Do you like playing the lottery?
Then you’ll LOVE turning your savings account in to a lottery ticket!
OK, that sounds worse than it is, but that’s the general concept behind Save to Win and other “prize linked savings account” promotions that credit unions in many states can participate in.
With Save to Win, for example, account holders can buy shares in one-year CD shares at a participating credit union. With a minimum start of $25, members can then make additional deposits in to the share. Each $25+ deposit results in a free lottery entry, with up to 10 entries per month per member. Participants then get the normal CD rate from that Credit Union and get to keep the interest.
Lotteries, by nature, can appeal to lower income households, because the possibility of winning the lottery represents a quick-win chance for a different/bigger/better/easier/spendier life. Sadly, lotteries offer the worst odds in legal gambling – only 55% of ticket purchase price is paid out in prizes. Yet, Americans spend an average of $223 per person annually on lottery tickets. That’s bad.
Fortunately, there is no cost to enter a prize-linked savings account lottery. By virtue of your depositing, you get a free entry.
Credit unions win, because it incentivizes lower income members to save more, improving the credit union’s deposits and balance sheet. Save to Win claims that 21,000 accounts driving $52 million are currently from Save to Win.
Theoretically, participants also win because instead of paying hard-earned money for a meager chance to win a state lottery, the same gambling bug can be quenched through a much healthier saving habit creation. I’d hope that’s what is going on, because I suppose the reverse could be true as well (they get a gambling bug through a prize-linked account and then go and piss it away on lottery tickets or other forms of gambling).
Unfortunately, with one-year CD rates hovering around 1% APY and below, participants won’t financially benefit much from their newfound habit (unless they win a rare jackpot).
I am concerned that the focus is only on winning lottery jackpots and if that doesn’t happen, the savers pull their money. I know this is a stretch, but I hope this is the natural progression that results from these type of incentives:
- Non-saver is drawn in to the program.
- Non-saver has an awakening and is transformed in to an avid saver, diverting lottery ticket and other gambling expenditures in to additional savings.
- Non-saver realizes that they can achieve much better results by moving their savings from a bank account to an investment brokerage account.
- Newfound investor makes enough from their investments to make the prospect of winning the lottery irrelevant.
Heck, even if just #1 and #2 happen, then it’s a net positive. I realize that it is not in the best interest of participating credit unions to educate/encourage #3, but perhaps it should be? One can hope – and isn’t hope what the lottery is all about, after all? Besides, at 1% APY, participants are literally losing money over time with inflation.
Do you participate in any prize linked savings accounts? Which ones? What are your thoughts on them?