50 years of Premium Bonds /
The history of Premium Bonds
Premium Bonds and ERNIE have enjoyed an illustrious and colourful past and have played an important part in Britain's social and financial history.
Read all about it in A short history of Premium Bonds, a full colour PDF file. This document is approximately 3.5Mb. Estimated download (56k modem): 15 minutes. Estimated download (512k broadband): 1 minute.
Also, the last 50 years are explored here in this detailed history. Click on the headings below to go straight to your area of interest.
1st June 2007 is the fiftieth anniverary of Premium Bond draws. On 1 November 2006 Premium Bonds were 50 years old. The winning Bond numbers are still selected each month by ERNIE (Electronic Random Number Indicator Equipment) who is now in his fourth incarnation. The ethos behind Premium Bonds also remains the same - launched in 1956 with the tagline ’savings with a thrill’ - and it has always been about encouraging people to save for their future.
Half a century since they first went on sale Premium Bonds have a place in the savings portfolios of 23 million people - almost 40% of the population of the UK. Together, they own over 36 billion Bonds and over 154 million prizes worth a total of £9.8 billion have been presented to lucky winners. The draw for June 2007 will see 1.4 million prizes awarded worth over £116 million.
In the past five years more Bonds have been sold than in the previous 45 years and the number of monthly prizes has doubled.
In the last year, 1 million Premium Bonds were bought an hour, 17,000 per minute.
Premium Bonds have gone through four phases.
Phase 1: Initial launch period (1956-1961)
The initial launch in the 1950s received a huge wave of coverage and attention which continued into the early 60s. Celebrities posed with ERNIE and draws were televised. By 1961, 13 million people had invested £309 million.
Phase 2: Gradual growth (1961-1993)
Interest in Premium Bonds grew more gradually during this period. By the end of 1993, 23 million people held £3 billion
Phase 3: Jackpot era (1994-2001)
National Savings and Investments (NS&I) launched a £1 million top prize in April 1994 and the spotlight turned again to Premium Bonds. In addition, more emphasis was placed on the ‘savings’ element rather than being seen as a lottery. This can be seen by the rise in the average holding from £38 in 1966 to £736 in 2001, perhaps helped by the introduction of automatic prize reinvestment in 1995. By 2001, the number of Premium Bond holders fell to 22.9 million but the amount invested had reached £17 billion.
Phase 4: Renaissance (2002 to 2007)
NS&I took Premium Bonds into the 21st century and developed it into one of the most popular savings schemes today by making them easier to buy (telephone, internet and through standing order), increasing the amount that could be invested (£30,000) and introducing an extra jackpot prize. In addition, because of stock market fluctuations and the relatively low rate of interest available on mainstream savings accounts, investors have been looking for a safe home for some of their money. By June 2007, the number of Premium Bonds holders had increased to 23.7 million, roughly one third of the population, with £36 billion invested.
Figures for June of each year
Then and Now: 1957 - 2007
Premium Bonds first went on sale on 1 November 1956 and were launched by the then Chancellor of the Exchequer Rt. Hon. Harold MacMillan at a ceremony in Trafalgar Square. He had unveiled the scheme in his Budget on 17 April that year, as a means to control inflation and encourage saving in the period after the war. Premium Bonds, he said, would be: “An encouragement to the practice of saving and thrift by those members of the community who are not attracted by the reward of interest, but do respond to the incentive of fortune. My object is to invite people to save for the chance of a prize.”
The top prize of £1,000 certainly proved a good incentive - on the first day of sales alone, £5 million worth of Bonds were bought. By the end of the month £46.5 million had been invested and by the time of the first draw, in June the next year, £82 million worth of Bonds were held. In those days Bonds had to be held for six months before they were entered in a draw, so only investors who bought in 1956 were in the running for the first set of prizes.
The Lord Mayor of London, Alderman Sir Cuthbert Ackroyd, bought the first Bond for £1 from Postmaster-General, Dr Charles Hill, at a ceremony in front of the Royal Exchange in the City of London. The second was bought by Councillor W Crook, the Mayor of Lytham St Anne’s, where Premium Bonds were then based (they are now based in nearby Blackpool). Similar ceremonies were held around the country on launch day.
British soldiers also got in on the act, with the first overseas Bonds being bought by troops based in Monchengladbach in Germany, and some companies bought Bonds in bulk for their employees. The maximum investment at that time was £500 and the top prize was £1,000.
