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?

8 Responses to Prize Linked Savings Accounts Are Savings Accounts With A Lottery Twist

  1. It sounds cool in theory, but I don’t think a PLS account will be for me. I’ve always seen the lottery as a tax on people who can’t do math. That line of thinking holds up here.

    • It’s definitely not for me either since I have no problem saving money and don’t want to settle for lower returns. But people who spend anything on a lottery should definitely consider it!

  2. moneycone says:

    Very interesting concept! Actually, this is the first time I’m hearing of this. This is definitely better than a regular lottery which is either you win a lot or lose it all!

    I may not buy a lottery ticket, but may be willing to try this!

    • WAAY better, but my main concern is that states won’t want to offer them because they get in the way of the lottery revenues. But shouldn’t they want to do what’s best for their constituents?

  3. I love this idea! It may get people that don’t save to save something, so that’s a win in my book. :-) And yes, this is from someone who saves a bunch but also buys about $50 of lotto tickets a year…I use my fun money and call it “buying hope” whenever I have a bad week.

  4. Little House says:

    Heck, with interest rates being so pitifully low, who cares if you get a lower interest rate (I mean, how much lower could they go?)AND have the chance of winning some cash? I think I’d be in! Though I’m guessing California isn’t one of the 8 states, is it? ;)

    • Not yet ;)

      It’s true, right now rates are pitiful. But I’m guessing the people this targets probably aren’t investing a large portion of their savings, right?

  5. SuburbanFinance says:

    I really never buy lottery tickets for myself/on my own, but at Christmas I put one in each of my family member’s stocking. My work plays the lottery together, so I contribute $1/week to that. I would not have much of a use for this type of account.