Premium bond

Premium bonds are savings bonds sold to retail savers by NS&I, a UK government-owned financial institution originally founded in 1861 as the Post Office Savings Bank. Proceeds from the sale of premium bonds go to the UK government. Premium bonds are a hybrid of a savings product and a lottery. They come with a nominal 1% interest but this interest is not paid out. Instead, nominal interest goes into a fund that pays out around three million tax-free cash prizes each month to premium bond holders (around one third of the UK population). Each month NS&I creates two new millionaires. Unlike a traditional lottery, holders keep ownership of their bonds and are re-entered into each month’s prize draw. The winning prize numbers are selected by Electronic Random Number Indicator Equipment (ERNIE). Alternatively, premium bonds are corporate bonds trading above their par value.