Sunday, February 05, 2006By David Clerkin
The Prize Bond scheme, which was originally set up as a cheap way for the government to raise money, now costs more than conventional borrowing on the open market.
The Prize Bond Company, a joint venture between Kerry-based payments group Fexco and An Post, said last week that it paid out €12.5 million in prizes last year. Chairman Michael O’Keeffe said monthly prizes passed the €1 million mark for the first time.
But the National Treasury Management Agency, which manages state finances and has overall responsibility for the scheme, also paid an estimated €5.5 million in contract fees to Fexco and An Post for their services.
The €18 million total annual running cost is the equivalent of an interest payment of more than 3.3 per cent on the €535 million average balance held in Prize Bonds last year – more than 1 per cent over the base interest rate of 2.25 per cent.
The British government uses an equivalent scheme, Premium Bonds, to source funds at a discount to market lending rates. Its payout rate for prizes is 1.5 per cent less than the base interest rate in Britain.
The British scheme has raised more than stg£26 billion (€38 billion), but has forced buyers to spend at least stg£100 (€146) on their holdings, cutting out heavy costs associated with managing small holdings.
Irish Prize Bond buyers face a lower minimum spend of just €25.
