PHILADELPHIA (7/29/14)--Prize-linked savings (PLS) accounts, an idea invented and incubated by credit unions to encourage members to save money, continue to gather steam nationally.
Nine states have passed laws that allow credit unions to operate programs that incentivize members to put away money by offering opportunities to win cash when they save, according to The Pew Charitable Trusts, which recently featured the growing popularity of the product on its news page Stateline.
The article noted that savings rates in the United States are low: In March 2014 the aggregate personal savings rate, defined as the ratio of total savings to after-tax income, was only 3.8%. And a 2013 survey found 27% of all Americans had no emergency savings, while another 23% had some but could not cover three months of living expenses. Low-income families struggle the hardest to accrue savings.
With as little as $25, a credit union member can open an account and enter a drawing for monthly and annual grand-cash prizes. The beauty is that those who aren't lucky enough to win still benefit from having started an interest-generating savings account, advocates say.
"Most of the things we do in the Legislature are so abstract, and it's hard to see the benefits," Sen. Amanda McGill (D-Neb.) told Stateline. "But this really gets people happy and engaged, and they are saving."
Credit unions have played an integral role in developing PLS programs as part of the movement's ongoing effort to help members enhance financial literacy, save money and improve spending and debt management habits (News Now July 19).
With the help of their state leagues, Nebraska, Michigan, North Carolina, Washington, Connecticut, Indiana, Maine, Maryland and Rhode Island have passed laws to allow credit unions to offer PLS accounts. New York only awaits the signature of Gov. Andrew Cuomo to pass its own law, which was approved by the state's Legislature earlier this year.
Since 2009, thousands have won prizes worth anywhere between a $15 monthly payout to a $100,000 grand prize, which was handed out in Michigan in 2012.
Currently, federal law prohibits banks from offering prize-linked savings promotions, the Pew article points out. However, it added, U.S. Sen. Jerry Moran (R-Kan.) and Rep. Tom Cotton (R-Ark.) have proposed the American Savings Promotion Act that would amend banking laws to allow banks to offer prizes to savers.
To read the full Pew Charitable Trusts article, use the link.