Although the chance of winning a big prize is slim, our love affair with Bonus Bonds continues. But is the scheme giving Kiwis with a fair deal? Jehan Casinader reports.

When Ewen McNeill was born in 1973, his parents bought him $10 worth of Bonus Bonds.

Last month, he found the paperwork in a filing cabinet, where it had sat for 35 years. McNeill went to ANZ to claim his newfound wealth. His winnings? Nothing.

"It's a bit sad that it sat there for all those years," he says.

"It didn't win anything, and it didn't earn interest. I suspect lots of people have inherited Bonus Bonds, or maybe they bought them some years ago, and haven't done anything with them. Some people probably don't even realise they own them, let alone that they can cash them in."

Bonus Bonds are a cross between a savings scheme and a lottery. Investors put their money in a fund which does not pay any interest, in the hope of winning a cash prize.

Each month, a lottery doles out 200,000 prizes to some of the one million New Zealanders who own Bonus Bonds.

The more bonds you have, the more chances you have to win. You won't lose your money, because you can cash in your bonds at any time. But if you're not lucky enough to win a prize, your investment won't grow.

ANZ gave McNeill his $10. He calculated the money had lost 90 per cent of its purchasing power since the 1970s. Back then, it would have been equivalent to $100 in today's terms.

McNeill wasn't surprised he hadn't won. In the future, he says he will put his savings in the bank, "because at least you know you'll get a return".

The Bonus Bonds' website depicts a pot of gold at the end of a rainbow. In reality, the mathematical odds of winning a big prize aren't rosy. For each Bonus Bond, your chance of winning the monthly $1 million prize is one in 2.6 billion.

In fact, if you own $6 worth of Bonus Bonds, your chance of winning the $1 million prize is 11 times worse than your chance of winning first division Lotto using a $6 ticket.

You're more likely to win a smaller cash prize, ranging from $20 to $50,000, but the odds are never greater than one in 9660. Even so, the popularity of Bonus Bonds is increasing, says the manager of the programme, ANZ's Shaun Rees.

"With finance company failures and the global financial crisis, we've seen a lot of people come and look at Bonus Bonds as something they want to consider investing in," he says.

"It's been around for a long time and hasn't let people down in the past."

Investment advisor Rodney Hartles reckons Kiwis invest in Bonus Bonds because it's a "no-brainer". Unlike shares, you don't need to keep an eye on it. But he describes Bonus Bonds as a "vanilla investment". It's safe, but there's no guarantee of a return. As an alternative, he encourages people to invest in a low-risk diversified portfolio.

"But one of my clients, who is quite well-to-do, has invested $300,000 in Bonus Bonds," says Hartles. "During the volatile times, he says 'Well, at least it's still there, and it makes my trips to the letterbox a bit more fun'. Kiwis like to have a flutter. But Bonus Bonds attracts people who don't like making decisions about their money."

ANZ has invested the Bonus Bonds funds in low-risk assets. The programme has a AAA credit rating, but it's not protected by the government's guarantee scheme. If ANZ's assets take a hit, the Government won't bail out Bonus Bonds' investors.

Rees points out Bonus Bonds prizes are tax-paid, whereas interest earned in bank accounts is subject to more tax.

The Bonus Bonds fund generated a net return of 4.2 per cent last year. But the Bonus Bonds prize pool varies from month to month.

In the past year, the average monthly prize pool was $7million, which gave bondholders an average return of 3.25 per cent. That return is much lower than term deposit rates offered by banks.

ANZ takes 1.3 per cent of the value of the Bonus Bonds fund as a "manager's fee". Consumer New Zealand chief executive Sue Chetwin says the fee is high compared to similar funds, and the fee reduces the size of the Bonus Bonds prize pool.

Investment advisor Chris Lee says 1.3 per cent is an "extremely high" fee for a fund of this kind, because cash funds usually incur lower costs than property or capital asset funds. But ANZ says Bonus Bonds incurs higher marketing and administration costs than other managed funds.

Rees says the bank is standing by its 1.3 per cent fee.

Bonus Bonds was created in 1970 to encourage New Zealanders to save money.

In recent years, the saving environment has changed, with the addition of the Super Fund and KiwiSaver. But the lottery element is still attractive to many people. This year, on Bonus Bonds' 40th anniversary, an online buying system will be introduced.

"The Bonus Bonds brand is iconic," says Rees. "It's a unique offering in the savings space, and appeals to the psyche of a lot of New Zealanders."