The launch of Premium Bonds marked the first time the British government had been involved in anything approaching a lottery since 1826, when state lotteries were banned. And it was too close to a lottery for some. In fact, Premium Bonds were actively considered between 1916-1918 before being ruled out by the government of the time.
Opposition to Premium Bonds came from all political sides and from other sections of society, the most vocal being religious groups. In parliament, the shadow chancellor Harold Wilson called the scheme a ‘squalid raffle’ and a 'national demoralisation’ and urged Rt. Hon. Harold MacMillan to drop the scheme.
Church leaders expressed concern that Britain would become a nation of gamblers and warned people not to get involved. The Archbishop of Canterbury, Dr Geoffrey Fisher, described buying Bonds as ’a cold, solitary, mechanical, uncompanionable, inhuman activity’ and concluded ’all things considered the best course of action is to leave the whole thing alone’.
Some took his advice, with the Lord Provost of Glasgow and the Mayor of Chesterfield both refusing to be involved in celebrations, and two female Post Office workers in Manchester refusing to handle Bonds for religious reasons. But many people embraced the new scheme and 49 million Bonds were eligible for the first draw on 1 June 1957.
In Lytham St. Annes at 9.15am on 1 June 1957, the Postmaster-General Ernest Marples flicked an ivory switch to get ERNIE started. Sixteen minutes later the first winning number had been produced: Premium Bond IFK341150, held by an investor in Cumbria. Lord Mackintosh of Halifax, Chairman of the National Savings Committee made the announcement.
The draw should have taken 30 hours to complete, but did not end until 3 June because the engineers and staff had to get some rest. By that time 23,142 winners had been selected to share a prize pot worth £969,750. There were 96 winners of the £1,000 jackpot, with the other winners taking prizes worth between £25 and £500. The odds of winning a prize in the first draw were 2,095 to 1. Five of the jackpot winners had bought one single £1 Bond. 49 millions Bonds were entered into the draw.
The winning numbers were printed on a gummed tape which was stuck to a card, and they had to check it against the Bond numbers in circulation. This involved trawling through files to find record cards matching the selected numbers.Back to top
The first draw was broadcast live on radio and television and the draws continued to be big events for some years. In the 50s and 60s winning numbers were announced by celebrities of the day, including Bruce Forsyth, Norman Wisdom and Bob Hope. Even in the 1980s winning numbers were announced on television after the six o’clock news.
As well as famous people, National Savings also used remote starters to generate public interest. Outside broadcasts showed the draw being started from around the country, including places like London Olympia. On one occasion the draw was started by a miner returning from his work in the colliery.
However, after the initial hype, attention moved away from Premium Bonds. They were still advertised and continued to sell well for many years, but there was not the same excitement that surrounded them at their launch.
To revitalise the public’s interest in Premium Bonds, the prize money on offer was increased. In August 1971 a top prize of £50,000 was introduced. A year later the minimum investment was increased to £2 and in 1973 a new machine was brought in to generate the numbers.
ERNIE 1 had kept going throughout the 1960s, but as the number of prizes on offer increased it took him longer and longer to produce the required amount of numbers. Improvements were made in the way the winners were found with the introduction of a computer to store Premium Bond numbers - prior to that, numbers were held on cards and had to be searched for manually - but the process was now taking 10 days to complete. In February 1973 ERNIE 2 took over.
Three years later the jackpot was increased again, this time to £100,000, and the minimum investment was raised to £5. At the end of the 1970s, £1.4 billion was held in Premium Bonds.
In 1980 the maximum holding was increased to £10,000 and a new monthly prize of £250,000 was introduced. Sales continued to grow steadily, putting a strain on ERNIE 2. In October 1988 ERNIE 3 took over. By this point 2.2 billion Bonds were in circulation.
The 80s also saw the demise of the annual competition to find a Miss Premium Bonds. It was her job to tour the country supporting exhibitions and promotions.
It was in 1993 that the minimum purchase was increased to its current level of £100. The next year saw one of the biggest landmarks in the history of Premium Bonds - the introduction of the £1 million jackpot, designed to head off competition from the new National Lottery.
The first Premium Bonds millionaire was created in April 1994, seven months before the first National Lottery draw took place.
