Questions are coming in; folks are weighing up their options and wanting to know what is the best investment vehicle out there to put their Bonus Bonds money in as the ANZ's 50-year-old scheme will be wound up with money returned to bondholders.

The wind-up process begins in October, and ANZ anticipates it could take 12 months or more to complete the wind-up of their Bonus Bonds scheme. Those who choose to stay during the wind-up phase will have their investments locked in during this process. So, if you are a bondholder and you don't wish to cash in your Bonus Bonds before the end of October, you will only get your money back once the wind-up is completed.

Over the past couple of weeks, I have talked to a few folks with substantial amounts in Bonus Bonds, and as the odds of winning $1m worsened over time, they started treating their money in Bonus Bonds as a safety/emergency fund. Now they have to make a decision and with the right advice hopefully one that improves their financial wellness.

But recent stories in the media reveal a certain sentiment amongst bondholders that there might be a big windfall if they wait for wind-up because the reserve fund, which currently is $56m and fluctuates in value, will be distributed to those bondholders who will not cash up before October.

As per the official announcement, ANZ currently has more than $1 of assets for every Bonus Bond issued, and there is a reasonable chance that bondholders might receive slightly more than $1 per bond in the wind-up. In the wind-up process all the remaining assets in the scheme will be turned into cash, expenses of the scheme will be paid (this includes winding up fees if any) and then the rest will be paid to bondholders in proportion to the number of Bonus Bonds they hold.

So let's do the math. The current $56m reserve split between the $3.2 billion bonds on issue as of today will only be 1.7 cents for every Bonus Bond issued, and that is excluding ‘not-so-insignificant’ winding-up costs which are undetermined at this point. Not really a windfall, I would say, more akin to picking up nickels in front of bulldozers.

Also, the opportunity cost for those who stick it out and choose to stay during the wind-up phase is the 1.25% return with an ANZ 12 month term deposit.

The part that deserves more attention from bondholders before making a decision is that although ANZ is not expecting to pay less than $1 per bond, the bank is not dismissing the possibility that the payout could be slightly less than $1 per bond in the wind-up. That means the return of your capital is not 100% guaranteed.

So let's see some other concerns around whether to cash in now or wait for the wind-up.

Credit risk

If you had asked me about the credit risk of banks before COVID, I would have said such risk is very low and only if there is a momentous impact on the economy from a significant event then it is possible.

But as the COVID-19 pandemic continues to affect lives, livelihoods and the economic damages emerge, banking institutions around the world are faced with a new and unfamiliar environment, in which they must evaluate and monitor credit risk with limited visibility and access to reliable data.

In December 2019, the Reserve Bank ordered the big Australian-owned banks ANZ, ASB, BNZ & Westpac to hold $20 billion in the capital to protect depositors’ money if and when there is a financial crisis. But in response to the impact of COVID-19 and to support the credit availability, the Reserve Bank decided to delay the start of the increased capital requirement to 1 July 2021. Should conditions warrant it next year, the Reserve Bank will consider whether to extend the deadline.

Anti-money Laundering (AML) verification

Each year about $1.35 billion from the proceeds of fraud and illegal drugs is laundered through everyday New Zealand businesses. To improve New Zealand's ability to tackle money laundering and terrorism financing, the government is continuously tightening the AML/CFT Act, which has been in force since 2013.

Before the introduction of the AML/CFT Act, in some cases, Bonus Bonds was a convenient place for people to put money as non-tax declared funds, to hide money from WINZ for rest care subsidy assessment. Also, one could put money in a child's name as a means to further bury money.

But a lot has changed since then. As per the governing guidelines for Bonus Bonds scheme published by ANZ Investment Services (New Zealand) Limited and Trustees Executors Limited in November 2016, the bank (ANZ) is required to conduct appropriate customer due diligence (CDD) on any bondholder including identifying and verifying that Bondholder and each beneficial owner of a Bonus Bond; and to comply fully with its obligations under AML/CFT Act.

According to a 2017 report published by the Treasury of New Zealand, the percentage distribution of assets seized by the Asset Recovery Unit by value range shows that 67% of the total Bonus Bond assets seized are of value ≥$10,000.

So, this once beautiful relationship – a way to save tax-free and support a gravy train for ANZ – now needs to end. Of course, there is still a touch of thrill left for someone thinking maybe I could win something big – but it's time to lose the emotion and have a financial plan. As the saying goes, "Better one byrde in hande than ten in the wood."

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz