Premium Bonds
The bonds are entered in a monthly prize draw and the government promises to buy them back, on request, for their original price.
The government pays interest into the bond fund (4.15% per annum in December 2024 but decreasing to 4% in January 2025)[1] from which a monthly lottery distributes tax-free prizes to bondholders whose numbers are selected randomly.
[5] When introduced to the wider public in 1957, the only other similar game available in the UK was the football pools, with the National Lottery not coming into existence until 1994.
Although many avenues of lotteries and other forms of gambling are now available to British adults, Premium Bonds are held by more than 24 million people,[6] equivalent to more than 1 in 3 of the UK population.
The modern iteration of Premium Bonds were introduced by Harold Macmillan, as Chancellor of the Exchequer, in his Budget of 17 April 1956,[8] to control inflation and encourage people to save.
[14] Older winning numbers (more than 18 months old) can also be checked in the London Gazette Premium Bonds Unclaimed Prizes Supplement.
[15] In December 2008, NS&I reduced the interest rate (and therefore the odds of winning) due to the drop in the Bank of England base rate during the Great Recession, leading to criticism from members of Parliament, financial experts and holders of bonds; many claimed Premium Bonds were now "worthless", and somebody with £30,000 invested and "average luck" would win only 10 prizes a year compared to 15 the previous year.
[19] As of December 2024[update], the odds of winning are 1/22,000;[20] resulting in the expected number of prizes for the maximum £50,000 worth of bonds being 27 per year.
[24][25] It was introduced in 1957,[2] with the first draw on 1 June, and generated bond numbers from the signal noise created by neon gas discharge tubes.
[2] Developed by LogicaCMG, it was 500 times faster than the original and generated a million numbers an hour; these were checked against a list of valid bonds.
ERNIE's output was independently tested each month by the Government Actuary's Department, the draw being valid only if it was certified to be statistically consistent with randomness.
ERNIE 5, the latest model, was brought into service in March 2019, and is a quantum random number generator built by ID Quantique.
[34] In 2008, two financial economists, Lobe and Hoelzl, analysed the main driving factors for the immense marketing success of Premium Bonds.
[36] His conclusion is that it makes little difference, either to a retail investor or from a theoretical finance perspective, whether the added risk comes from a random number generator or from fluctuations in financial markets.
