Category Archives: Banking

Prize Linked Savings Accounts Are Savings Accounts With A Lottery Twist

Most people know that playing the lottery is a losing proposition. Some call it a stupid tax, but the problem goes beyond the occasional dollar wasted. Prize linked savings accounts give rewards to people who save while keeping the excitement of the lottery.

Americans spend more than $60 billion a year on lottery tickets. And while the amount spent on lottery tickets is consistent across income levels, people with less income are spending a higher percentage of their income on lottery tickets. That’s beyond worrisome as poorer people are the people who can least afford to be throwing money away (which you are essentially doing in a lottery).

Prize Linked Savings Accounts

What Are Prize Linked Savings Accounts?

As an alternative to those who want the excitement of a lottery without all the risk, prize linked savings accounts (PLS) is a lottery where everyone wins. Another way of thinking about it is as a savings account where some people win a lot of money.

With a prize linked savings account, users get a slightly lower interest rate (than they would with a tradition savings account), and in return, they’re entered into a lottery that could make a lot (but not as much as a traditional lottery).

PLS accounts work because people are encouraged to save and at the end of the lottery, they still have account with more money in it than when they started. Studies have shown that people are more likely to save if there is a lottery or prize component associated with the savings account.

These accounts have been around for awhile in Europe and there are some pilot programs in 8 states, including Michigan, where 12,500 are entered to win 6 prizes of $10,000 each. Odds of winning? A little over 1 in 2,000. Much better than the lottery. Especially because even if you lose, you still win!

What Are The Issues With Prize Linked Savings Accounts?

While pilot programs in a few states have shown promising results, it’s not in everyone’s best interests. States currently earn 40% of lottery proceeds and would have to accept lower earnings. Still, their constituents would be better off for it, so it’s a trade-off that’s likely worth it. A bill has recently been introduced to Congress that would make it easier for federally insured financial institutions to operate prize linked savings accounts, but at the moment, it’s not that easy to find a program to participate in.

Who Should Use Prize Linked Savings Accounts?

PLS accounts are perfect for people who have a difficult time saving and who spend too much money on lotteries. I never play the lottery (I may have bought a ticket with a friend a few years ago), but there are people who spend money each week on lottery tickets, and at a cetain point it becomes an issue and the money would go much further in a savings account, even if it earned no interest.

With a PLS account, you’d keep your money AND you’d have an opportunity to win the lottery, albeit not the multi-million payouts you may be accustomed to seeing. But as the popularity of prize linked savings accounts grows, so will the payouts.

Who Should Not Use Prize Linked Savings Accounts?

If you already practice good savings habits, a PLS account is probably not for you. You’d lose out by accepting lower interest rates, when you could be earning more in a traditional savings account, or even better, by investing it. You don’t need the encouragement of a lottery to convince you to save.

Readers, what are your thoughts on prize linked savings accounts? Would you participate? Would it encourage you to save more?

Bank Bonuses – Worth the Effort?

Almost everywhere I look, banks are offering bonuses for opening checking accounts and savings accounts, usually with very few restrictions (Usually either using a debit card OR enrolling in direct deposit). With banks offering $50, or in a recent mailing I saw, $200 to sign up, why not sign up for an extra checking account (or 3)? It only takes a few minutes to sign up and it sure beats actually working for your money, right?

A Closer Look

The advantages are clear: You get extra money to spend on anything you want: Paying off debt, going out, boosting savings or retirement, or maybe some fun vacations. Unlike with credit card rewards, opening checking and savings accounts typically don’t affect your credit rating (although some companies do hard credit inquiries), so you can have as many accounts as you like without any consequences.

The disadvantages are a little less obvious. The major disadvantage would have to be the time committed to opening the account. Being able to sign up online takes no more than 10 minutes, and for $100, you’re time is definitely worth that much. But what about having to remember to use your new debit card at least three times in the first month? Or giving your employer a new direct deposit form? Is it worth the hassle?

The direct deposit route is a little too much of a hassle because when you have your primary checking account sending out payments automatically, be it for rent or monthly bills or savings and retirement accounts. Unless you’re ready to commit to a new bank full time, it’s best not to mess with the careful balance you’ve set up, and there’s no sense in risking an overdraft fee.

Bottom Line

For some people, $100 every month or two is insignificant, while for other it represents a big bonus they can use to get ahead. For someone who is able to save $800, an extra $100 per month represents an additional 12.5% in take home income! And of course, this new money comes with no risk, so it’s a great investment to make!

For the relatively low time commitment and the sometimes large bonuses, isn’t there something you’d like to save for? Or is it too much of a hassle to keep track of yet another card in your wallet?

How To Beat The Big Banks

For those of you still using big banks as your primary bank, I highly recommend using an online bank for all your banking needs. These online only banks can now replace the brick and mortar banks we’re all used to.

While the large majority of my funds are in my online bank account, I do still keep around my big bank. It has a few features that make keeping it around worth it, including very convenient ATMs and transferring money to and from friends and family takes just a seconds.

I really dislike big banks. So while I use their service, I don’t want them to profit off of me, or profit as little as possible. I greatly prefer to give my money to those who provide excellent customer service and don’t charge fees.

There are a few things we can do to reap the benefits from the big banks but avoid letting them profit from us.

1. Always keep the minimum required balance, plus a little extra to avoid missing a payment. Make sure to avoid the fees but don’t keep money sitting in your checking account that could otherwise be kept earning real interest rates. The interest rates big banks offer in their savings accounts are incredibly low so keep your funds somewhere else!

2. Reap rewards without paying fees. I earn hundreds of dollars in credit card rewards each year. So they pay me hundreds of dollars and I get the convenience of paying in credit. Big win for me!

3. Use in-network ATMs. By only using ATMs in the network, you use the banks to access your money get access to your money while the bank doesn’t make a penny, no matter how often you use them.

And if you want to cut out the bank completely, use a Visa Prepaid card with
direct deposit, and you never have to worry about the bank profiting from you again. The process is super easy and gives you full control of your money!

This is how I take advantage of the bank and use them to my advantage while not paying them anything for all the benefits I get.

Do you use the big banks for the benefits without letting them profit?

I am blogging on behalf of Visa Prepaid and received compensation for my time from Visa for sharing my views in this post, but the views expressed here are solely mine, not Visa’s. Discover more at http://www.VisaPrepaid.com or view more Visa Prepaid videos at http://www.youtube.com/visaprepaid.