THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE READ MY DISCLOSURE FOR MORE INFO
Growing up, my parents and grandparents loved to play the lottery. Specifically, the would play the Powerball when it got big, which was anything over $20 million. At the dinner table, we would talk about what we would do with the money and how winning would unleash all sorts of happiness. Having previously written about the lottery, I know that in reality, happiness usually does not follow. However, the $1s spent on the Powerball tickets definitely provided us entertainment value.
Prize-Linked Savings Accounts (PLSA)
Recently, I came across something that peaked my interest, prized-linked savings accounts (PLSA). A PLSA is a savings account with a lottery component attached to it.
Instead of earning the average savings account rate, a paltry 0.06%, you may be tempted to park your money into this interest-free account. That is because by doing so, you enter into a chance to win up to $5,000 quarterly.
Research has shown that these accounts are attractive to consumers who are drawn to the lottery’s large prizes. It’s also a great way to encourage savings, since the deposited money is never lost, unlike that of an actual lottery ticket. Many people look at this as a “no-loss lottery”.
“A big challenge is that saving is not much fun. For a lot of us, it’s the antithesis of fun,” says Timothy Flacke, executive director of Commonwealth, who helped design the nation’s first large-scale prize-linked savings account project, Save to Win, in Michigan.
Save to Win follows the research of Peter Tufano from Harvard Business School. That research revealed that 56% of participants were non-savers before the program began. Save to Win is open to anyone 18 or older and has been especially popular with lower-income individuals who struggle to save.
Now here is one of the kickers with Save to Win. The more money that you save, the greater the chance that you have to win. Account holders are able to enter once monthly and once quarterly for every $25 that they save per month, up to $250. The monthly drawing offers smaller prizes of $25 or $50, which is dependent on the state that you live in. Meanwhile, the quarterly drawing offers a grand prize of up to $5,000.
I do like the thought of contributing $250 a month in order to potentially win $5,000.
So, should you run out to the bank and sign up for a prize-linked savings account ASAP?
Maybe. However, first you should know that prize-linked accounts are only available in a little more than half of U.S. states. That is due to gambling and lottery regulations. Below, you will see the 26 states that allow prize-linked savings accounts. If your state hasn’t authorized these types of accounts, unfortunately, you are not able to participate.
States Where Available
Currently the list of states include: Arizona, Arkansas, Connecticut, Delaware, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New York, North Carolina, Oregon, Rhode Island, South Carolina, Texas, Virginia, and Washington. Additional legislation is currently pending in other states.
Next, you should never count on the lottery, or for this matter, the prize-linked savings accounts, to substitute for a good financial plan. Even if you win money from these types of accounts, you’re more likely to earn superior returns investing your money into the stock market than you would through a prize-linked savings accounts.
If you like the thrill of a no-loss lottery, this may hit the spot for you. There are better investment vehicles available. However, this type of account definitely beats the alternative of playing the lottery each week.