Premium Bonds#ERNIE
{{Short description|UK lottery bond}}
{{Use British English|date=August 2016}}
{{Use dmy dates|date=November 2020}}
{{More citations needed|date=January 2008}}
File:Money box shaped like ERNIE the Computer (Science Museum, London).jpg
Premium Bonds is a lottery bond scheme organised by the United Kingdom government since 1956. At present it is managed by the government's National Savings and Investments agency.
The principle behind Premium Bonds is that rather than the stake being gambled, as in a usual lottery, it is the interest on the bonds that is distributed by a lottery. 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) from which a monthly lottery distributes tax-free prizes to bondholders whose numbers are selected randomly. The machine that generates the numbers is called ERNIE, an acronym for "Electronic Random Number Indicator Equipment".{{cite web |url = http://www.nsandi.com/ernie|title = Meet ERNIE|access-date = 27 July 2015|publisher = National Savings and Investments}} Prizes range from £25 to £1,000,000 and (since December 2024) the odds of a £1 bond winning a prize in a given month are 22,000 to 1.{{cite web |title=Interest Rates |date=3 August 2020 |url=https://www.nsandi.com/interest-rates |access-date=24 February 2023|publisher=National Savings and Investments}}
Investors can buy bonds at any time but they must be held for a whole calendar month before they qualify for a prize. As an example, a bond purchased mid-May must then be held throughout June before being eligible for the draw in July (and onwards). Bonds purchased by reinvestment of prizes are immediately eligible for the following month's draw.
Numbers are entered in the draw each month, with an equal chance of winning, until the bond is cashed. As of 2015, each person may own bonds up to £50,000.{{Cite web |date=1 June 2015 |title=Premium Bonds investment limit rises |url=https://www.bbc.com/news/business-32958779 |access-date=4 November 2021 |website=BBC News}} Since 1 February 2019, the minimum purchase amount for Premium Bonds has been £25. {{As of|2025|January}} there are over 128.7{{Nbsp}}billion eligible Premium Bonds, each having a value of £1.{{Cite web |date=1 April 2023 |title=How many premium bonds are there? |url=https://moneymarvel.co.uk/articles/how-many-premium-bonds-are-there/ |access-date=28 August 2023|website=Money Marvel}}
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,{{Cite web |last=Hughes |first=David |date=2022-10-04 |title=The winning Premium Bonds numbers for October 2022, and how to check if you have won |url=https://inews.co.uk/news/consumer/premium-bonds-winners-october-2022-winning-ns-and-i-checker-have-won-1890431 |access-date=2022-10-06 |website=inews.co.uk |language=en}} equivalent to more than 1 in 3 of the UK population.
History
The term "premium bond" has been used in the English language since at least the late 18th century,Journal of the Royal Statistical Society 52 316 (1889) to mean a bond that earns no interest but is eligible for entry into a lottery.
