NS&I sold savings as a lottery to attract small savers

In April 1956 Prime Minister Harold Macmillan announced Premium Savings Bonds to encourage saving after World War II. They launched on November 1, 1956 in Trafalgar Square under the byline 'Savings with a Thrill!'. Macmillan reasoned the bonds 'will appeal to those who are not attracted by the rewards of interest, but do respond to the incentives of fortune.'

The program is administered by National Savings and Investments. Each £1 invested allocates a bond number into a monthly drawing run by the ERNIE machine, with a holding cap of £30,000 per individual; winnings are exempt from UK income and capital gains tax. In 1956 the top prize was £1,000. Prizes are funded from the pooled interest on the whole fund.

NS&I pays no interest to any individual holder. Instead it pools the interest earned on the entire fund into a monthly prize pool and draws winning bond numbers, while principal remains always repayable. A saver trades basis points of expected return for a lottery ticket on every pound, and the state raises debt funding from people who would never open a conventional savings account for interest.

Pooled all interest into a monthly prize draw, so savers trade basis points for a lottery ticket on every pound, while principal stays safe—buying hope, not yield.

Probability weighting makes a small chance of a large prize feel more valuable than a certain tiny return.

Full principal protection removes the fear of loss, so even cautious households can hold the bet.

The monthly draw gives saving the rhythm and suspense of the football pools, making it a habit.

When a payoff is boring, pool its yield into visible prizes to recruit customers who respond to fortune, not interest.

By 2004-05, 19% of British families held Premium Bonds, with demand tracking the prize rate and top prize (NBER analysis of survey data). The standing template for prize-linked savings, the family of products since analyzed and piloted worldwide in the economics literature on household finance.