Savings lotteries: The right kind of gamble

How states can take a win-win chance on savings

Savings lotteries are a win for everyone.

Update: The American Savings Promotion Act was passed by Congress and signed into law in December 2014. 

If you open a new savings account at Case Credit Union in Lansing, Michigan, you’ll also get an unusual perk: a chance to win cash prizes in monthly drawings for every $25 in deposits you make, plus a shot at a $10,000 grand prize in a drawing at the end of the year.

Case Credit Union is one of 39 credit unions in Michigan (and one of 62 credit unions nationally) participating in Save to Win, an effort launched by the Boston-based nonprofit Doorways to Dreams Fund (D2D) to expand the use of so-called “prize-linked savings.”

This innovation aims to change how people think about saving – “reframing” it from something many people associate with sacrifice and denial into something fun. Or as D2D puts it, “a game with real rewards, rules, suspense and possibility.”

So far, evidence shows this approach works.

In Michigan, consumers have opened more than 40,000 new accounts and put aside more than $72 million in savings since 2009, when the Michigan Credit Union League first launched Save to Win. Moreover, the overwhelming majority of savers are keeping their accounts open and making deposits.

Michigan savings lotteries have helped 40,000 new savers open accounts.

Also promising is that many of the people opening Save to Win accounts are financially vulnerable consumers who would otherwise be the least likely to save. In Nebraska, which launched its own Save to Win effort in 2012, 31 percent of new accountholders surveyed earned less than $40,000 a year, 43 percent had no regular savings plan and 55 percent owed more than $10,000 in debts (not including a mortgage).

Save to Win works not just by rewarding savings but by replacing bad financial habits with good ones. Lee Preston, for example, is a retired auto worker who won $100,000 in the 2011 grand prize drawing for Michigan’s Save to Win. In a video on the Save to Win site, Preston is described as opening a Save to Win account as an alternative to spending money on the state lottery.

A recent study by a group of researchers led by Emel Filiz-Ozbay found that people with prize-linked savings accounts were more likely to save than people holding a standard interest-bearing account. In particular, the researchers found these accounts to be particular appealing “among men, self-reported lottery players, and subjects with low bank account balances.”

But while prize-linked savings may be an especially helpful strategy for more vulnerable consumers, it can be effective for all Americans. D2D Founder Peter Tufano notes that the United Kingdom has essentially offered a national savings lottery through its “Premium Bond” program since 1956. According to a 2008 report by Tufano, between 22 percent and 40 percent of British households save through the program, which accounted for nearly four percent of total household deposits in 2006.   National savings lotteries are also offered in such far-flung locales as Indonesia, Kenya, Pakistan, and South Africa.

In the United States, the biggest obstacles to the expansion of prize-linked savings are state and federal gambling and banking laws. Many states disallow lotteries (except the one sponsored by the state). 

Federal gaming laws currently prohibit nationally chartered banks from offering savings lotteries.

And at the federal level, according to the Heritage Foundation’s Stuart Butler, provisions in federal law meant to stop organized crime or prevent the use of banks as vehicles for traditional gambling are now unintentionally blocking the national adoption of efforts such as Save to Win. Unless and until these laws are changed, a savings lottery offered by Citibank would be illegal. (Current federal law is in fact a principal reason why credit unions, not banks, have been the first to offer these programs.)

Since the success of the Michigan effort, nine states have now changed their laws to allow prize-linked savings products.  And in Congress, Sens. Jerry Moran (R-KS) and Sherrod Brown (D-OH), along with Reps. Derek Kilmer (D-WA) and Tom Cotton (R-AR) have introduced bipartisan legislation to exempt “savings promotion raffles” from federal banking and gaming laws.

It’s no secret that Americans are a nation of non-savers. The nonprofit CFED finds that nearly half of American households lack the cash savings to survive three months at the poverty line.

This is why innovations such as prize-linked savings are appealing across the ideological spectrum. As the Heritage Foundation’s Butler and his colleagues write:

While financial education, readily available savings opportunities, and economic incentives are important to achieving that goal, it is also important to add an element of excitement to saving if it is to be appealing to many Americans. Today, such excitement tends to be limited to lotteries and games of chance that typically impoverish households and neighborhoods.

Prize-linked savings are a tested and intriguing device to divert an impulse for a thrill into a device that builds a positive habit and moves toward the goal of economic opportunity and mobility.”


The practical fix:
Many states broadly prohibit gambling and “private lotteries.” Ten states – Michigan, New York, Maryland, Rhode Island, Nebraska, Washington, North Carolina, Maine and, most recently, Indiana – have amended state gambling and banking laws to allow “savings promotion raffles” and “chance based products” sponsored by banks and credit unions. The American Savings Promotion Act, introduced by Sens. Jerry Moran (R-KS) and Sherrod Brown (D-OH), would achieve similar changes at the federal level.
Champions, allies and caveats:

Champions and allies:

The principal non-profit champion of savings lotteries in the United States is the Boston-based Doorways to Dreams Fund, whose supporters include the Citi Foundation, the Ford Foundation, the Annie E. Casey Foundation and the W.K. Kellogg Foundation, among others. Conservative commentators such as Stuart Butler of the Heritage Foundation have also endorsed the concept. As noted above, federal legislation to allow savings lotteries enjoys bipartisan support.


In some states, such as Iowa, efforts to change state laws have reportedly faced opposition from those arguing that allowing savings lotteries would give credit unions a competitive advantage over banks if federal law isn’t also amended. At the federal level, continuing controversy over the Dodd-Frank banking reform legislation means further changes to federal banking laws are unlikely in the near term.

Model legislation:
  • Indiana (2014): H1235
  • New York (2013): S2145
  • Connecticut (2013): HB 5564
  • American Savings Promotion Act (113th Congress): S1597 and HR 3374


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