The new prize certainly grabbed the public’s attention. In February of that year £230 million was invested in Bonds - more than double the previous month’s figure. It was the first time monthly sales had broken the £100 million barrier, and they have remained above it ever since.
In March 2003, the 100 millionth prize was awarded. Investors could now check if they had won anything online, but they were still only able to buy Bonds if they filled in a form and posted it off to NS&I. That all changed in July 2004, when a telephone sales line was set up and standing order purchases were also introduced in the autumn. Online sales were introduced the following January.
ERNIE 4 was also introduced in 2004, to take over from the now-dated ERNIE 3. It carried out its first draw in April of that year and went on public display at the Science Museum in August.
Last year, NS&I added a second £1 million jackpot to the prizes on offer each month. This was awarded for the first time in August 2005.
Premium Bonds may not receive the publicity they did in the 1950s and 60s, but they have never been more popular with investors. In the past five years more Bonds have been sold than in the previous 45 years of the scheme and, since the £1 million jackpot was introduced in 1994, the amount invested has increased nine-fold.
In the financial year to April 2007, sales of Premium Bonds exceeded £9.7 billion, up from £7 billion the year before.
The record amount of investment in a month is £2.2 billion in October 2006.
23.7 million people hold Premium Bonds and many customers have a substantial amount of money invested. More than 1.7 million people hold £5,000 worth of Bonds, and 353,000 people hold the maximum £30,000. 66% of holders have less than £50.
Bond holders are people who are looking to save in a secure and fun way. They want the chance to win big prizes and the chance to win regularly and like the fact that all prizes are tax-free. Many are aged 40 or over but, in recent years, younger people have been buying Bonds.
The recent surge in interest has been helped by a volatile stock market, which led many investors to rebalance their portfolios in favour of secure investments, as well as relatively low rate of interest on mainstream savings accounts.
Other improvements, including the introduction of telephone and online sales, have also played a part in Premium Bonds’ recent success.Back to top
Today draws are done by ERNIE 4, the latest in a line of machines designed specifically to generate numbers. The machines were originally dubbed Electronic Random Number Indicator Equipment, but quickly before known as ERNIE for short.
ERNIE is not by definition a computer because it cannot be programmed. It is not networked to any other machine - which means it cannot be hacked into - and its sole job is to produce strings of numbers and letters. These are then matched to existing Premium Bond numbers.
The basic function of each ERNIE has been the same, but the technology that makes it happen has been modified to make the most of the latest developments. As a result each ERNIE has been faster and smaller than the last.
The original ERNIE was the size of a van and weighed two tonnes. If it was still in use it would take 77 days to complete a draw, compared to the three hours taken by ERNIE 4, the size of a DVD player.Back to top
ERNIE 1 was the first such machine of its type in the world and was one of the first examples of an explicit commercial use of this type of technology. It cost £25,000 to build.
The first Electronic Random Number Indicator Equipment (it became popularly known as ERNIE) was developed in 1956 by the Post Office Research Department in Dollis Hill, north London, where the World War 2 computer ‘Colossus’ was also constructed. Winston Churchill’s wartime bunker was built underneath the site
The first ERNIE was a hybrid vacuum tube and transistor machine. It came up with digits by generating noise through gas discharge neon diodes in a bank of vacuum tubes.
The random noise was fed through three amplifier valves and recorded on ferrite core counters, which converted it into numbers. Each complete nine-digit number was given a ‘sister’ number and, to further ensure the output was random, one was subtracted from the other to give a winning nine-digit number.
Later ERNIEs worked along the same lines, using thermal noise to create digits. ERNIE 2 used a Zener noise diode to produce random pulses of electrons. The pulses moved counters - one for each Premium Bond digit. The readings on the counters were then recorded and converted into winning numbers.
ERNIE 3 built on this technology, with faster and smaller hardware speeding up the draw. Like the previous two ERNIEs, it used a separate noise generator to produce each digit of the Bond number.
This changed with the introduction of ERNIE 4 in April 2004, which is able to use a single random noise generator to produce a whole nine, ten or 11-digit number. At the heart of ERNIE 4 is a silicon-based hardware random number generator that, like the other ERNIEs, uses thermal noise as the source of randomness.
Central to the hardware are two free-running oscillators, one fast and one much slower. The thermal noise is used to modulate the frequency of the slower oscillator. This variable oscillator triggers measurements of the faster one, and drift between the two provides a source of random binary digits.
