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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, 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). Currently, the odds of winning a prize for each bond number held is 24,000 to 1. Around 23 million people own Premium Bonds, about 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.
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. 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 faster than 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 pseudo random 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.
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 80's band Madness wrote the song E.R.N.I.E. which is on Absolutely, their second album.
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.
External links
"Premium Bond"