Savings(tm) products offered to retail customers by the National Treasury Management Agency ( NTMA). When you put your money into any NTMA State Savings(tm) product you are placing your money directly with the Irish Government. All NTMA State Savings(tm) money is under the management of the NTMA. The repayment of all NTMA State Savings(tm) money is a direct, unconditional obligation of the Government.

arrowloopboy

Comordha wrote: »

The fear is palpable, citizens questioning Prize Bonds!

Irish Government Bonds are safer than prize bonds :eek:.

coylemj

arrowloopboy wrote: »

Irish Government Bonds are safer than prize bonds :eek:.

Hello!

Prize Bonds are Government Bonds, that's why they're called BONDS.

They are both part of the National Debt.

arrowloopboy

coylemj wrote: »

Hello!

Prize Bonds are Government Bonds, that's why they're called BONDS.

They are both part of the National Debt.

Hello:rolleyes:,

They are two different products,most people that have a few quid in prize bonds,don't link them to government bonds.

Isoaxe

As it happens, I made a phone call to the NTMA a number of months ago to investigate the seniority of prize bonds. I was told that they are on an equal footing with Irish government publicly-traded debt and the so-called 'solidarity bonds'.

@ Roadkill, An eventual restructuring of Irish debt is a distinct possibility. And in such an event, the bondholders do not get all of their money back. They would take a haircut on their debts.

I personally think that prize bonds constitute a very poor choice of investment. They are at the same risk level as the national debt. So your principal is as secure as government bonds, but you gamble your interest payments and will most likely earn a negative real return (that is, the median bondholder receives a payout below the rate of inflation). Contrast this to a 10% coupon on the national debt.

Black Rock

Prize Bonds are part of the "sovereign debt" / "Government debt".

In line the normal practice in the sovereign debt markets Ireland has never issued any debt with either a preferred status or a subordinated status relative to any other debt it has issued, i.e. all debt issued by Ireland ranks pari passu and enjoys identical status.

Therefore Prize Bonds rank equally with the full range of personal savings products offered by the NTMA which are known as “NTMA State Savings” products (which include Prize Bonds) and with all other "wholesale" Irish Government Bonds.

The NTMA's website ( www.StateSavings.ie) has a brochure on the home page which explains everything and lists all the "NTMA State Savings" products which include Prize Bonds, Savings Bonds, Savings Certificates, Instalment Savings, Deposit Accounts (such as the Ordinary Deposit Account and the Deposit Account Plus) and National Solidarity Bonds.

Black Rock

When comparing the “wholesale / institutional” Irish Government Bonds to the range NTMA State Savings™ products there are some matters of taxation and early encashment that you need to consider.

(a) Taxation
In the case of “wholesale / institutional” Irish Government Bonds there are differences in tax treatment and stock broker fees which will affect the net return on investment. The wholesale Irish Government Bonds are currently taxed at the marginal tax rate (20% or 41%), are subject to the universal social charge and may also be subject to PRSI. At the time of purchase or redemption, broker fees may apply.

The retail / personal products known as “NTMA State Savings” products provide personal savers with some products which have low tax rates and other which are tax free. There are no fees, charges or sales commissions.

(b) Early Encashment
There is a difference in the provision for early encashment.

With the personal “NTMA State Savings” products the saver may request their money back from the NTMA at any time (with 7 days notice) and the full principal amount plus any interest due will be repaid without penalty or deduction. The amount repaid will never be less than the original amount deposited. (However, Prize Bonds cannot be encashed until 3 months after purchase).

In respect of the “wholesale / institutional” Government Bonds there is no provision for early repayment by the NTMA. Accordingly, a holder of such bonds who wishes to liquidate their investment so as to obtain their funds before the redemption date can only do so by selling the bonds on the secondary market through the brokers listed at http://www.ntma.ie/Publications/2009/WhereBuyBonds.pdf

The amount they will obtain in the secondary market depends on the prevailing market price of the bond on the day of the sale – wholesale bond prices fluctuate daily.

If the bond holder sells the bond on a day that the sale price is less than the price at which he originally purchased the bond he will receive back less money than he originally paid for the bond. Of course if prices have increased since he purchased the bond he will be able to sell the bond for more money than he had originally paid.

Isoaxe

An earlier discussion on the topic is available here.