Americans need to save more. But it's difficult to encourage people to consistently contribute to a nest egg for years on end. For some, it’s hard to prioritize less pressing long-term goals when there are current expenses to cover. For others, a better savings habit means unwanted lifestyle changes.
Although credit unions have added nearly 40 million savings accounts in the past 10 years, the Federal Reserve reported in 2016 that nearly half of the U.S. population was unable to cover a $400 unplanned expense without borrowing money or selling something.
Clearly, many Americans need to save more. So, what gives?
One issue is that saving money doesn't present an obvious, immediate benefit. According to the NCUA, the national average rates for a regular savings account at credit unions and banks as of December 2017 were 0.13% and 0.14%, respectively. As of December 2009, those rates were 0.41% and 0.28%, respectively. Another issue: Saving money isn’t fun.
As the Federal Reserve raises rates, the financial incentive (i.e., interest rates) for accountholders to save also typically rises. That takes care of one issue. But can credit unions make savings fun?
According to supporters of prize-linked savings, the answer is "yes."
Prize-linked savings (PLS) programs attempt to re-write financial behaviors by making the act of saving money exciting through the possibility of instant gratification.
Here's how it works: An accountholder opens a PLS account with a set amount of money and makes deposits at any time. Financial institutions offer little-to-no interest rate on money held in a PLS account. Instead, the FI combines the interest payments it would have paid on its PLS accounts and offers larger payouts to a few random winners of PLS drawings.
The passage of the American Savings Promotion Act in late 2014 allowed banks and credit unions to establish PLS accounts in any state that approves the programs. Up until then, federally insured institutions were forbidden from offering promotional raffles, although select state-chartered credit unions first offered these accounts as far back as 2009.
Outside the United States, these accounts are not so uncommon. The U.K., for example, has allowed lottery-driven savings for the past 30 years. And Brazil, Germany, Iran, Japan, South Africa, Turkey, and others all offer PLS accounts.
National PLS Programs
The first national PLS project, Save to Win, launched in 2009 with the express purpose to make saving money fun.
“A big challenge is that saving is not much fun,” Timothy Flake — executive director of the D2D Fund, which helped design Save to Win — told Bankrate in 2015. “For a lot of us, it’s the antithesis of fun.”
In the first year, credit union members participating in Save to Win opened more than 11,000 accounts across the state of Michigan and saved $8.5 million.
Save to Win requires depositors to open a 12-month Save to Win share certificate with a minimum opening deposit of $25. Depositors must make deposits every month, and for every $25 increase in their monthly balance, they earn one entry into a monthly drawing — up to 10 entries per month. Save to Win does not offer a grand prize, unlike some other PLS programs. Rather, drawings occur every month and quarter, which can vary by state, and prizes range from $25 to $5,000.
Since 2009, Save to Win financial institutions have awarded $2.4 million in prizes.
Where Members Can Save To Win
Credit unions in the following states offer prize-linked savings accounts through Save to Win:
State League Programs
In January 2016, the Minnesota Credit Union Network launched WINcentive Savings. In this PLS program, 22 credit unions with nearly 5,500 accounts have awarded more than $40,000 in prizes. Members may open a WINcentive account with a minimum deposit of $5 and earn up to four entries per month for every $25 increase in their monthly balance. WINcentive prizes range from $25 to $5,000,
In October 2017, the Minnesota Credit Union Network announced a partnership with the Louisiana Credit Union League (LCUL) and Del-One Federal Credit Union ($437.6M, Dover, DE), the first financial institution in Delaware to provide a PLS.
“We are committed to helping members live the best financial life possible, and this product speaks to that commitment,” says Horacio Garcia-Korosec, director of innovation at Del-One. “The product has been especially popular in low-income areas where saving is often difficult.”
