Introduce
Customers with a Price-Linked Savings Account (PLSA) can earn cash rewards based on the amount deposited. Interest accrues on a PLSA like on a bank account, CD, or savings bond. They serve a similar purpose to regular savings products but allow customers to enter real money sweepstakes. A deposit can join them. These savings accounts work like a lottery, allowing low-income people to save money regularly, increasing their chances of winning the jackpot while protecting their money from other risks.
This is how a fixed-price savings account works.
1694 the first PLSA was used to pay off British military debts. Although PLSA has been practiced in the UK for over 60 years, it has only become popular in the US in the last decade. Lottery savings account and lottery savings account are two other names for prize savings accounts. Named or not, the goal of these accounts is the same: to get people to start saving money regularly. Banks began to take note of the general lack of savings among American households, which remains to this day. In April 2022, the proportion of income remaining after paying living expenses was about 4%. 2 Even so, Americans will spend nearly $95 billion on the lottery in 2021.
To encourage more Americans to use their passion for the lottery to save, a consortium of eight Michigan credit unions launched the Save To Win PLSA program in 2009. By the end of the first year, 11.66 6 people had opened the account, depositing $8.56 million, or $734 per depositor. The legality of PLSA is up in the air due to regulations prohibiting banks from running lotteries. Finally, in 2014, Congress passed the American Savings Promotion Act. For the first time, financial institutions can run a "savings draw." 1 As of May 2021, 34 states have legalized Profit Savings Accounts (PLSAs).
Pros and cons of price-linked bank accounts
Benefits Explained
You can encourage low-income people to save:
The chance to win big money makes PLSAs attractive to first-time savers and those with small amounts of wealth who are low-to-moderate-income. The Save-To-Win program has proven that PLSA can increase the number of savers and their monthly savings.
Some clients end up with a bit of luck:
If you win the lottery, you can win more than if you win a small prize. No matter how small, a monthly tip can go a long way toward meeting basic necessities like food and shelter.
They offer lottery-like prizes without the risks of:
Money deposited into a PLSA is riskier than in the lottery. If you don't win, you keep your deposit and interest. Your money is as safe in a PLSA as in any other savings account if the financial institution provides deposit insurance.
Disadvantage explained
PLSAs earn little to no interest on the:
Customers who do not win a prize will not see a significant increase in their prize-based savings account income due to the lower level of interest earned.
Inconsistent returns:
Traditional savings accounts may accrue little interest, especially during low-interest rates, but at least the bank pays them a fixed rate on time. When they adjust tariffs, they usually do it in small increments. Whether or not you are rewarded for your contribution to PLSA is entirely random. Because of this, individuals can have difficulty figuring out how to budget for their monthly income.
What might stop you from switching to a traditional savings account:
If savers are preoccupied with profit opportunities, they may not switch to savings products that offer higher interest rates and more significant savings growth. Banks may discourage this because low-interest checking accounts are less profitable for institutions than other accounts.
Diploma
Price-linked savings accounts are an unusual way to store future money but may appeal to the adventurous. The best way to know if a price-linked account is the right one is to think about why you are saving money in the first place. You can consult a financial planner anytime to formulate the best financial strategy to help you achieve your goals. It's a good option for low- and moderate-income people who want to save more money while earning little interest. These accounts are different from regular savings accounts in the long run.
