Bonus Bonds - the money or the bag?

If you have been around for a while like me, you will remember Selwyn Toogood, Teneke Bouchier and 'the money or the bag'?  Its in the Bag was a much watched game show in the 1970's in NZ.  After answering questions correctly, contestants got to choose 'the money or the bag'.  They knew how much the money was, but choosing the 'bag' was a lottery.  It could be a 'booby prize' - like a clothes peg, or something amazing and worth far more than the 'money'.

In a  way, this game show is a little bit like Bonus Bonds.  Although Its in the bag was on the radio since the 1950's - it hit our TV screens in the 1970's - about the same time as Bonus Bonds were created (launched in 1970.)

We are often surprised how many people own Bonus Bonds, they seem to be something that is purchased and forgotten about until a prize arrives.  We got a surprise the other day to 'win' $20 from some Bonus Bonds  that we had no idea we had.

However, it is important to understand that Bonus Bonds are actually an INVESTMENT, and they are run as an investment (and a profitable one for the provider - now ANZ Bank.)

How do Bonus Bonds work?

With Bonus Bonds, your bonds are put into a draw each month, and you have the opportunity to win $1 million each month.  The minimum Bonus Bonds you can hold is $20 worth, and each bond costs $1 and has one chance each month to win the money. There are a lot of smaller prizes that you can receive as well (150,000 prizes each month).

You can cash your Bonus Bonds in at any time and they never expire.

But, you don't earn any return on your investment (so if you have $1,000 worth of bonds, you get no interest payment, any 'prize' you receive is your interest payment.)

The prizes are tax free.

How do the Bonus Bonds work for ANZ?

Bonus Bonds are actually held as a unit trust.  So ANZ gets its management fees from the Unit Trust.  They also set the 'return' in prizes on the Bonus Bonds dependent on what interest rate returns are.

The $3.22 BILLION currently invested in Bonus Bonds has delivered ANZ 1.28% in fees and expenses in the last year.  Yes, that is around $41.2 million in Fees and expenses.

The money is invested in conservative assets (term deposits, bonds, cash).

What kind of return does ANZ pay on the Bonus Bonds in prizes?

This changes with interest rates.  As interest rates go down, so do the returns.  The article below in Stuff states that $59 million was paid in prizes last year - yes a little more than ANZ received in fees and expenses.   this equates to 1.83% return.

But - if you don't get any prize, you don't get any return on your money.


While Bonus Bonds can be fun, unless you are an extremely 'lucky' person, it is highly unlikely that you will receive a return of more than 1.83%pa.  It is likely that on average you may earn less.  If you have Bonus Bonds, make sure that you track the return you are getting, so that you know how this compares to a straight term deposit.

We recommend that Bonus Bonds make up an extremely small part of your overall investment portfolio.

For more information - here is a recent article on stuff: 

More bonds, less bonus
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