Would you participate?

Wouldn't you have to pay taxes on your "winnings?" Would it be taxed differently than how interest income is currently taxed? Would the bank need a lottery license? Would you have to be 21 to participate? How much money would the bank make off the "spread"? Would the banks have to contribute a portion (40-50%) of the proceeds back to the government, like other lotteries?

It seems far too complicated to ever actually be brought into existence. That said, I would not participate. I'll take my guaranteed 1-2% rather than a Hail-Mary 500,000%.

I would consider participating if it were neutral or positive expectation. Which seems unlikely. Also, depending on how scheme-y it seemed, I might want an additional premium for the perceived risk... so in the end, yes I would participate, but only under conditions that are exceedingly unlikely to be met.

It seems far too complicated to ever actually be brought into existence. That said, I would not participate. I'll take my guaranteed 1-2% rather than a Hail-Mary 500,000%.

The government of the UK offers a variation on the standard Lottery Bond. Through the NS&I (National Savings and Investment), the public can purchase Premium Bonds worth £1 each, with a minimum spend of £100 (or £50 if paying by monthly standing order). The maximum (as of the 2007 tax year) that an individual can hold is £30,000.

The bonds themselves attract no interest, are perpetual and are redeemable at par (face value) at any time. The attraction for an investor is that, each month, a draw takes place and, should an investor hold one of the bond numbers chosen, then the bond-holder will be awarded a prize of variable value.

As of July 2007, there were two £1 million prizes awarded each month, plus over 1 million smaller prizes ranging in value from £50 up to £500,000. All prizes are tax free and, with approximately 23 billion bonds issued, the chances of any one bond winning a prize for that month are approximately 24000 to 1. However, it is important to recognise that, on winning a prize, the bond is not redeemed but remains 'in the pool' for all forthcoming draws.

The prize fund is paid for out of the equivalent interest payable on the entire bond pool for that month. As of July 2007 this is 3.80%. A bond holder with a sufficiently large pool of premium bonds could hence reasonably expect to achieve this type of return should he hold his bonds for long enough.

Although riskier than a typical European bond, the UK Premium Bond offers the chance of enjoying a significantly larger windfall.