Goodbye Bonus Bonds

After fifty years, the great New Zealand institution of the Bonus Bond is finishing for good.

The appeal of these is that it’s almost like buying a lottery ticket, where you may win the big one, but if you don’t, you get to keep your stake money. It’s a win-win in theory, but as in all facets of life, if it sounds to good to be true, it probably is. In reality, the odds for Bonus Bonds favour the bank (ANZ to be exact).

According to ANZ in 2019, the average chance of winning was one in 32,294. Perhaps of more concern to bondholders is the fact that the total prizes awarded in aggregate represented a mere 1.34% of the total assets of the scheme.

That’s not great odds by anyone’s standards.

So What Happens Now?

As things stand, if you hold Bonus Bonds then you have two choices.

With the wind-up process beginning in October, you have the rest of this month to get your money out now. The second option is to wait for the wind-up to be completed. While this could be a bit of a risk (having to wait for the wind-up to complete; not getting back the full dollar value of your investment) there is a reserve fund (currently valued at $56 million) that will be distributed to those Bonus Bond holders who go through the winding up process.

Ultimately, each person's situation is different and as such, we cannot say what the best course of action is for you with 100% certainty. As a general rule of thumb however, if you do not need the money in the short-term, we would typically recommend holding through the wind-up process.

The more people that encash their Bonus Bonds before October, the more each person that held throughout will receive at the end.

And what about the future…

Whatever decision you make with your Bonus Bonds, eventually it is likely that you will have some capital to spend as you wish.

As Authorised Financial Advisors, we recommend reinvesting it properly if possible. This is where seeking advice from a qualified investment advisor comes into play.

There’s plenty of options out there to choose from. Ultimately, it’s about using the funds wisely, and in a way that works for you and your lifestyle.