The modern iteration of Premium Bonds were introduced by Harold Macmillan, as Chancellor of the Exchequer, in his Budget of 17 April 1956,{{cite book|title=Macmillan 1894–1956, volume I |page=383|first=Alistair |last=Horne |author-link=Alistair Horne |isbn=0-333-27691-4 |publisher=Macmillan |location=London|year=1989}} to control inflation and encourage people to save.{{cite web |url=http://www.nsandi.com/press-room/premiumbonds50/history_pb.jsp |title=The History of Premium Bonds |access-date=7 April 2009 |url-status=dead |archive-url=https://web.archive.org/web/20081204082245/http://www.nsandi.com/press-room/premiumbonds50/history_pb.jsp |archive-date=4 December 2008}} On 1 November 1956, in front of the Royal Exchange in the City of London, the Lord Mayor of London, Alderman Sir Cuthbert Ackroyd, bought the first bond from the Postmaster General, Dr Charles Hill, for £1. Councillor William Crook, the mayor of Lytham St Anne's, bought the second. The Premium Bonds office was in St Annes-on-Sea, Lancashire, until it moved to Blackpool in 1978.{{cite web|url=http://nsandi.com/press-room/premiumbonds50/history_pb.jsp |title=The history of Premium Bonds |access-date=7 April 2009 |publisher=NS&I |url-status=unfit |archive-url=https://web.archive.org/web/20100102114755/http://nsandi.com/press-room/premiumbonds50/history_pb.jsp |archive-date=2 January 2010 }}
| class="wikitable"
|+ Maximum Holding | |
| Date | Amount |
|---|---|
| 01-11-1956 | £500 |
| 01-08-60 | £800 |
| 21-04-64 | £1000 |
| 14-04-67 | £1250 |
| 01-04-71 | £2000 |
| 11-09-78 | £3000 |
| 21-04-80 | £10,000 |
| 03-04-93 | £20,000 |
| 12-05-2003 | £30,000 |
| 01-06-14 | £40,000 |
| 01-06-15 | £50,000 |
Winning
Winners of the jackpot are told on the first working day of the month, although the actual date of the draw varies. The online prize finder{{cite web|url=http://www.nsandi.com/savings-premium-bonds-have-i-won |title=Premium Bonds prize checker |publisher=National Savings and Investments |access-date=28 March 2011}} is updated by the third or fourth working day of the month. Winners of the top £1m prize are told in person of their win by "Agent Million", an NS&I employee, usually on the day before the first working day of the month.{{Cite web|url=https://www.nsandi.com/help/manage-your-savings/premium-bonds-prizes|title=Your Premium Bonds prizes|date=3 August 2020|website=Nsandi.com|access-date=4 November 2021}} However, in-person visits were suspended, starting in May 2020, during the COVID-19 pandemic in the United Kingdom.{{Cite web|url=https://www.express.co.uk/finance/personalfinance/1281082/premium-bonds-nsi-agent-million-check-winnings|title=Premium bonds: Jackpot winners will no longer be visited by 'Agent Million' – what to do|first=Connor|last=Coombe-Whitlock|date=12 May 2020|website=Express.co.uk|access-date=4 November 2021}}
Bond holders can check whether they have won any prizes on the National Savings & Investment Premium Bond Prize Checker website, or the smartphone app, which provides lists of winning bond numbers for the past six months.{{cite web | title = Premium Bond Prize Checker|website=Nsandi.com | url = http://www.nsandi.com/savings-premium-bonds-have-i-won | access-date = 10 April 2012 }} Older winning numbers (more than 18 months old) can also be checked in the London Gazette Premium Bonds Unclaimed Prizes Supplement.{{cite web | title = London Gazette Unclaimed Prizes supplement | url = http://www.london-gazette.co.uk/issues/exact=Premium+Bonds+Unclaimed+Prizes;sort=newest/start=1|website=London-gazette.co.uk | access-date = 10 April 2012 }}
=Odds of winning=
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.{{cite news|url=https://www.telegraph.co.uk/finance/personalfinance/savings/3569665/Premium-bonds-worthless-as-savers-see-their-chances-of-prizes-fall-drastically.html |title=Savings |newspaper=The Telegraph|date= 5 December 2008|access-date=14 January 2010 | location=London | first1=Myra | last1=Butterworth | first2=Harry | last2=Wallop}}{{cite news|url=https://www.theguardian.com/money/2008/dec/06/premium-bond-prizes |title=Now bond prizes are at a premium | Money |newspaper=The Guardian |date= 6 December 2008|access-date=14 January 2010 | location=London | first=Rupert | last=Jones}} Investors with smaller, although significant, amounts would possibly win nothing.