Using software, a stream of random bits is then converted into Premium Bond numbers without influencing the randomness of the output.
* At time of introduction
ERNIE is only used to generate numbers - finding the winners is done afterwards - and each month he produces many more sets of numbers than there are prizes available. This is because some numbers will represent Bonds that have not yet been bought or have been cashed in.
At first, the business of finding which numbers matched Bonds had to be done by hand, by a team of workers at the Premium Bonds headquarters. The winning numbers were printed on a gummed tape which was stuck to a card, and they had to check it against the Bond numbers in circulation. This involved trawling through row after row of files to find record cards matching the selected numbers.
Now things are much easier. The numbers of every Bond and details of who holds them are all stored electronically. Winning numbers are saved onto a CD and cross-checked automatically with existing Premium Bonds.
Every month every single Premium Bond stands the same chance as any other of winning a prize. The odds of each single Bond winning are set by NS&I and currently stand at 24,000 to 1. The more Bonds an investor owns the greater their chance of winning a prize each month.
To ensure ERNIE is truly random each month’s winning numbers are verified by the Government Actuary’s Department (GAD) before the winners are notified.
GAD carries out a series of statistical tests on the results to make sure the numbers generated are not following any kind of pattern, because that would suggest a bias. The four main tests are:
If no pattern is discernable the draw is judged to be random and GAD issues a certificate stating that this is the case. The tests have never detected a pattern in ERNIE’s selection.Back to top
Despite the randomness of the draw, analysis of the winning Bonds over a year throws up certain towns, names and signs of the zodiac that have been luckier than others. In 2006-07, the luckiest part of the country was the Glasgow. Bond holders there won more prizes of £1,000 and over per million Bonds held than those living anywhere else in the country. In 2005-06, the luckiest town was City of London and in 2004-05 it was Oldham.
The name Hannah also seems to be luckier than any other. It was the luckiest name in 2005-06 for winning high value prizes, a title it also held in 2003-04. In 2004-05, the luckiest name was Matthew, the only time a boy’s name has entered the top spot.Back to top
Since the first draw took place in June 1957, Bond holders have won more than 154 million tax-free prizes worth a combined total of £9.8 billion. In the first draw, 23,000 prizes were paid out, but now the number stands at 1.4 million every month. This includes two £1 million jackpots.
The first £1 million jackpot was introduced in April 1994, and a second £1 million prize added in August 2005. 1 June 2007, the 50th anniversary Premium Bond draw, coincides with the creation of the 169th to the 173rd Premium Bonds millionaire. Jackpot winners are scattered around the country, from Cardiff to County Down to Cumbria.
The first millionaire lived in Surrey and held Bonds worth £10,000. The winning Bond was one of £2,000 bought just 10 months before the draw, but it was not the quickest to yield results. Several people have been fortunate enough to see their investments turn them into millionaires in just two months. In August 2005, when the second jackpot was introduced, an investor in Hampshire won £1 million on a Bond bought in June 2005, the first time that Bond had been eligible.
Other millionaires have had to be more patient. In July 2004 an East Londoner with just £17 worth of Bonds won the jackpot, thanks to a Bond bought back in February 1959. The win belied the myth that only new Bonds have a chance of winning, and also proved that it’s not only big investors who can become millionaires.
Since the £250,000 jackpot was introduced in 1980 the top-prize winners have been informed in person. Now the job is done by two people, each going by the name Agent Million. They turn up without warning and run checks to make sure they are speaking to the winner before they reveal who they are and why they are there.
Jackpot winners are offered access to financial advice and support from NS&I while they decide what to do with their money. Unlike winners of the National Lottery, Premium Bonds winners tend to keep their good fortune quiet. Their winnings are usually used to clear a mortgage or pay for a more comfortable retirement, rather than blown on expensive purchases.
Hannah Peterson (not her real name) won the £1 million jackpot in August 2004 – it was her first win. Her winning Bond, number 50XH949682, came from a £3,000 investment made in February 2003.
”Agent Million arrived on a Sunday afternoon – 1 August 2004. It changed my life. When they turned up I thought something had gone wrong with my Premium Bonds. I nearly passed out when I was told what I'd won. I was totally overwhelmed.
