Premium Bond

A Premium Bond is a lottery bond issued by the United Kingdom government's National Savings and Investments agency. The bonds are entered in a regular prize draw and the government promises to buy them back, on request, for their original price. The bonds were introduced by Harold Macmillan in his 1956 budget.

The government pays interest on the bond (pegged at 1.5% in July 2010). But instead of the interest being paid into individual accounts, it is paid into a prize fund from which a monthly lottery distributes tax-free prizes, or premiums, to those bond-holders whose numbers are selected randomly. The machine that generates random numbers for the lottery is called ERNIE, for Electronic Random Number Indicator Equipment. There are many different prizes ranging from £25 to the top prize of £1,000,000 (between 2005 and 2009, there were two £1m prizes each month and the minimum prize was £50, but prizes were reduced after the large 2009 drop in interest rates). Investors can purchase bonds at any time; bonds need to be held for a full calendar month after the month in which they are bought, e.g. purchase in January, eligible for March. Numbers are entered each month, with an equal chance of winning any prize, until the bond is cashed in.

The prize draw is conducted so that the winners of the jackpot can be notified on the first working day of the month, although the actual date of the draw varies for administrative reasons. The online prize finder is updated by the third or fourth working day of the month.

From 1 January 2009 the odds of winning a prize for each bond number held was 36,000 to 1. In October 2009, the odds returned to 24,000 to 1 with the prize fund interest rate increase. Around 23 million people own Premium Bonds, over one third of the UK population. Each person may own up to £30,000 in Premium Bonds. Bonds can now be purchased by the £10 after the first £100, with a value of £1 per bond and a minimum purchase of 100 bonds (or 50 bonds when paying by standing order). When they were first introduced in 1957 they were very popular — perhaps because the only other similar games of chance available to the general public were the football pools; the National Lottery did not exist until 1994. In Ireland, a similar investment scheme called Prize Bond also originated in early 1957.