Premium bonds definition
Premium bonds are lottery bonds issued by the UK government. They were launched by then Prime Minister Harold Macmillan in 1956 and proved popular, predating the National Lottery by decades. They have fallen out of favour in recent years due to the National Lottery and as the UK government has focused instead on persuading consumers to save in tax efficient vehicles like ISAs.
Still, at the last count, 22 million people in the UK had around £68 billion invested in premium bonds. A pot of around £66 million is divided up each month as prizes via a lottery system named Ernie (Electronic Random Number Indicator Equipment). There’s a potential prize of up to £1 million each month, although the odds of winning this top prize stand at over 34 billion to 1. Even the odds of winning £25 for every £1 of bonds held stands at 30,000 to 1. Premium bonds are quoted to have an ‘average’ interest rate of 1.15%.