It’s hard to get bipartisan cooperation, but everyone loves a lottery.
And two U.S. senators – one Democrat, one Republican – think dangling a big payday is just the right incentive to get people to save.
So they’ve introduced the American Savings Promotion Act, which would allow banks to offer savings accounts that provide a chance to win cash prizes.
That type of account is banned under a federal law forbidding banks from operating lotteries. But the law hasn’t prevented a handful of states from allowing credit unions to offer these products.
Incentive is the name of the game here.
These accounts offer chances to win prizes based on deposit activity, playing on the impulse that gets Americans to spend almost $61 billion per year on lottery tickets.
The more you save, the more chances you have to win.
But it’s no risk. So even if you don’t win a prize, your money is still safely protected by federal deposit insurance.
The trade-off is that you’ll get a lower interest rate than you would with a traditional account in return for a chance at a large payout.
In Michigan, one of the states that permits prize-linked accounts, for every $25 put into a special Save to Win CD at a participating credit union, you’ll earn one entry into a monthly drawing for 50 to 75 prizes, each totaling between $2,500 and $3,750.
There’s also a grand prize drawing for six $10,000 prizes when the CD period is over.
We wrote about Michigan’s Save to Win program in September 2012.
It’s been fairly successful.
Financially vulnerable account holders in Michigan – individuals with less than $40,000 in household income – have seen their accounts grow by an annual average of 34%, according to an analysis by the Boston-based Doorways to Dreams Fund, a nonprofit that works to help low-income people achieve financial security.
And that’s the real goal of the American Savings Promotion Act – to get those who haven’t been regular savers to start stowing away more cash.
Of course, that’s a lot of us these days.
The percentage of each paycheck Americans saved has declined by more than half over the past 50 years, according to the 2013 Economic Report of the President.
In fact, the personal savings rate dropped back below 5% in October of 2013, well below what it was in the 1960s and ’70s.
Most financial experts say we need to save around 10% to 15% of our annual income to ensure a secure retirement, so we’re pretty far off the goal line.
Dedicated savers may not benefit from these types of accounts, but prized-linked savings certainly could provide the boost needed for those just getting started.