In the United States, legal lotteries and raffles are the exception, rather than the norm. Most states ban lotteries with few exceptions. However, in recent years, many states have opened up lotteries ever so slightly to allow for promotions that encourage people to save money. These savings promotions come in the form of a prize-linked savings account.
Prize-Linked Savings Accounts
A prize linked savings account offers account holders a chance to win an amount of money simply by making a deposit of money in a savings account. The deposit and prizes may vary, but, to illustrate, a bank might offer account holders one chance to win $25,000 for every $15 deposit an account holder makes within a month’s period of time. After the month is over, the bank would run a drawing based on the numbers of $15 deposits made by each account holder, and one lucky winner would gain $25,000.
One critical difference between prize-linked savings accounts and traditional lotteries is that the account holder keeps her deposits and interest earned on those deposits. Reports from pilot programs seem to show that these types of deposits tend to accumulate, rather than disappear. (See the links at the end of this article.) This is encouraging as prize-linked savings have been a successful draw for people who might not otherwise retain an account at a bank.
From a depository institution perspective, this program presents a niche banking opportunity. That is, offering a unique and still little-used incentive for opening a savings account and making regular deposits. The cost of prizes, spread over many accounts, does not need to unreasonably increase the cost of funding to the bank. For new account holders, this can be an attractive way to earn a little interest and also to get a chance to increase the income from a deposit account.
Niche Banking Opportunity
As this sort of prize linked savings program directly falls within the definition of a lottery, states wishing to permit this sort of program have been changing their lottery laws to allow this savings promotion to be conducted legally by banks and other financial institutions. Federal laws prohibiting banks from conducting a lottery have also been changed to allow banks and financial institutions to offer prize-linked accounts.
Lawful Lottery
In Texas, banks may offer prize linked savings account where a chance to win is obtained by the deposit of an amount of money in a savings account or savings program. The fees, interest earned, and withdrawal limitations for the prize-linked account must be commensurate with the fees, interest earned, and withdrawal limitations applied to other accounts at the bank offering the program. The program must also be administered in a safe and sound manner for the financial institution.
Federal law has been amended to permit prize linked savings accounts where a person may obtain a chance to win by depositing a specified amount of money in a savings account or savings program. Each chance to win must be equal, and the prize must be designated in advance. The text of the change implies that the prize could be money or other prizes, like a trip, hotel stay, or valuable property.
Many other states permit similar prize-linked savings account programs that banks and other financial institutions may offer to their customers.
Pilots and Studies
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