Imagine a kind of lottery in which players can win up to $10,000, but it's impossible for them to lose a dime. Such lotteries are now being offered in by 58 U.S. credit unions in four states. Pending federal legislation would allow banks, too, to offer them.
The object of these lotteries isn't to encourage risk, but to promote saving.
Called "Save to Win" accounts, they work like this: To become eligible to play, a consumer deposits $25 into his or her credit union savings account. For every additional $25 deposited (up to 10 deposits a month), he earns a raffle ticket, which qualifies him for a monthly prize drawing and for a grand prize drawing if the account remains active for a year. The monthly prizes range from $50 to $100, the grand prize, $10,000.
Losers don't lose. They just fail to win. They keep all the money they've deposited, plus interest (in the form of a CD). The prizes are paid for by the credit unions and their associations as a savings incentive.
Sharon Hall, CEO of Express Credit Union in Washington state, has offered the accounts since 2010. "My credit union serves low-income customers," she tells ABC News. "We saw a benefit to offering an incentive win component." So far, she says, feedback from her customers has been 100 percent positive. "I don't know of a member who doesn't like it or hasn't responded well." Winners, she says, take the money and reinvest it, in hopes of winning a bigger prize.
Save to Win was developed in 2008 by the Michigan Credit Union, in collaboration with the Filene Research Institute and the Doorway to Dreams (D2D) Fund, which promotes financial opportunity for low and moderate income consumers.
The number of accounts has grown from 11,700 in Michigan in 2009 to close to 17,000 now in eight states. The number of participating credit unions has grown from eight to 68, and the amount of money saved per year has increased from $8.6 million (an average of $734 per person) to $45.6 million (an average of $3,000). In all, depositors have saved more than $70 million since the inception of the program that might not have been saved otherwise.
The program is aimed at low-income people who have had trouble saving or have never saved before. Such savers, says Melissa Kearney, an economist at the University of Maryland who has studied lottery-based accounts, told the PBS News Hour her research found the accounts' game-of-chance aspect leveraged low-income depositors' desire to win big.
If Washington State Representative Derek Kilmer gets his way, Save to Win accounts will become available not just from credit unions, but from banks, which for now are forbidden to offer them. "Due to outdated federal regulations, banks and federally chartered financial institutions are unable to offer prize-linked savings accounts," says Kilmer. His American Savings Promotion Act would remove that regulatory barrier.
"Today, most Americans aren't saving enough," says Kilmer. "This bill will encourage folks to save by creating a chance to win a prize with each deposit. The best that can happen is you reap a windfall. The worst that can happen is you've saved money."
Doesn't Kilmer's bill risk creating s nation of compulsive savers? Says the congressman, "We can only hope!"