The LCUL program has a different brand from MCUN. It’s known as Lucky Lagniappe Savings, a play on the Louisiana-French word for “a small gift received with a purchase” and to date has 13 participating credit unions. Like WINcentive, Lucky Lagniappe requires a minimum opening deposit of $5. Unlike WINcentive, Lucky Lagniappe allows a maximum of five drawings per month based on every $20 increase in their monthly balance. The program pays monthly cash prizes worth $100 and quarterly prizes up to $1,000.
Also in 2017, the New York Credit Union Association launched its own program, Lucky Savers, directly modeled after Save to Win. As of February 2018, program participants have opened 5,300 accounts and saved more than $9.6 million.
A Credit Union Solution
Individual credit unions offer their own variations of PLSs, as well. Neighborhood Credit Union ($639.4M, Dallas, TX), established its Prize Savings Account in 2007 to encourage members to save while having fun.
PLS programs weren’t legal in Texas until 2017, so the credit union ran the savings program as a sweepstakes for 10 years. This meant the credit union was putting up its own money, which limited the value of prizes. Since the new legislation has passed, Neighborhood has used members’ deposits to help fund the program and offer better prizes.
Prize-Linked Savings Legalization Timeline
Currently, 25 states allow prize-linked savings programs. Here’s when the accounts were legalized.
2010: Maine, Rhode Island
2011: Nebraska, North Carolina, Washington
2014: Indiana, New York
2015: Virginia, Arkansas, Minnesota, Oregon, Illinois
2016: New Jersey, Louisiana, Missouri, Kansas, South Carolina, Arizona, Massachusetts
2017: Montana, Texas, Delaware
A sweepstakes is a promotional drawing in which the sponsor distribute prizes at no charge to the participants. It’s a game of luck. A lottery is a means of raising money by selling tickets and giving prizes to holders of numbers drawn at random. It’s a game of luck with an entry fee.
“Our members earn a market rate of interest on their savings account while at the same time having a chance to win a fantastic cash prize,” Neighborhood CEO Chet Kimmell said in a press release.
Neighborhood members receive one drawing for every $25 increase in their monthly Prize Savings Account balance. Members are eligible for weekly drawings of up to $1,000; monthly drawings of up to $2,675; and quarterly drawings of $10,000. And at the start of each year, the credit union draws a winner for a $49,999.99 grand prize. Accountholders earn an entry for every $25 in monthly average daily balance (total monthly balance divided by days in that month) in the savings account as of Dec. 31.
For many savers, the chance at winning is a draw. Although Americans tend not to save, they do tend to gamble.
Gambling contributes approximately $137.5 billion to the U.S. economy annually, according to Statista. And according to a 2015 survey by Nielsen Scarborough, 77 million Americans had visited a casino in the previous 12 months. By introducing the lottery element into a savings product, PLS accounts try to improve savings behavior through excitement and chance. That's why PLS participants walk away with the deposits they made over the year plus interest.
“We want to assist our members, of any age, in developing good financial habits that will prepare and carry them through life,” said Glenda Burkett, vice president of marketing at Credit Union of America ($805.4M, Wichita, KS) regarding the Heartland Credit Union Association’s launch of its PLS program for Kansas and Missouri credit unions.
That’s a sentiment to which Bob Eike agrees.
“The program provides a fun way to save,” the CEO of Century Credit Union ($97.5M, St. Louis, MO) said on the Heartland Credit Union Association’s website.
However, like the lottery, PLS accounts are not a substitute for a long-term investment plan. The rate of return is not especially high, especially for those who do not win monthly or quarterly prizes. Members are more likely to earn better returns through an IRA or 401K.
But as the national savings rate hits the lowest point since the Great Recession, and eight in 10 Americans live paycheck to paycheck, PLS accounts encourage credit union members to take the first steps to saving.
“With so many people having little to no emergency savings,” said Darren Werth, assistant vice president of marketing at Heartland Credit Union ($306.1M, Hutchinson, KS), “this program can help fill the gap.”
Want more credit union strategies? Sign up for the CreditUnions.com free newsletter.