Premium bond

Glossary

Banking

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.

logo-animationlogo-animationlogo-animation

Related terms