Bonus Bonds: a great way to make money - for ANZ, not consumers


I have some clients who have a substantial amount of money in Bonus Bonds. This has caused me to scrutinise the product in more detail.

I don't know whether to be appalled or impressed. As a product for printing money, ANZ has done a terrific job with creating and maintaining the Bonus Bonds product.

This is a successful fund. It has nearly $3.5 billion dollars in assets (source: the product's 2017 Annual Report) - which is equivalent to nearly $1,000 per Kiwi.

The management fee is 1.17% of net assets - over $40 million in revenue for ANZ per year.

Basically, this is a managed investment scheme that invests in very conservative assets: namely, deposits with NZ banks, bonds issued by NZ banks, and securities issued by the NZ Government. 

The clever thing about the scheme is that instead of paying consistent returns to all of its members, it pays returns to members in the form of “prizes”. This makes it "the much more fun investment".

By doing so, it disguises how much the scheme costs and how little, on average, the investors in the scheme earn. 

In short, the fees that ANZ charges members of the Bonus Bonds scheme are almost the same as what its members receive collectively in prizes. According to the 2017 Annual Report, in the 2016-2017 financial year, fees and expenses stood at $45,137,000, compared to prizes of $47,783,000.

According to the scheme’s Product Disclosure Statement (PDS), the value of prizes awarded as a percentage of scheme assets for the 2017 financial year was 1.39%. It has consistently stayed below 2% for the last five years. In short, the scheme collectively returns less than the rate of inflation for its members.

In terms of your chance of winning a prize in any given month, the Bonus Bonds website says, “For most prize draws over the next year, we expect that the chance of any Bonus Bond winning a prize will range between 1 in 20,000 to 1 in 35,000”. According to the 2017 Annual Report, there was a 1 in 25,003 chance of winning a prize in each monthly draw. Furthermore, “The governing document requires us to manage the prize pool so that your chances of winning a prize are no better than 1 in 9,600.” 

The marketing material might suggest that members of this scheme regularly win $1 million. However, the PDS reveals that over each of the past 5 years, the total amount of prizes awarded in the scheme were between $4.109 million and $5.024 million – from total underlying assets of $3 billion. This suggests that little more than a handful of people make significant amounts of money from Bonus Bonds.

Total fees of 1.28% of the net asset value of the scheme in the PDS. This is far more than a fund that invests in these types of assets typically charges.

By contrast, consider the AMP NZ Fixed Interest Fund, which invests in a comparable set of assets, but uses a more "traditional" method for distributing investment benefits (ie, distributing according to how much you have invested, rather than in a "fun" way, like a lottery). (For the record, I am not recommending the AMP fund - I am just using it for comparison purposes.) This fund charges fees of 0.57% of net assets. If ANZ charged this amount of fees on Bonus Bonds, it would receive closer to $20 million than $40 million in fees. This additional money would go back to investors, not the manager.

In short, I think Bonus Bonds is a very clever product - from ANZ's perspective. As a product for consumers, I don't think it's a great deal.

Maybe Bonus Bonds are "fun" investments. But in my view, you're paying a lot for this "fun". Investing is often best when it's boring - save the fun for other parts of your life. 

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.