WASHINGTON (1/29/15)--A recent article in The Wall Street Journal featured--and extolled the benefits of--prize-linked savings (PLS) accounts, a product created by the credit union movement that creatively incentivizes members to put money away into savings.
Most commonly known through the popular Save to Win program, initiated by the Michigan Credit Union League, PLS accounts work by giving members entries into monthly, quarterly and annual cash drawings each time they deposit cash--usually $25 or more--into their savings accounts.
"The beauty of it is you really can't lose," Jim Morrell, president/CEO, Peninsula Community FCU, Shelton, Wash., with $149 million in assets, told The Wall Street Journal (Jan. 28). "You're essentially buying your entry by paying yourself, you get paid interest on your savings, you have the potential to win money, and at the end of it all your savings are still yours."
Morrell said that members have responded positively to the PLS program, citing that since 2013, Peninsula members have opened 276 PLS accounts and have saved more than $360,000.
In addition to the grand prize that members can win through the statewide Save to Win program in Washington, Peninsula also awards monthly prizes of $25 to $50. Since adopting the program in April 2013, Peninsula has handed out $825 in prizes.
"Savings promotion raffles," as they're termed legally, greatly differ from the regressive lotteries that in essence strip American citizens of cash without handing back anything in return, The Wall Street Journal said.
Lawmakers across the country have taken notice of this new, constructive way for consumers to win cash and prizes.
"We know the savings rate in this country is simply inadequate," Sen. Jerry Moran (R-Kan.), a primary sponsor of the American Savings Promotion Act in the Senate, which allows banks to offer the PLS programs, told The Journal.
Rep. Derek Kilmer (D-Wash.) added that PLS programs appeal to both sides of the aisle because they help build assets for consumers without creating a new federal program that requires public funding.
Further, for U.S. consumers who don't have great financial means, PLS accounts provide an option where a small amount of money saved can turn into a big cash win--without the risk.
"It's very easy for people who put money into 401(k) accounts regularly to scoff at (PLS accounts)," said Meir Statman, a professor from Santa Clara University who researches behavioral finance. "But there are people for whom lottery tickets are not a game, they are the hope of getting someplace in life. This is a good compromise for those people."
Ten states allow prize-linked savings programs: Connecticut, Indiana, Maine, Maryland, Michigan, Nebraska, New York, North Carolina, Rhode Island and Washington.