From 1 January 2009 the odds of winning a prize for each £1 of bond was 36,000 to 1. In October 2009, the odds returned to 24,000 to 1 with the prize fund interest rate increase.{{cite news|url=http://news.bbc.co.uk/1/hi/business/8258318.stm|title=Higher payouts from Premium Bonds|date=16 September 2009|work=BBC News|access-date=14 January 2010}} The odds reached 26,000 to 1 by October 2013 and then reverted to 24,500 to 1 in November 2017.{{Cite web |date=3 August 2020 |title=Interest rates |url=https://www.nsandi.com/interest-rates |access-date=4 November 2021 |website=Nsandi.com}}
{{As of|2024|December}}, the odds of winning are 1/22,000;{{cite web|url=http://www.nsandi.com/savings-premium-bonds|title=NS&I Premium Bonds|website=Nsandi.com|date=3 August 2020 |access-date=14 February 2021}} resulting in the expected number of prizes for the maximum £50,000 worth of bonds being 27 per year.
=Prize fund distribution=
The prize fund is equal to one month's interest on all bonds eligible for the draw. The annual interest is set by NS&I and was 1.40% {{As of|2017|12|lc=on}}, reducing to 1.00% {{As of|2020|12|lc=on}}. This was increased to 2.2%, {{As of|2022|10|lc=on}} then increased again to 3% {{As of|2023|01|lc=on}} and is now at 3.8% from April 2025.{{cite web|url= https://nsandi-corporate.com/news-research/news/nsi-increases-interest-rates-0 |title=NS&I increases interest rates |date=25 October 2022 |publisher=Nsandi.com |access-date=25 October 2022}} The following table lists the distribution of prizes on offer in the January 2025 draw.{{cite web|url=https://www.nsandi.com/prize-checker?tab=prize-draw-details&panel=tab2 |title=NS&I Premium Bond prize draw details |publisher=Nsandi.com |access-date=3 December 2017}}
| class="wikitable"
! Prize band ! Prize value ! width=110pt|Estimated number of prizes each month ! width=130pt|Odds of winning exactly this amount with a £1 bond ! width=130pt|Odds of winning at least this amount with a £1 bond |
| rowspan="6" | Higher value 10% of the prize fund | £1,000,000 |style="text-align:right"| 2 | 1 in 64.36 billion | 1 in 64.36 billion |
| £100,000
|style="text-align:right"| 82 | 1 in 1.57 billion | 1 in 1.53 billion |
| £50,000
|style="text-align:right"| 163 | 1 in 789,737,809 | 1 in 521,163,007 |
| £25,000
|style="text-align:right"| 328 | 1 in 392,461,168 | 1 in 223,873,500 |
| £10,000
|style="text-align:right"| 818 | 1 in 157,368,293 | 1 in 92,410,095 |
| £5,000
|style="text-align:right"| 1,636 | 1 in 78,684,147 | 1 in 42,498,271 |
| rowspan="2" | Medium value 10% of the prize fund | £1,000 |style="text-align:right"| 17,163 | 1 in 7,500,278 | 1 in 6,375,162 |
| £500
|style="text-align:right"| 51,489 | 1 in 2,500,093 | 1 in 1,795,835 |
| rowspan="3" | Low value 80% of the prize fund | £100 |style="text-align:right"| 1,987,844 | 1 in 64,757 | 1 in 62,503 |
| £50
|style="text-align:right"| 1,987,844 | 1 in 64,758 | 1 in 31,805 |
| £25
|style="text-align:right"| 1,803,871 | 1 in 71,364 | 1 in 22,000 |
| Total value (January 2025) | £429,090,875 |style="text-align:right"| 5,851,240 |
Economic analysis
While the mean return is 3.8% as of April 2025, the median return is lower. For an investor with the maximum £50,000 invested, the median return is 3.3% (£1,650). For investors with lower amounts invested, the median return is lower. The typical investor with £1,250 or less invested will receive nothing in a year.{{cite web |last1=Lewis |first1=Martin |last2=Saxon |first2=Helen |title=Premium Bonds: Are they worth it? |url=https://www.moneysavingexpert.com/savings/premium-bonds/ |website=MoneySavingExpert |access-date=30 May 2025 |date=1 July 2024}}
Premium Bonds are tax free, so are more attractive to higher rate taxpayers.
