Background

Traditional US saving vehicles are not generally successful at raising saving rates among those on lower incomes. In many countries around the world, savers can invest in Prize Linked Savings (PLS) accounts, such as Premium Bonds in the UK: instead of, or in addition to, a standard rate of interest, there are periodic draws that offer the chance to win a sizeable prize. The prize draw is similar to a lottery in that the more the saver has invested, the greater the chance of winning. Unlike a lottery, the saver does not forfeit their investment. At time of writing, these products are not widely available in the US, and there are laws and regulations that prevent them being issued.

Research question and aims

The authors argue that PLS accounts would be popular in the US, particularly amongst those who are on lower incomes and don’t currently save. They also contend that these accounts would be appealing to financial providers. The review looks at why PLS accounts are likely to appeal to both US consumers and financial providers, considers evidence from PLS accounts worldwide, and explores the legal barriers to issuing such accounts in the US.

Methods

The review includes a wide variety of sources: academic papers, survey reports, government, third sector and commercial publications, presentations, and even song lyrics. There were nearly 30 sources listed, most of which were published between the years 2000 and 2010, primarily in the US and the UK.

Findings

The authors argue that PLSs have appeal because they offer a chance to ‘win big’, and that they make saving fun, and suggest that these accounts would be popular in the US because consumers are already enthusiastic buyers of lottery tickets. They contend that they would be popular with issuers because they are easy to produce and market, it is easy to provide consistent prizes by adjusting the odds over time, and that they make it easy for consumers to liquidate their investment.

The report includes case studies of international PLSs including United Kingdom Premium Bonds and First National Bank of South Africa’s Million a Month Account, and of two experiments with PLS type products in the US - the Centra Credit Union project in Indiana and the Save to Win demonstration project in Michigan.

The report also examines the legislation and suggests that state-run PLS programmes would be of value.

The authors conclude that PLS products are well tested, and do hold appeal, in particular for those with low savings, but that a change in the law would be required before such products could be widely adopted in the US. However, they caution that there is no evidence on whether PLSs increase total household saving.

Recommendations

The authors recommend that the question of whether PLSs increase savings is studied through experimental methods.

Points to consider

• The issue of savings is relevant, however since the report was written in 2010 there may have been changes to the legislation and the provision of PLS products in the US
• The elements of the review that relate to US law are specific and non-transferable. The elements that relate to the value of PLS accounts would be of interest in any other market where they do not exist.
• Whilst the review is of primary interest to policy makers and financial providers in the US, there are some elements of the review that would be of interest to anyone seeking to understand what incentivizes saving.
• There is no information given about how sources were selected or rejected. The authors do, however, use footnotes to give additional details about some of the sources chosen.

Full report

Making savers winners - full report