Yotta and other lottery-style savings accounts

By Katie Martens

If you had to, could you come up with $2,000 in 30 days?

That’s the question researchers asked participants from 13 different countries, including the United States. The study found that approximately half of Americans surveyed would not be able to come up with $2,000 in 30 days, which means that they stand only one emergency or crisis away from really dire circumstances. [here is the link to the study, for some reason, Google doesn’t recognize it as a valid link: chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.brookings.edu/wp-content/uploads/2011/03/2011a_bpea_lusardi.pdf]

Next question, how much do you spend on lottery tickets each year?

Researchers found that not only are Americans bad at saving, but Americans are great at spending. In 2019 alone, Americans spent $91 billion on lotteries. Other research has discovered that approximately $38 per month is spent by households on lottery tickets.

Researchers and entrepreneurs are trying to harness the allure of the lottery and tether it to solve America’s low savings rate. The combination is a new financial product that offers the thrill of the lottery with the goal of accumulating actual savings in your savings account.

Enter the prize-linked savings account, sometimes referred to by its acronym, PLS or PLSA. Here is the basic framework for how PLSAs operate:

• Choose an amount of money you want to put into the account;

• You can take the money out at any time;

• Each month, the company takes the interest pool and lotteries it off so that one lucky person will become a millionaire or win a free Tesla or some other prize;

• There’s also the opportunity to win smaller prizes as well

It’s a savings account that you can access whenever you like, and the principal will never go down in value. You may earn a little interest, but you may also come out with a remarkably large payment. Researchers have found that people would rather have a small chance at a life-changing payout, than an almost certainty of very little. Choosing to use one of these PLSAs allows you to maybe buy a coffee with the interest that comes off your $100 account, but the trade off is that there’s a remote possibility that you’ll have a life-changing payout.

Let’s take a look at some of these services in action:

1. Yotta Savings - an app that you can link to a regular savings account that incentives customers to save by offering entries into weekly drawings with the chance to win up to $10 million. Every $25 saved gives a customer another entry into the lottery, and the account has no minimum deposit requirements or monthly fees.

2. Save to Win - a lottery concept run by select credit unions participating nationwide. For every $25 that someone puts into these one-year certificates of deposit, they are going to get a chance at cash prizes. Cash prizes are awarded every month by participating credit unions ranging from $50 to $500. There is an annual grand prize of $100,000.

3. Saver’s Sweepstakes - offered by certain credit unions in Wisconsin and for every $25 that a member grows their monthly balance, they are entered into a monthly, quarterly, and annual cash drawing.

4. WINcentive Savings - open to members at participating credit unions in Minnesota. For every $25 a customer saves, they are entered into a prize drawing that either occurs monthly, quarterly, or annually.

5. Walmart’s Prize Savings - Walmart does a monthly cash sweepstakes for consumers who either transfer money from their Walmart MoneyCard account to their MoneyCard savings account or who mail in an entry (no purchase necessary in either case).

The downsides to PLSAs is that the interest rate may not be as high as you can find through a High Yield Savings Account, and if you’re not motivated by a remote possibility of winning big, then it may not be a good use of your money.