==ERNIE==
File:ERNIE1 2012.JPG, 2012|alt=]]
ERNIE – an acronym for "Electronic Random Number Indicator Equipment" – is the name for a series of hardware random number generators developed for this application. There have been five models of ERNIE to date. All of them have generated true random numbers derived from random statistical fluctuations in a variety of physical processes.
The first ERNIE was built at the Post Office Research Station by a team led by Sidney Broadhurst. The designers were Tommy Flowers{{cite news|url=https://www.bbc.co.uk/insideout/northwest/series6/premium_bonds.shtml |title=BBC Inside Out – Premium Bonds |publisher=BBC |access-date=14 January 2010}} and Harry Fensom and it derives from Colossus, one of the world's first digital computers.{{cite book|url=https://books.google.com/books?id=NNgzd0xujzsC&q=ernie&pg=PR13 |title=Colossus: the secrets of Bletchley ... – Google Books |date= 23 February 2006|publisher=OUP Oxford |access-date=14 January 2010|isbn=9780192840554 }}{{Cite web|title = First ERNIE computer picked for Science Museum|url = https://www.theguardian.com/technology/blog/2008/jun/13/firsterniecomputerpickedfo|website = The Guardian|access-date = 27 July 2015|first = Jack|last = Schofield|date = 13 June 2008}} It was introduced in 1957, with the first draw on 1 June, and generated bond numbers from the signal noise created by neon gas discharge tubes. ERNIE 1 is in the collections of the Science Museum in London and was on display between 2008 and 2015.
ERNIE 2 replaced the first ERNIE in 1972.
ERNIE 3 in 1988 was the size of a personal computer; at the end of its life it took five and a half hours to complete its monthly draw.
In August 2004, ERNIE 4 was brought into service in anticipation of an increase in prizes each month from September 2004. 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. By comparison, the original ERNIE generated 2,000 numbers an hour and was the size of a van.
ERNIE 4 used thermal noise in transistors as its source of randomness to generate true random numbers. 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. At the end of its life it was moved to Bletchley Park's National Museum of Computing.
ERNIE 5, the latest model, was brought into service in March 2019, and is a quantum random number generator built by ID Quantique. It uses quantum technology to produce random numbers through light, replacing the former 'thermal noise' method. Running at speeds 21,000 times faster than the first ERNIE, it can produce 3 million winners in just 12 minutes each month.{{cite news |last1=Collinson |first1=Patrick |title=Premium bond Ernie takes quantum leap into fifth generation |url=https://www.theguardian.com/money/2019/mar/01/premium-bond-ernie-takes-quantum-leap-into-fifth-generation |access-date=1 March 2019 |work=The Guardian|date=1 March 2019}}
=In popular culture=
ERNIE, anthropomorphised in early advertising, receives Valentine cards, Christmas cards and letters from the public. It is the subject of the song "E.R.N.I.E." by Madness, from the 1980 album Absolutely. It is also referenced by Jethro Tull in their album Thick as a Brick.
In other countries
File:India 1964 Premium Prize Bond certificate.jpg
Premium Bonds under various names exist or have existed in various countries. Similar programmes to UK Premium Bonds include:
- In the Republic of Ireland, Prize Bonds have been running since early 1957.
