The American Savings Promotion Act, which will allow banks to offer depositors lottery entries (in lieu of interest) in “Prize-Linked Savings” (PLS) accounts, passed the Senate by unanimous consent last week and is now headed for President Obama’s desk. We congratulate Congress on approving this bipartisan effort, which was led by Congressmen Derek Kilmer (D-WA) and Tom Cotton (R-AR) and Senators Jerry Moran (R-KS) and Sherrod Brown (D-OH). This legislation, which removes federal barriers to the nationwide availability of PLS products, is a promising development to help more Americans build up savings.
Individuals often have trouble amassing large savings accounts that yield significant interest earnings. Some PLS products offer many small prizes, but most offer prizes as large as tens of thousands of dollars. The chance to win one of these can be a lot more attractive than earning interest bit by bit on a small account. Both academic research and prior experience (which dates back to 1694 in the U.K.) suggest that PLS accounts are a good way to help people – particularly those who currently don’t save – maintain a savings account. Most importantly, PLS protects the base amount that is deposited (i.e., it is not at risk in the lottery), thereby providing a safe savings vehicle.
PLS products are currently offered at credit unions in a number of states, and the bill will allow banks to offer the products as well. State legislatures now have to get on board – while the law clears out federal barriers to PLS products, states have to individually authorize the creation of PLS products in their jurisdictions.
Assuming President Obama signs the law in the next few days, banks in several states that have already passed laws permitting PLS products will be able to start offering accounts to customers and, hopefully, more state action will be close behind.
Alex Gold served as a policy analyst for BPC’s Economic Policy Project.