Premium Bond facts for kids
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A Premium Bond is a special type of savings product from the UK government. It's a bit like a lottery, but you don't lose your money. Instead, the government uses the interest your money would earn to create a big prize fund.
These bonds are issued by National Savings and Investments, a government agency. Each month, your bonds are entered into a prize draw. If you win, the prize is completely tax-free! The best part is, you can always get your original money back whenever you want.
The government adds interest to the prize fund, which was 4.65% per year as of September 2023. Prizes range from £25 up to a huge £1,000,000. The special machine that picks the winning numbers is called ERNIE.
To be in the draw, your bonds must be held for a full calendar month. For example, if you buy bonds in mid-May, they will be ready for the July draw. Bonds bought with prize money are ready for the very next month's draw.
Your bonds stay in the draw every month until you decide to cash them in. As of 2019, one person can own up to £50,000 worth of bonds. The smallest amount you can buy is £25. In September 2023, there were over 121 billion Premium Bonds, each worth £1.
When Premium Bonds started in 1957, the only other similar game in the UK was the football pools. The National Lottery didn't even exist until 1994. Today, over 24 million people in the UK own Premium Bonds. That's more than one in three people!
Contents
History of Premium Bonds
The idea of a "premium bond" has been around for a long time. It meant a bond that didn't pay regular interest but gave you a chance to win prizes in a lottery.
The modern Premium Bonds were started by Harold Macmillan in 1956. He was the Chancellor of the Exchequer, which is like the UK's finance minister. He hoped they would encourage people to save money and help control rising prices.
On November 1, 1956, the first bond was bought by the Lord Mayor of London. The Premium Bonds office was first in St Annes-on-Sea, Lancashire. It later moved to Blackpool in 1978.
Meet ERNIE: The Prize Picker
ERNIE is a special machine that creates random numbers. It stands for Electronic Random Number Indicator Equipment. ERNIE is a hardware random number generator, meaning it uses physical processes to create truly random numbers.
ERNIE 1: The Original
The first ERNIE was built in 1957 by a team led by Sidney Broadhurst. Its designers, Tommy Flowers and Harry Fensom, were inspired by the Colossus computer, one of the world's first digital computers. ERNIE 1 picked numbers using the natural static noise from neon tubes. It was a huge machine, about the size of a van! ERNIE 1 is now on display at the Science Museum, London.
ERNIE's Upgrades Over Time
- ERNIE 2 took over from the first ERNIE in 1972.
- ERNIE 3 arrived in 1988. This version was much smaller, about the size of a personal computer. Even so, it still took five and a half hours to complete its monthly draw.
- ERNIE 4 started working in 2004. It was 500 times faster than the original ERNIE. It could generate a million numbers every hour! ERNIE 4 used tiny electrical noise from transistors to create its random numbers.
- ERNIE 5, the newest model, began in March 2019. This amazing machine uses quantum technology and light to produce random numbers. It's incredibly fast, 21,000 times quicker than the first ERNIE. It can find 3 million winners in just 12 minutes each month!
Winning Prizes
If you win the top £1 million prize, you'll be told in person by "Agent Million." This usually happens the day before the first working day of the month. However, during the COVID-19 pandemic in the United Kingdom, these visits were stopped for a while.
You can check if you've won any prizes on the National Savings & Investment website or their smartphone app. These show winning numbers for the last six months. Older winning numbers can be found in the London Gazette Premium Bonds Unclaimed Prizes Supplement.
Chances of Winning
The odds of winning a prize can change over time. In December 2008, the chances of winning went down because of a big financial crisis. This made some people unhappy, as they won fewer prizes.
- From January 2009, the odds of a £1 bond winning were 36,000 to 1.
- By October 2009, they improved to 24,000 to 1.
- In September 2023, the odds of a £1 bond winning a prize were 21,000 to 1.
If you hold the maximum £50,000 in bonds, you might expect to win about 29 prizes each year. For example, if you hold £500 in bonds for a year, you have about a 25% chance of winning something. If you hold £5,056, your chance of winning something in a year is over 94%!
How Prizes Are Given Out
The total prize fund each month is equal to one month's interest on all eligible bonds. The annual interest rate for the prize fund changes. For example, it was 1.40% in December 2017 and rose to 4.65% from September 2023.
The prizes are split into different groups:
- Higher value prizes (like £1 million, £100,000, £50,000, £25,000, £10,000, £5,000) make up 10% of the prize fund.
- Medium value prizes (£1,000, £500) make up another 10% of the fund.
- Low value prizes (£100, £50, £25) make up the biggest part, 80% of the fund.
Premium Bonds Around the World
Other countries have similar savings schemes that offer prizes instead of regular interest.
- In the Republic of Ireland, they have "Prize Bonds" which started in 1957.
- Sweden has "Premieobligationer," which usually last for five years. If you hold a certain number of bonds, you are guaranteed to win at least once a year.
- Denmark used to have "Premieobligationer" that ran for five or ten years. The prizes were printed on the physical bonds.
- New Zealand had "Bonus Bonds" which started in 1970. However, this scheme closed in 2020 because low interest rates made the prize pool too small.
Images for kids
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An ERNIE money box
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ERNIE 1 on display at the Science Museum, London, 2012
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Similar prize schemes operate in other countries, for instance this Premium Prize Bond certificate from India
