New Product Alert: Prize-Linked Savings Accounts Gaining Momentum
What are they?
To provide a stronger incentive to save, some credit unions are now offering prize-linked savings certificate accounts that offer monthly drawings for cash prizes. Under the largest of these programs, Save to Win, each $25 deposit gives the depositor an entry into the prize-winning raffle (up to 10 entries per month)….Winners get their cash prize deposited into their savings accounts, and everyone gets to keep the money they’ve saved plus interest.
Are they available everywhere?
Legally, banks cannot yet offer prize-linked accounts in every state, and Bill Hampel, chief economist of the Credit Union National Association, acknowledges that the combination of lottery-style prizes and savings accounts may raise some eyebrows.
What other features encourage accountholders to save?
Aside from the possibility of winning money, prize-linked savings accounts offer another benefit: They’re not as liquid as a traditional savings account, so you can’t access the money on a whim. Each month, the program awards several $50 prizes, and at the end of the year, it awards grand prizes of several thousand dollars. To be eligible for prizes (especially the grand prize of $10,000), account holders must keep their accounts active and leave their money in the account over the course of the calendar year.
Attests to power of habit:
More importantly, though, getting into the habit of saving money often begets more positive money behavior in the future. “If someone does this for a couple of years and they build up a few thousand dollars, at the end of the year, they could take some of that money out and put it into a regular rainy day savings account,” Hampel says. “… If people get into the habit of saving, it’s easier for them to save in the future.”
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.