- In Sweden, Premieobligationer (lit. Premium bonds) usually run for five years and are traded on Nasdaq OMX Stockholm. The unit (one Bond) is generally 1000 SEK or 5000 SEK. Holders of 10 or 50 consecutive bonds starting at 1 + N * 10 or 50 are guaranteed one win per year.{{cite web|url=https://www.riksgalden.se/en/savings/Premieobligationer/ |title=Swedish premium bonds, English summary |publisher=Swedish Government |access-date=12 September 2013}} Outstanding bonds {{As of|2013|September|lc=y}} were around 28.9 billion SEK.{{cite web|url=https://www.riksgalden.se/sv/spara/Premieobligationer/Fakta-villkor/ |title=List of outstanding Swedish Premium bond series |publisher=Swedish Government |access-date=12 September 2013}}
- In Denmark, Præmieobligation (lit. Premium bonds) usually ran for five or 10 years with a fixed prize list printed on the physical bonds. They were physical bearer bonds and most series were extended one or more times by another 5 or 10 years. The last series have now ended and must be redeemed for their principal cash within 10 years of the final ending dates.{{cite web |url=http://www.statens-adm.dk/da/Laan-tilskud-og-stoette/Praemieobligationer/Indloesning-af-praemieobligationer |title=Redeeming of Premium Bonds (in Danish) |publisher=Danish Government |date=19 November 2012 |access-date=12 September 2013 |url-status=dead |archive-url=https://web.archive.org/web/20131004214207/http://www.statens-adm.dk/da/Laan-tilskud-og-stoette/Praemieobligationer/Indloesning-af-praemieobligationer |archive-date=4 October 2013}} The bonds were generally identified by their colour, for instance the blue premium bonds were issued in 1948, and were redeemed in 1998 (10 years + 4 10-year extension).{{cite web|url=https://www.retsinformation.dk/Forms/R0710.aspx?id=5118 | title=Proclamation on renewal of two State Premium Bond Loans |publisher=Danish Minister of Finance|date=18 December 1987 |access-date=12 September 2013}} The first 200 DKK of each prize was tax free, the rest taxed at only 15% (compared to 30% or more for ordinary income).{{cite web|url=https://www.retsinformation.dk/Forms/R0710.aspx?id=5117 | title=Law authorizing the issue of domestic state loans| publisher=Queen of Denmark and Danish Parliament|date=28 March 1984|access-date=12 September 2013}}
- In New Zealand, "Bonus Bonds" were established by the NZ Government in 1970 and sold to ANZ Bank in 1990.{{cite web |url=https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12121259 |title=Brian Gaynor: Who are the real Bonus Bonds winners? |website=The New Zealand Herald |date=8 September 2018}} In August 2020 it was announced that the scheme would close due to low interest rates reducing the prize pool. At the time of the announcement there were 1.2m bondholders with NZD $3.2 billion invested.{{cite web |url=https://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=12364031 |title=Kiwis withdraw $766 million from ANZ's Bonus Bond scheme |website=The New Zealand Herald |date=4 October 2020}}
Academic studies
In 2008, two financial economists, Lobe and Hoelzl, analysed the main driving factors for the immense marketing success of Premium Bonds. One in three Britons invest in Premium Bonds. The thrill of gambling is significantly boosted by enhancing the skewness of the prize distribution. However, using data collected over the past fifty years, they found that the bond bears relatively low risk compared to many other investments.{{cite journal|ssrn=992794 |title=SSRN-Why are British Premium Bonds so Successful? The Effect of Saving With a Thrill by Sebastian Lobe, Alexander Hölzl |publisher=Papers.ssrn.com |date=19 March 2008 }}
Aaron Brown discusses in a 2006 book Premium Bonds in comparison with equity-linked, commodity-linked and other "added risk" bonds.Aaron Brown, The Poker Face of Wall Street, John Wiley & Sons, 2006. 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.
See also
- Prize-linked savings accounts are savings accounts which use a similar system to grant interest
References
{{Reflist}}
External links
- [http://www.nsandi.com/ National Savings & Investments website]
- [http://news.bbc.co.uk/1/hi/business/2779179.stm Are Premium Bonds worth it?] – BBC News, 2006
- [https://www.theguardian.com/money/2006/nov/01/bonds.saving Q&A: Premium Bonds] – The Guardian, 2006
Category:Companies based in Blackpool
Category:Companies based in Glasgow
Category:Government bonds issued by the United Kingdom
Category:Public finance of the United Kingdom
Category:Lotteries in the United Kingdom