Prize Linked Savings: a no-lose lottery?

I heard a story on the news about "prize linked savings" accounts starting up in Michigan. They are illegal in most states, but have been available in the UK for decades

Article here.


My basic understanding is:
You could put your $1000 in a savings account and earn 1% (this number is hypothetical)
OR
You put your money in a prize linked savings account. They then pool the 1% interest in with all the other customers. Once a month, they randomly draw a winner. (I assume that you have a greater chance of winning if you have more money in your account).
So if you win that month, you get a jackpot consisting of all customers' accrued interest. If you lose, you keep your $1000, but get no interest. I assume the bank gets their profit because they can invest the money in vehicles that pay off at above 1% (like any other savings account).

The credit unions are marketing it as a lottery you can't lose. I guess they are trying to fill a niche between gambling and investment. I guess if you make a list of bets covering both investment and gambling, money markets are the safest with the least potential return. State lotteries are the worst bets, with the highest possible return. These PLS accounts try to go smack in the middle.

On one hand: "The excitement of gambling! The practicality of savings!"
On the other hand: If they really are trying to compete with state lotteries, I'm not sure I like the idea of that. Lottery proceeds generally go to state budgets for things like education. The "Premium Bonds" in the UK are state-run.

Would you invest/play if this was available in your area? Is anyone from Michigan or the UK doing this?
I think I would skip it. I would like to keep my investments and entertainment separate.

The drawback, of course, is that you're missing out on that accrued interest; especially since there are some online high-yeild savings accounts which (in the past) have been closer to 3%.

I might be willing to use it with my actual gambling bankroll; i.e. when I'm not using my gambling money at a casino, it sits in this account and gives me a chance at winning.

It's an interesting idea. I'm also okay with it potentially "cutting in" on state lottery business, because I don't really think the government should be running lotteries anyway :-P

Enrollment and administration expenses exist. Someone has to pay them.
Its a way of nicking the saver without him noticing the blood loss.

Flea: Yeah. It's a weird concept. If you look at it as a savings account, it's a horrible idea. If you look at it as gambling, it's not a bad bet.

There's a bank in Mexico, BBVA-Bancomer, which offers monthly drawings of cars, trips and other prizes for one specific account type. From time to time it offers a guaranteed small prize (like a cook-ware set or a silver necklace and easrings set) for maintaining a particular monthly balance. I don't know whether it generates interest or not.

UK Premium Bonds were a standard gift for a new born from their god parents. At least in my families. I have a couple of hundred in them, they've never hit, nor do I expect them to, but it's nice that they are out there...

Quote: dudestupid

Would you invest/play if this was available in your area? Is anyone from Michigan or the UK doing this?
I think I would skip it. I would like to keep my investments and entertainment separate.

With an interest rate of only 1% I''d consider this scheme. But they would be better to have say 10% be winners. I wouldn't try if I had to beat 5,000 people, but only 10 people why not. Considering you get no interest in a checking account.

The reason for this is that savings account interest returns are so lousy, that hardly anyone is bothering to open up a savings account. By constructing this "lottery", the bank gives its customers a reason to at least IMAGINE themselves getting a substantial return--though as we on this site know, his EXPECTED return won't be any different. But any man in the street would give up $1 for a 10,000-to-one chance of winning $1,000, even though that would be irrational. So since the payout in the savings lottery is probably much less unfavorable than that, it looks like a good idea to that man in the street.