What Is A Premium Bond?

There are two definitions to the term premium bond:

  • A special bond issued in the UK
  • Any bond which is trading above par

If a bond is trading above the par value of 100, it is said to be trading at a premium. This will reduce the yield on the bond (yield and price are inversely correlated). Any premium will tend to zero as the bond approaches maturity as original borrower only repays the par value at maturity. A bond will trade at a premium when the coupon rate is higher than interest rates in other places. Premium bonds in the UK are a unique kind of bond which can be thought of as a lottery bond. Investors can up to £30,000 worth of these bonds (each one costing £1) and every month there is a prize draw with prizes ranging from £25 to £1,000,000. The money invested in these bonds is guaranteed by the UK government so they are essential riskless. The chance of winning is approximately 1/24,000 and the prize winnings tend to average out marginally higher than typically savings rates.

To learn more about this concept and become a master at bonds and fixed income, you should check out our Bond Course - Fixed Income (coming soon!).

Related Terms

Return to Finance Dictionary

 

 

Start Discussion

Popular Content See all

Received my PWP rejection email!
+92IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Evercore the next Bulge Bracket bank?
+24IBby Intern in Investment Banking - Mergers and Acquisitions">Intern in IB-M&A
Biggest Regret in Undergrad
+19IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Is Liontree the next bulge bracket bank?
+17IBby 1st Year Analyst in Sales & Trading - Equities">Analyst 1 in S&T - Equities
I got a top IB SA offer thanks to WSO
+17IBby Prospective Monkey in Investment Banking - Mergers and Acquisitions">Prospect in IB-M&A
Virtual Summer Interns - which banks sent you WFH gear?
+15IBby Intern in Investment Banking - Industry/Coverage">Intern in IB - Ind

Total Avg Compensation

October 2020 Investment Banking

  • Director/MD (17) $704
  • Vice President (49) $326
  • Associates (264) $228
  • 3rd+ Year Analyst (36) $168
  • 2nd Year Analyst (147) $159
  • Intern/Summer Associate (136) $141
  • 1st Year Analyst (579) $130
  • Intern/Summer Analyst (555) $82

Leaderboard See all

1
LonLonMilk's picture
LonLonMilk
98.4
2
Jamoldo's picture
Jamoldo
98.3
3
Secyh62's picture
Secyh62
98.2
4
CompBanker's picture
CompBanker
97.8
5
redever's picture
redever
97.7
6
Edifice's picture
Edifice
97.6
7
Addinator's picture
Addinator
97.6
8
frgna's picture
frgna
97.5
9
bolo up's picture
bolo up
97.5
10
NuckFuts's picture
NuckFuts
97.5