A Premium Bond is a Lottery Bond issued by the government’s National Savings and Investments Agency in the United Kingdom. Premium Bonds has been issued since the mid 1950s.
- When you purchase a Premium Bond, the government guarantees that they will buy back the bond for its original price whenever you want to sell it.
- All eligible Premium Bonds are entered into monthly prize draws. By owning a bond, you have a chance of winning prizes. Each eligible bond has exactly the same chance of being drawn in each monthly draw.
Purchasing Premium Bonds
Premium Bonds can be purchased at any time of the year. A bond needs to be held for a full calender month after the purchase month to be eligible for the prize draw. This means that if you purchase your bond on January 5, it will be eligible for the March prize draw.
Premium Bonds can be purchased by the £10 after the first £100, with a value of £1 per bond and a minimum purchase of 100 bonds. (If you pay by standing order, the minimum purchase is decreased to just 50 bonds).
An individual is not allowed to own more than £40,000 in Premium Bonds.
The Premium Bond Draw
The government pays interest on the bonds. The interest varies somewhat but is usually not that high. In October 2013, it was 1.3%. By August 2014, it was 1.35%.
However, the interested isn’t paid out on each and every Premium Bond. Instead, the interest is placed in a prize fund. From this fund, a monthly drawing distributes tax-free prizes known as premiums among lucky bond owners. If a bond that you own is drawn, you will receive a prize. If none of your bonds are drawn, you will receive no prize or interest.
The machine responsible for carrying out the draw is named ERNIE – Electronic Random Number Indicator Equipment.
Prize fund distribution
Every month, the prize fund is filled with an amount of money that is equal to one month’s worth of interested on all eligible Premium Bonds. The size of the prize fund can therefore vary from one month to the other.
This is how prizes were distributed for the August 2014 Premium Bond draw.
|Prize band||Prize value||Number of prizes|
|Higher value (7% of the prize fund)||£1,000,000||2|
|Medium value (5% of the prize fund)||£1,000||1110|
|Low value (88% of the prize fund)||£100||15,211|
|Total value||£55.5 million||1,898,030|
The date for a monthly prize draw is chosen so it will be possible to notify the winners of the jackpots on the first working day of the new month.
For non-jackpots, you will not be notified, so you need to claim your prize. The online Premium Bond Prize Checker is normally updated on the third or fourth working day of the new month. It shows all winning bond numbers, not just the jackpots. You will find the Premium Bond Prize Checker at the National Savings and Investments (NS&I) site (nsandi.com). It will not only show the results of the most recent draw, but also the results of every draw carried out during the last 6 months.
Winning bond numbers that were drawn over 18 months ago, and where the prize has still not been claimed, are published in the London Gazette Premium Bonds Unclaimed Prizes Supplement.
The UK Premium Bonds were introduced by Prime Minister Harold Macmillan in April 1956. The Premium Bonds were intended to help curb inflation and encourage the British population to save money.
The very first Premium Bond was purchased for £1 by The Lord Mayor of London, Alderman Sir Cuthbert Ackroyd, in a ceremony in front of the Royal Exchange in the City of London on 1 November 1956. The second Premium Bond was bought by the Mayor of Lytham St Anne’s, Councillor William Crook.
The administration of Premium Bonds took place in St-Anne’s-on-the-Sea in Lancashire until the late 1990s when it was moved to larger facilities in Blackpool (also in Lancashire).
Starting in 2005, two £1 million prizes were awarded each month instead of just one. This practise was discontinued in 2009 to accommodate for the sharp 2009 drop in interest rates. In August 2014, the second £1 million prize was reintroduced. As you can see in the table above, two £1 million prizes were awarded in the August 2014 draw.
ERNIE & Premium Bond Draw Security
ERNIE, the Electronic Random Number Indicating Equipment used by the Premium Bonds draw, was anthropomorphised in early bond adverts and still regularly receives post cards and letter from the bond owning British public.
The first ERNIE (ERNIE 1) was built at the Post Office Research Station and unveiled in 1957. This ERNIE generated bond numbers based on signal noise created by a bank of neon tubes. It was as big as a van and could generate 2 000 numbers per hours. ERNIE 1 was retired in 1972 and can now be seen at the Science Museum on Exhibition Road in South Kensington, London.
ERNIE 2 was active from 1972 to 1988, when ERNIE 3 took over. ERNIE 3 was then followed by ERNIE 4 in 2004. ERNIE 4 is 500 times faster than ERNIE 1 and can generate one million premium bond numbers per hour. Any number can be generated, including numbers that does not correspond to any valid Premium Bond number. Once a number has been generated by ERNIE 4, the number is checked against a list of valid Premium Bond numbers to determine if it will be used for the draw or if a new number needs to be generated.
To ensure true randomness, ERNIE 4 relies on thermal noise in transistors as its source of entropy. If ERNIE 4 was to use so called pseudo-random numbers, it would be more vulnerable to fraud since anyone with access to the algorithm used to generate the pseudo-random numbers can find out which numbers will be drawn.
The true randomness of ERNIE 4:s output is tested each month by an actuary appointed by the government. The Premium Bond draw is only valid if ERNIE 4 passes the test.