The idea is that people will be more interested in saving with a low interest rate with the chance to win more than having the higher interest rate.

In Ireland the state runs this thing called prize bonds which is a similar idea https://www.statesavings.ie/help-support/help-articles/how-d...

Looks exactly like Premium Bonds here in the UK. (Winnings on those are also tax free, not sure if yours are the same.)