Americans need to save more. But it's difficult to encourage people to consistently contribute to a nest egg for years on end. For some, it’s hard to prioritize less pressing long-term goals when there are current expenses to cover. For others, a better savings habit means unwanted lifestyle changes.
Although credit unions have added nearly 40 million savings accounts in the past 10 years, the Federal Reserve reported in 2016 that nearly half of the U.S. population was unable to cover a $400 unplanned expense without borrowing money or selling something.
Clearly, many Americans need to save more. So, what gives?
One issue is that saving money doesn't present an obvious, immediate benefit. According to the NCUA, the national average rates for a regular savings account at credit unions and banks as of December 2017 were 0.13% and 0.14%, respectively. As of December 2009, those rates were 0.41% and 0.28%, respectively. Another issue: Saving money isn’t fun.
As the Federal Reserve raises rates, the financial incentive (i.e., interest rates) for accountholders to save also typically rises. That takes care of one issue. But can credit unions make savings fun?
According to supporters of prize-linked savings, the answer is "yes."
Prize-linked savings (PLS) programs attempt to re-write financial behaviors by making the act of saving money exciting through the possibility of instant gratification.
Help Members Make Better Decisions
The field of Behavioral Economics is proving how traditional economic models are terrible at predicting consumer behavior. When every message, price, and process a member encounters sways how they analyze options, it’s no wonder they make seemingly irrational decisions. Luckily, with the right tools, credit unions can tweak their member experience to encourage positive decision-making. Join Understood Connections and Callahan & Associates for a two-day workshop to build your better behavior toolkit.
Here's how it works: An accountholder opens a PLS account with a set amount of money and makes deposits at any time. Financial institutions offer little-to-no interest rate on money held in a PLS account. Instead, the FI combines the interest payments it would have paid on its PLS accounts and offers larger payouts to a few random winners of PLS drawings.
The passage of the American Savings Promotion Act in late 2014 allowed banks and credit unions to establish PLS accounts in any state that approves the programs. Up until then, federally insured institutions were forbidden from offering promotional raffles, although select state-chartered credit unions first offered these accounts as far back as 2009.
National PLS Programs
The first national PLS project, Save to Win, launched in 2009 with the express purpose to make saving money fun.
“A big challenge is that saving is not much fun,” Timothy Flake — executive director of the D2D Fund, which helped design Save to Win — told Bankrate in 2015. “For a lot of us, it’s the antithesis of fun.”
In the first year, credit union members participating in Save to Win opened more than 11,000 accounts across the state of Michigan and saved $8.5 million.
Save to Win requires depositors to open a 12-month Save to Win share certificate with a minimum opening deposit of $25. Depositors must make deposits every month, and for every $25 increase in their monthly balance, they earn one entry into a monthly drawing — up to 10 entries per month. Save to Win does not offer a grand prize, unlike some other PLS programs. Rather, drawings occur every month and quarter, which can vary by state, and prizes range from $25 to $5,000.
Since 2009, Save to Win financial institutions have awarded $2.4 million in prizes.
Where Members Can Save To Win
Credit unions in the following states offer prize-linked savings accounts through Save to Win:
State League Programs
In January 2016, the Minnesota Credit Union Network launched WINcentive Savings. In this PLS program, 22 credit unions with nearly 5,500 accounts have awarded more than $40,000 in prizes. Members may open a WINcentive account with a minimum deposit of $5 and earn up to four entries per month for every $25 increase in their monthly balance. WINcentive prizes range from $25 to $5,000,
In October 2017, the Minnesota Credit Union Network announced a partnership with the Louisiana Credit Union League (LCUL) and Del-One Federal Credit Union ($437.6M, Dover, DE), the first financial institution in Delaware to provide a PLS.
“We are committed to helping members live the best financial life possible, and this product speaks to that commitment,” says Horacio Garcia-Korosec, director of innovation at Del-One. “The product has been especially popular in low-income areas where saving is often difficult.”