DEFINITION of 'Lottery Bond'

1. A type of government bond issued in the United Kingdom by National Savings and Investment (NS&I) that gives the holder a chance to win a random monthly drawing for a tax-free cash prize. The bonds don't pay interest but they do encourage saving. However, because they don't pay interest, they are not protected against inflation.

Otherwise, these are considered extremely safe because they are backed by the U.K. government. The bonds can be purchased directly from NS&I or from the post office. Each bond is worth £1 and there is a £100 minimum investment.


2. A type of commercial surety bond that establishments with lottery machines must purchase to prevent abuse of the state lottery system.

BREAKING DOWN 'Lottery Bond'

Officially called Premium Bonds, the U.K.'s lottery bonds were introduced in 1956 with the goal of reducing inflation and attracting people who were otherwise not interested in saving. In 2008, £40 billion was invested in Premium Bonds, one of the country's most popular savings vehicles. A machine called ERNIE randomly generates the winning bond numbers. The amount of the prize fund is a month's interest on all eligible bonds, and multiple winners are paid prizes of varying amounts from that fund.

RELATED TERMS
  1. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
  2. Premium Bond

    1) A bond that is trading above its par value. A bond will trade ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Government Bond

    A debt security issued by a government to support government ...
  5. Lottery

    A game of chance, where winners are typically decided by a drawing. ...
  6. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
Related Articles
  1. Investing

    What is a Premium Bond?

    A premium bond is one that trades above its face or nominal amount.
  2. Investing

    Surprise! The Best Long-term Bond Investment May Be Savings Bonds

    A 20-year Series EE savings bond pays more interest than a 20-year Treasury bond. So are government-issued long-term bonds the best bet going?
  3. Investing

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  4. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  5. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  6. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  7. Investing

    The Best Bet for Retirement Income: Bonds or Bond Funds?

    Retirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
  8. Investing

    States That Spend The Most On Lottery Tickets

    Here are the areas in the U.S. that spend plenty of money on lottery tickets.
  9. Investing

    An Introduction to Individual Bonds

    Individual bonds are better than bond funds and can be a key component to one’s investment strategy.
RELATED FAQS
  1. Can Mutual Funds Only Hold Bonds?

    Find out which mutual funds include only bonds in their portfolios. Learn why some funds invest in different types of bonds ... Read Answer >>
  2. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Acid-Test Ratio

    A stringent indicator that indicates whether a firm has sufficient short-term assets to cover its immediate liabilities. ...
  3. Floating Exchange Rate

    A country's exchange rate regime where its currency is set by the foreign-exchange market through supply and demand for that ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government ...
  5. Impaired Asset

    A company's asset that is worth less on the market than the value listed on the company's balance sheet. This will result ...
  6. Solvency Ratio

    One of many ratios used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size ...
Trading Center