Prize-Linked Savings Accounts Offer Incentive to Save

On March 2, 2015, the Senate Commerce Committee unanimously passed (Senate File) S.F. 1043, a bill that, if passed, would allow credit unions to offer prize-linked savings accounts. Prize-linked savings accounts reward participants for saving so they’re motivated to save for their short- and long-term goals.

Affinity Plus Chief Administrative Officer and Chief Information Officer, Keith Malbrue, testified in support of prize-linked savings accounts and provided compelling reasons for why this type of savings account should be allowed. His testimony has been included below:

Good afternoon Mr. Chair and Committee members. My name is Keith Malbrue and I am here to testify in support of Senate File 1043.

In addition to being the Chief Administrative Officer and Chief Information Officer at Affinity Plus Federal Credit Union, I am also a Board member at Doorways to Dreams Fund or “D2D”, a nonprofit that works with the financial services industry, government agencies, national non-profit groups, grassroots community agencies, and public policy organizations to generate promising ideas, pilot test financial products and services, build awareness of the needs and potential of low-income communities, and advocate inclusive social and economic policies.

D2D has long been a passionate advocate for the prize-linked savings account model. These accounts help motivate individuals to save by rewarding smart savings behavior. Prize-linked savings models have been implemented internationally and 11 states have now passed laws to allow for prize-linked savings accounts and help more people save through the excitement of winning.  And this past December, the US Congress passed with bi-partisan support – and President Obama signed into law – the American Savings Promotion Act, which removes federal barriers to broader adoption of prize-linked savings products.

Prize-linked savings products have proven to engage financially vulnerable consumers in the act of saving and help them build their financial security. By injecting fun and the excitement of winning into the act of savings, prize-linked savings products have incentivized first time savers, resulted in long-term savings, and acquired new customers for financial service firms who offer these products.

In 2009, D2D and Michigan credit unions created Save to Win™ (STW), the first scaled prize-linked savings based program. Save to Win offers special balance building certificates of deposit (CDs) that enter members into raffles for cash prizes with each deposit of $25 or more. Michigan credit unions that participated in the initial pilot demonstrated that the possibility of winning – both a large $100,000 annual jackpot and a range of regularly awarded smaller prizes – encourages people to save. Michigan credit unions increased their engagement with financially vulnerable consumers and kept them coming back for more.

The success of Save to Win Michigan inspired other states and entities to launch similar prize-linked savings programs to better serve consumers. The state of Nebraska signed on to Save to Win at the beginning of 2012 and is showing promising gains. In 2012, Save to Win Nebraska engaged 10 credit unions and opened 1,643 Save to Win accounts. These Save to Win accountholders saved over $1.9MM, representing an average savings of $1,200. In 2013, North Carolina and Washington both launched Save to Win adding 13 new credit unions with the product.

Prize-linked savings accounts are working. Across the states that offer them, 62-81% of account holders were financially vulnerable. Overall, between 81-85% of participants rolled over their accounts between years. In 2013, average account balances ranged from $921-$2,662. And since the product was first offered in 2009, 50,000 account holders have collectively saved $94 million.

America is facing a savings emergency. Approximately a quarter of US citizens have absolutely no savings at all and 48% would have to borrow money or sell assets to come up with $400 for a car repair or doctor bill. With the success we’ve seen in other states, there is every reason to be optimistic that we can achieve that same level of attainment here in Minnesota. While Prize-linked savings accounts may not totally solve the savings crisis that we find ourselves in today, they will go a long way towards helping people develop strong savings habits.

As evidenced, prize-linked savings accounts are a tested, successful concept in which consumers earn chances to win by saving in insured financial institutions or through government offered products.   The accounts:

  • Make savings fun.
  • Provide an incentive for people to save more.
  • Help financially vulnerable families become more financially secure.
  • Create a no-lose proposition for savers.  Everyone who saves maintains their deposits, plus whatever interest they accrue, whether or not they win additional prizes.

Thank you for your time and attention and I’m happy to answer any questions you might have.

(Photo: Sen. Vicki Jensen and Affinity Plus Senior Vice President/CIO, Keith Malbrue courtesy of the Minnesota Credit Union Network.)