Prize-linked savings account
Prize-linked savings is the concept of using the chance to win a prize to incentivize personal savings. A prize-linked savings account or PLSA (also called a lottery-linked deposit account) is a savings account where some of the interest payment on bank deposits or marketing dollars are distributed as prizes based on chance. They are attractive to consumers as they function both as a sweepstakes or game of chance (as there is a chance of a large prize) and as savings (the deposit is never lost, unlike normal lotteries) vehicle. PLSAs are similar to lottery bonds except they are offered by banks, credit unions, prepaid card companies, and FinTechs, and can be held for a period of time determined by the consumer. Sometimes the returns are in-kind prizes rather than cash.
PLSAs have attracted customers who were, hitherto, familiar with only raffles or lotteries, but now were guaranteed saving security as well as promised an attractive incentive in the form of lotteries. It is, as the press quoted, a "no-loss lottery". The PLSA program in Michigan, USA, "Save to Win", was introduced in 2009 as a full scale demonstration by Commonwealth, (formerly D2D Fund Inc.), Filene Research Institute, and the Michigan Credit Union League following research by Peter Tufano from Harvard Business School, who co-founded Commonwealth in 2001. During this research, 56% of the participants were non-savers before the program.
Examples of prize-linked savings in the credit union space include:
- Lucky Savers (New York)
- Lucky Lagniappe (Louisiana)
- Neighborhood Credit Union (Texas)
- Save to Win (Connecticut, Illinois, Indiana, Kansas, Michigan, Missouri, Nebraska, North Carolina, Oregon, South Carolina, Washington)
- Saver's Sweepstakes (Wisconsin)
- WINcentive Savings (Delaware, Minnesota)
Save to Win (from the Michigan Credit Union League) and WINcentive (operated by the Minnesota Credit Union Network) are the two largest credit union PLS products. Both operate as multi-institution models meaning multiple credit unions can offer the product and share the prize pool.
Examples of prize-linked savings in banks include:
- Jackpot Savings from Blue Ridge Bank in Virginia
- FirstPrize $avings from First County Bank in Connecticut
- Win-Win CD from Community Bank offered in Idaho, Oregon, and Washington state
Prize Savings was launched in 2016 on the Walmart MoneyCard (a reloadable prepaid debit card) in partnership with Commonwealth and Green Dot Bank. Each dollar saved in a cardholder’s Vault (savings pocket) earns an entry into monthly drawings for one of 499 prizes of $25 or one $1,000 grand prize. Every Vault user is automatically entered to participate. In the first year alone, over 200,000 people have used the MoneyCard Vault and saved over $500 million.
The American Savings Promotion Act was signed into law in 2014 opening the door for all financial institutions to be included in state-level legislation. To date, 28 states have passed legislation or taken legal action to ensure banks and credit unions (or in some states, only credit unions) can offer savings promotion raffles.
States that allow banks and credit unions to offer PLS via savings promotion raffles:
- New Jersey
- New York
- South Carolina
States that allow credit unions to offer PLS:
- North Carolina
- Rhode Island
Around the world
Prize-linked savings accounts have been offered in Argentina, Brazil, Colombia, Germany, Indonesia, Iran, Japan, Mexico, Oman, Pakistan, Spain, South Africa, Sri Lanka, Turkey, United Arab Emirates and Venezuela. In South Africa, the First National Bank created a program called the Million a Month Account (MAMA), aimed at increasing savings accounts among unbanked people. It was later closed after the state-run lottery sued them for infringing upon their monopoly.
In Iran, PLSAs are the most common form of savings account available to the public, as they are viewed to be in compliance with Islamic law which forbids one to earn guaranteed interest on assets. See Islamic banking
- "Prize-Linked Savings FAQs" (PDF). US Legislative Coordinating Commission. Retrieved 22 May 2013.
- Moules, Jonathan (2014-12-07). "Dean, businessman and social entrepreneur". Financial Times. Retrieved 2018-05-31.
- "Prize-linked savings now on the menu at Louisiana credit unions". Credit Union Journal. Retrieved 2018-05-31.
- "Wisconsin debuts prize-linked savings for credit unions". Credit Union Journal. Retrieved 2018-05-31.
- McGlazer, Mariele (August 30, 2017). "Community Bank's Prize Linked Savings". ABA Bank Marketing.
- "Walmart and Green Dot Unveil First National Prize-Linked Savings Program". Retrieved 2018-05-31.
- Commonwealth. "Walmart MoneyCard Prize Savings: One Year Anniversary Brief | Our Impact". Retrieved 2018-05-31.
- Walker, Rob. "How to Trick People Into Saving Money". The Atlantic. Retrieved 2018-05-31.
- "House Passes American Savings Promotion Act". Business Insider. Retrieved 2018-09-21.
- Guillén, Mauro F. & Tschoegl, Adrian E. (2002). "Banking on Gambling: Banks and Lottery-Linked Deposit Accounts". Journal of Financial Services Research. 21 (3): 219–231.
- Kearney, Melissa S.; Tufano, Peter; Hurst, Erik; Guryan, Jonathan (2011). "Making Savings Fun: An Overview of Prize-Linked Savings". In Mitchell, Olivia; Lusardi, Ammamaria. Financial Literacy: Implications for Retirement Security and the Financial Marketplace. Oxford University Press. doi:10.3386/w16433. ISBN 978-0-19-969681-9.
- Nyamakanga, Regis (2008-03-31). "South Africa: Million a Month Account Ruling Sets Precedent". Business Day (Johannesburg). Retrieved 2017-12-01.
- Commonwealth (formerly D2D Fund)
- No-Lose Lottery from Freakonomics
- UK Premium Bonds
- "How to Trick People Into Saving Money" The Atlantic. May 2017.
- "Strike it rich (or not) with a prize-linked savings account" Bankrate. May 2015.
- "SaveUp $2 Million Jackpot Rewards Saving, Debt-Paying" Huffington Post. May 2012.
- Save to Win
- Walmart Prize Savings
- Lucky Savers
- Lucky Lagniappe
- Neighborhood Credit Union
- Jackpot Savings
- FirstPrize $avings
- Win-Win CD