Lottery Bond

AAA

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. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. Bond

    A debt investment in which an investor loans money to an entity ...
  3. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  4. Registered Bond

    A bond whose owner is registered with the bond's issuer. The ...
  5. Lottery

    A game of chance, where winners are typically decided by a drawing. ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  2. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  3. Bonds & Fixed Income

    3 Bonds You May Have Never Heard Of

    These lesser-known bonds may give your portfolio a boost when other investments products fall short.
  4. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  5. Bonds & Fixed Income

    Asset Allocation In A Bond Portfolio

    An investor's fixed-income portfolio can easily beat the average bond fund. Learn how and why!
  6. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  7. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  8. Mutual Funds & ETFs

    ETF Analysis: iShares National AMT-Free Muni Bond

    Take an in-depth look at the iShares National AMT-Free Municipal Bond ETF, a highly diverse and very popular muni bond fund.
  9. Investing News

    Fund Firm Jolts: Pimco's Isn't The First Or Worst

    When you business is built on prudence and trust, a lot can go wrong to cost you tons of clients and assets. Here are a few examples.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
RELATED FAQS
  1. What are the maximum Social Security disability benefits?

    The maximum Social Security disability benefit amount for a single eligible person in 2015 is $1,165 per month, but you can ... Read Full Answer >>
  2. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  3. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  4. Who or what is backing municipal bonds?

    Municipal bonds are backed by dedicated taxes or revenue sources related to specific projects, or by the full faith and credit ... Read Full Answer >>
  5. How stable are municipal bonds?

    Stability is relative in the municipal bond market. Municipal bonds tend to be safer than many other types of investments, ... Read Full Answer >>
  6. What are the differences between debt and equity markets?

    The basic differences between the debt and equity markets include the type of financial interest they represent, the way ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  2. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  3. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  4. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  5. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  6. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!