“I remember it was a moonlit night that night, because I thought I was going crazy. I couldn't sleep. I just couldn't imagine what £1 million would look like. I wrote £1 and then started to add noughts. When I got to £10,000 I started to shake.
”Before I won I was living on £108 pension a week so you can imagine how it changed my life. I bought a house - my little slice of heaven. I also bought up to the maximum [in Premium Bonds] straight away. I still get £50 a month and to be honest I get almost as much pleasure in those wins.
”I've told very few people. I telephoned a few relatives, who were worried it was all a hoax. And I told some special friends, just people who could share the secret and still act normally. I do sometimes tell strangers that thanks to ERNIE I'm having a lovely time.”
Graham Webster works as a live-in caretaker in Lytham St Anne’s. He won £50,000 in August 2000.
“I’d had Premium Bonds for 15 years when I won. I’d been buying them from time to time in £100 blocks.
“I got the envelope and I thought it was a circular asking if I wanted to buy more until I saw the letter inside, which I’ve still got. I was reading the figure again and again because I thought it might say £5,000.”
By the time his cheque arrived, Graham had talked to his family and decided to spend the money on a property which he can live in if he ever leaves his job. “I found one quite quickly, it was £52,000. I got some funny looks when I told the building society I could buy it outright, that I wouldn’t need a mortgage, because I don’t look like the sort of person who has a lot of money.”
Since buying the house, Graham has cashed in his Bonds to pay for an extension, but he says he plans to buy more in the future. “I believe luck never runs out so I’ll definitely buy more."
After 18 months prizes that have not been collected are classified as unclaimed. There are currently more than 480,000 unclaimed Premium Bond prizes worth more than £28 million, some dating back to the 1950s. The smallest unclaimed prize is worth £25 and the largest is £25,000. That winner was last heard of in London and is believed to have moved to Canada, but all efforts to trace them have failed. There are also three £10,000 prizes and more than 20 £5,000 prizes waiting for winners to come forward.
The prizes go unclaimed for a number of reasons, the main one being that the Bond holder moves and forgets to pass on his or her new address to NS&I. Sometimes Bond holders forget that they were given them as a child, and sometimes when someone dies their executors are unaware that they held any Bonds.
Fortunately, there is no time limit on claiming a prize and if they can find the certificate detailing their Bond numbers investors can easily check if they have won anything. The Have you won? facility on the Premium Bonds website offers an immediate answer. Alternatively, people can write to NS&I.
Since November 2001 NS&I has traced £18m Premium Bonds and unclaimed prizes for almost 34,000 people, some now living in Australia, Thailand and Canada.Back to top
Over the years some myths have grown up around ERNIE and Premium Bonds. Most seem to have developed as ways to explain why some Bond holders seem luckier than others.
Myth 1: ERNIE is not random
ERNIE is not programmable so can’t be set up to produce particular numbers. Each month, the randomness of the draw is verified by the Government Actuary’s Department (GAD) which carries out a series of statistical tests on the selected numbers. Only once it is satisfied that the results of the draw are random will it issue NS&I with a certificate to that effect. NS&I has to have this certificate before it can publish the numbers or issue Premium Bond prizes.
Myth 2: You have to have £30,000 invested to win the jackpot
The more Bonds you hold, the better your chances of winning, but this doesn’t mean that prizes are won exclusively by the investors with the biggest holdings.
In July 2004, the winner of the £1 million jackpot had just £17 in Premium Bonds, and in September this year someone from Berkshire with only £500 won one of the £100,000 prizes. In fact, in the last year only 13 out of the 24 jackpot winners held the £30,000 maximum.
Myth 3: Only new Bonds win prizes
Each £1 Bond has an equal chance of winning, regardless of when it was bought. The reason Bonds purchased more recently seem to win more often is simply that there are more new Bonds than old ones. Earlier this year a £400 Bond bought back in 1956 won £50,000.
Myth 4: Old Bonds are left out of the draw
Premium Bond numbers are not programmed into or stored in ERNIE, so no numbers can be left out of the draw. ERNIE just generates numbers and these could match with any Premium Bond bought at any time.
Myth 5: Only Premium Bonds from the South East win prizes
It may appear that holders in the South East win more prizes, but this is simply because there are more Premium Bonds held there, compared to the rest of the UK. Prize winners come from all over the UK. This year alone, the £1 million jackpot has been won by investors from London, Derbyshire, Northern Ireland and Fife.