A Premium Bond is a bond issued by the United
Kingdom government's National Savings and Investments
scheme. The government promises to buy back the bond, on request, for its original price.
The government pays interest on the bond but, instead of the interest being paid into individual accounts, it is paid into a
prize fund from which a monthly lottery distributes tax-free prizes, or premiums, to selected bond-holders whose numbers
come up. The machine that generates random numbers for the lottery is called ERNIE, which stands for Electronic Random
Number Indicator Equipment. There are many different prizes ranging from £50 to the top prize of £1,000,000, of which there
have been two per month since the summer of 2005 (and one per month prior to that).
The prize draw is conducted so that the winners of the 2 jackpots can be notified on the first working day of the month
although the actual date of the draw varies for administrative reasons. The online prize finder is updated by the
3rd or 4th working day of the month.
Currently, the odds of winning a prize for each bond number held is 24,000 to 1. Around 23 million people own Premium Bonds,
over one third of the UK's population. Each person may own up to £30,000 in Premium Bonds. Bonds are currently sold in multiples
of 10, with a value of £1 per bond and a minimum purchase of 100 bonds. When they were first introduced in 1957 they were
incredibly popular — perhaps because the only other similar games of chance available to the general public were the
football pools; the National
Lottery did not exist in the UK until 1994. In Ireland, a similar investment
scheme called Prize Bond also originated in early 1957.
The Premium Bonds operated from a site in Lytham St Annes from its inception for over
40 years, later moving to new buildings in Blackpool.
ERNIE
ERNIE is a hardware random number generator. The first ERNIE was
built at the Post Office Research Station by a team lead by Sidney Broadhurst. The designer was Tommy Flowers[1]. It was
unveiled in 1957, generating its bond numbers based on the signal
noise created by a bank of neon tubes.
ERNIE 2 replaced the first ERNIE in 1972.
ERNIE 3 was introduced in 1988 and 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 the number of prizes to be allocated each
month from September 2004. ERNIE 4 was developed by LogicaCMG,
is 500 times as fast as the original ERNIE and generates a million premium bond numbers an hour; these are then checked against a
list of valid bonds to determine the winning bonds before any prizes are awarded. By comparison, the original ERNIE could
generate only 2000 numbers an hour and was the size of a van.
ERNIE 4 uses thermal noise in transistors as its source of entropy for generating random bond
numbers; the original ERNIE used a gas neon diode. In each case the randomness of electrons and natural unpredictable variance of
the physical processes involved mean that systematic trends and similar cumulative effects that affect any pseudorandom number generator are reduced greatly, if not eliminated. ERNIE's output is
independently tested each month by an independent actuary appointed by the government and the
draw is only valid if the output passes tests that indicate it is statistically random.
ERNIE apparently regularly receives cards and letters from the general public.
Prize Fund Distribution
The size of the prize fund on offer is equal to one month's interest on all bonds eligible for the draw. The annual rate of
interest is set by NS&I and, at present (1 Aug 2007), is 4.0%. The following table lists the distribution of prizes on
offer in the September 2007 draw. [2]
| Prize Band |
Prize Value |
Estimated Number of Prizes |
| Higher Value |
£1,000,000 |
2 |
| 15% of the Prize Fund |
£100,000 |
30 |
|
£50,000 |
59 |
|
£25,000 |
118 |
|
£10,000 |
297 |
|
£5,000 |
539 |
| Medium Value |
£1,000 |
6,735 |
| 15% of the Prize Fund |
£500 |
20,205 |
| Low Value |
£100 |
122,573 |
| 70% of the Prize Fund |
£50 |
1,326,279 |
| Total estimated value |
£112.2 million |
1,476,891 |
Premium Bond Odds
According to the Sunday Times[1], Premium Bond Probability Calculator[2] on MoneySavingExpert.com shows the
odds of winning premium bonds to be as follows
Save £100 over a year and the chance of winning anything is only one-in-20.
Save £1,000 over a year and 57% of people still win nothing.
Save £10,000 over a year and you've only an 18% chance of winning £500 or more
Other meanings
A "premium bond" is also a generic term for any bond selling for more than 100% of par value, i.e., at a price greater than
100.00, which typically occurs for high coupon bonds in a falling interest rate climate.
Cultural reference
The Premium Bond and ERNIE are mentioned in Jethro Tull's song Thick as a Brick:
- In the clear white circles of morning wonder, I take my place with the lord of the hills. And the blue-eyed soldiers stand
slightly discoloured (in neat little rows) sporting canvas frills. With their jock-straps pinching, they slouch to attention,
while queueing for sarnies at the office canteen. Saying — how's your granny and / good old Ernie: he coughed up a tenner on a
premium bond win.
Also the popular 80s band Madness wrote the song E.R.N.I.E. which is on
Absolutely, their second album.
In a scene in the sitcom Hancock's Half
Hour, Tony Hancock composes a letter to 'Dear Ernie' asking why his bond numbers
still 'have not been included in the winning list'.
A scene in the sitcom Some Mothers Do
'Ave 'Em saw Frank Spencer refer to his mother regularly sending 'Ernie' a Christmas card, in the hope that she would
be favoured in the draw.
References
- ^ Premium
Bonds even winners lose out. Retrieved on 2007-07-22.
- ^ Premium Bond Calculator. Retrieved on 2007-07-30.
External links
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
