WASHINGTON–Prize-linked savings accounts have greatly gained in popularity among credit unions—but not so much among consumers, according to a new report.
Research released by Pew Charitable Trusts noted 29 states now permit credit unions or banks to offer “prize-linked” savings accounts, with Utah having recently enacted a law and Georgia having passed a measure that awaits the governor’s signature. As CUToday.info has reported, prize-lined savings accounts offer entries into drawings for prizes, as much as $10,000 in some states, every time the account holder makes a savings deposit.
The concept was pioneered by the Michigan Credit Union League with its “Save to Win” program, which has since been picked up by other states, as have similar programs under other names. Congress in 2014 passed the American Savings Promotion Act, removing the restriction that barred federally chartered banks from offering prize-linked savings accounts.
But Pew noted a 2018 study of programs in Michigan and Minnesota by the Pew Charitable Trusts found that while 17% of Michigan credit union members had access to “Save to Win” accounts in 2013, only 1.3% of those members actually opened one. The rate was similar at the two Minnesota financial institutions Pew studied, the organization said.
‘Hold Some Appeal’
Brian Gilmore, senior innovation manager at Commonwealth, a Boston-based nonprofit that promotes prize-linked savings nationwide and designed Michigan’s program, said the Pew study covered the early years of the program, and that participation may be higher now, Pew reported. He suggested in an interview with Pew that some customers might be put off by a withdrawal limit, typically once or twice a month.
Gilmore also noted that Commonwealth’s research shows that between 11% and 19% of prize-linked account holders said they joined the credit unions for the prize accounts, which indicates that they hold some appeal, Pew reported.
“It’s pretty appropriate to think of them as appealing to consumers’ interest in lottery-like products,” Melissa Kearney, an economics professor at the University of Maryland who has studied prize-linked accounts, was quoted by Pew as saying. “The expected return is positive, which makes them a better return than lottery tickets. Evidence suggests this is appealing to people and it will pull people into savings that might otherwise have been gambling or buying lottery tickets instead.”
Pew also noted that prize availability or not, most Americans continue to be poor savers. A Federal Reserve Bank of St. Louis study in March 2019 found the savings rate is approximately 6.5%.