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A Premium Bond is a bond issued by the United Kingdom government's National Savings & 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. Around 23 million people own Premium Bonds, about one third of the UK's population.
ERNIE is a hardware random number generator. The first ERNIE was unveiled in 1957, generating its bond numbers based on the signal noise created by a bank of neon tubes. 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 is 500 times faster than ERNIE 1.
Each person may own up to £30,000 in Premium Bonds. Bonds are currently sold in multiples of £10, with a minimum purchase of 100 bonds.
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