Michigan, Nebraska, Washington and North Carolina have all hit a home run when it comes to prize-linked savings accounts (PLS accounts). So, should Ohio take a swing? Let's dive-in to weigh the odds.
How Does it Work?
PLS accounts incentivize credit union members to save more regularly by offering raffle prizes tied to their savings accounts. An individual makes a deposit into a savings account (or a certificate of deposit). If he does not withdraw the money for a specified period of time, he earns a "raffle entry." The number of raffle entries he receives is based on the amount of his deposit. Prizes are then paid out of the interest that is accrued (but not paid) across the pool of accounts. Whether he wins a prize or not, his original deposit is held risk-free. A benefit to these accounts is that they force the individual to keep his accounts active and leave money in them over the course of a year or longer.
Is It Gambling? Or Simply Smart Banking?
When most people hear the words "raffle" or "lottery," they assume that there will be a risk of taking a loss. However, PLS accounts eliminate the risk of losing the member's deposit.
Instead, members give up their ability to receive interest payments in exchange for the funds on deposit in order to receive the chance to win a prize. Worst-case scenario, the member doesn't win the cash prize but still has the money saved and untouched in a bank account. The prize component encourages saving, which provides an additional benefit to the member.
Who's Doing It?
Michigan was one of the first states to grab on. In 2009, Michigan started off with a pilot of eight credit unions, calling the program "Save to Win" (STW). STW account holders would purchase one-year, interest-bearing certificates of deposit. For every $25 saved per month, the account holder would get one entry into a raffle for cash prizes (limited to ten entries per month). By 2012, the program grew to 58-member unions and more than 15,000 accounts. In 2011, the plan offered a single grand prize of $100,000. Michigan has gone on to include 50-75 monthly prizes that range in winnings from $2,500 to $3,750 and six annual prizes of $10,000. The program has motivated the participants to save regularly and become more financially secure. Today, 56 percent of Michigan's STW participants were non-savers, prior to the program.
Since, similar programs have spread to Nebraska, Washington and North Carolina. Additionally, several states - including Indiana, Connecticut, New York, Maine, Maryland and Rhode Island have enacted similar laws that allow for PLS products. In total, these states have collectively saved $94 million.
What's the Point?
The overall goal of the program is to not only improve the significant number of Americans who have little to zero personal savings, but to help motivate Americans to save more regularly and become financially secure. The national savings rate in America has been in steady decline for nearly three decades. According to Bankrate.com, almost a third of Americans have no emergency savings, and as many as two-thirds of Americans do not have the recommended six months of expenses saved.
Sounds Great in Theory, but Does it Work?
The requirements are simple- deposit a specific amount of money into a PLS account. There are no risks, your account is held risk-free. There is zero cost to the government, the prize money comes from the interest that accrues on the pool of accounts. There is outstanding incentive, the more an account holder makes deposits and saves throughout the year, the greater chance they have to win.
Where Can I Sign Up?
Even if you're sold on PLS accounts, you'll have to wait to play in Ohio. State legislation is required to authorize PLS accounts and Ohio has not considered enabling legislation. PLS accounts are an opportunity for states to encourage residents to save for the future with an innovative prize component.