What are Prize-Linked Savings Accounts?

Prize-linked savings accounts can be an innovative way to save money. Typically, for every $25 you deposit you’ll earn entries into a drawing where you can earn cash prizes.

Each program has its own unique rules but there are usually rules around when you can withdraw money from the account – this is probably to prevent abuse, such as someone depositing the same $25 over and over to earn more entries. So before you sign up, make sure you fully understand how they work. 

How Prize-Linked Savings Accounts Work

Using a prize-linked savings account is like playing the lottery but you save money in the process. The first step, if you live in a state that allows this, is to open a prize-linked savings account at a participating bank or credit union. 

Your deposits go into an FDIC-insured (bank) or NCUA-insured (credit union) account. This account also earns interest and you can get entries that can win cash prizes.

In most cases, you earn a cash sweepstakes ticket for every $25 that you deposit. A $75 monthly deposit can earn three prize entries, for instance.

Most savings programs offer weekly and monthly cash prizes. Others do monthly and quarterly drawings. The prize amounts can be between $10 and up to $10 million in cash prizes. In most cases, the grand prize drawing is $5,000 or less.

Withdrawing funds may incur a withdrawal penalty or cause you to lose prize entries. You won’t want to pay your bills from your prize-linked account – use a free checking account instead.

While the first prize-linked savings accounts in the United States launched in 2009, the United Kingdom first launched this concept in 1694 to pay off war debt. Different nations currently use prize-linked accounts to encourage savings.

The United Kingdom’s NS&I Premium Bonds is one of the most successful active programs. UK residents can make cash deposits and buy bonds. In contrast to the United States prize-linked accounts, the UK premium bonds don’t earn interest. Instead, the NS&I pools the interest and distributes it to random winners monthly.

Winning Cash Prizes

You might say that prize-linked savings accounts are an alternative to the lottery. Instead of going to the gas station and buying $25 of Powerball tickets, you put the money into an interest-bearing savings account that can win cash prizes.

The bank gives you tickets that can win cash prizes based on how much you deposit each month. Like the lottery or a raffle contest, each program lists the drawing frequency, odds of winning, and the number of available prizes.

Depending on the program, you can pick the winning numbers for each ticket. Matching all of the numbers means you can win the grand prize. Other programs randomly pick an entry ticket and notify the winner.

The big difference between the lottery and prize-linked savings accounts is that if you don’t win, the money is still in your savings account – unlike losing lottery tickets.

Potential Taxes

Any interest or prizes that you earn are taxable like the savings account interest you earn. You will receive a tax statement at the end of the calendar year stating your taxable income.

Who Can Join?

You will need to be at least 18 years old to participate and use a participating bank or credit union. Depending on the program, you may have to live in a particular state or county. Approximately 33 states allow banks and credit unions to offer prize-linked savings accounts.

Passage of the American Savings Promotion Act in 2014 is making it easier for regional banks and credit unions to offer a “savings promotion raffle.” We are starting to see some programs that are available nationwide, but their popularity is still mixed.

Potential Fees

Most banks don’t charge any account fees to have a prize-linked account. You can expect to maintain a $25 minimum balance to keep your account open.

Similar to bank CDs, you might pay a withdrawal fee with some programs. The Save to Win program in several states lets you make one withdrawal per 12-month term. However, that withdrawal has a $25 penalty and a second withdrawal closes your prize-linked account.

Other prize savings accounts have more flexible withdrawal rules resembling a cash management account. You can make multiple penalty-free withdrawals each month but you sacrifice your prize drawing tickets as your account balance is lower.

Participating States

These states allow banks and credit unions to offer prize-linked savings accounts:

Source: Wikipedia (as of December 2019)

If you live in a participating state, you will need to find a participating bank or credit union. In many cases, only regional financial institutions offer prize-linked savings accounts. At the moment, you won’t see big banks like Chase or Wells Fargo offer prize-linked savings accounts.

You may need to live in a particular county within a state that the credit union serves.

When your local financial institutions don’t offer a prize-linked account, you can search for online options that link to your current bank account. As long as you’re at least 18 years old and live in the United States, you can most likely open a prize-linked savings account.

Best Prize-Linked Savings Accounts

Below are some of the prize-linked savings programs you may be eligible for. If you have multiple options, compare the account deposit rules, potential fees, and prize frequency.

Save to Win

The first US prize-linked savings account is Save to Win and available at participating credit unions in 22 states. If your local credit unions offer prize-linked accounts, it’s most likely with the Save to Win program.

By joining an eligible credit union, you open a 12-month Save to Win share certificate. Each $25 deposit (up to the first $250 in monthly deposits) earns weekly and quarterly prize drawings.

Each state has different weekly and quarterly prize amounts. On average, you can expect to win $25 from a weekly drawing and up to $5,000 on a quarterly giveaway.

Your Save to Win account balance earns 0.25% APY (as of October 12, 2020). As your certificate term ends after 12 months, the credit union renews your term at the then-current interest rate.

There are no account service fees for Save to Win but the withdrawal rules are strict. You can only make one withdrawal during the 12-month certificate period which is subject to a $25 early redemption fee. A second withdrawal results in account closure. You must wait at least six months after closing your account to open a new Save to Win account.

Lucky Savers

The Lucky Savers program for New York credit unions has similar deposit and withdrawal rules as Win to Save. You open a 12-month share certificate that earns interest. You can earn entries on the first $250 in monthly deposits in $25 increments.

It’s possible to win up to $500 in monthly prizes and up to $5,000 in quarterly prizes.

WINcentive

Participating Minnesota credit unions offer WINcentive savings accounts. You can earn up to four entries per month in $25 increments. The monthly giveaway is worth $100 and $1,000 for the quarterly contest. There’s also an annual $5,000 drawing.

Walmart MoneyCard

If you use prepaid debit cards, the Walmart MoneyCard lets you win up to $1,000 per month. Depositing at least $1,000 per month waives the $4.95 monthly fee. The first $1,000 in your savings account balance earns up to 2% interest.

Walmart.com purchases using the Walmart mobile app earn 3% cash back, 2% back at Walmart fuel stations, and 1% back on in-store Walmart purchases (up to $75 per year).

Using Yotta or another prize-linked savings account can be better as you’re less likely to pay fees. However, if you don’t have a bank account, the MoneyCard can be a good alternative.

Are Prize-Linked Saving Accounts Worth It?

You should consider opening prize-linked savings accounts in these instances:

• Can save at least $25 per month
• Want to win cash prizes
• Want your savings account balance to earn interest
• Don’t need quick access to your cash
• Want to avoid account fees

Use a regional credit union savings program like Save to Win can be your best option if you prefer local bank access. A prize-linked savings account might be the first bank account you open. As your account balance grows, you might consider opening additional accounts with more features to meet your daily money needs.

A high-yield savings account can be a better option if you want to earn a higher ongoing interest rate. Winning cash prizes is exciting but the odds of getting the grand prize are low. However, if you have spare cash, keeping a small balance with Yotta Savings is a free way to play the lottery without losing money.

You should also avoid prize-linked savings accounts if you need quick access to your cash as you can pay hefty withdrawal fees. A free checking account lets you make unlimited withdrawals and you can also pay bills from the same account.

Alternatives to Prize-Linked Savings Accounts

You won’t lose money with a prize-linked savings account, in most instances. Opening an account is a good idea if it can help you save money and avoid fees. But these alternatives can be a better fit for your money goals.

Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC. The Chime Visa® Debit Card is issued by The Bancorp Bank or Stride Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. Please see back of your Card for its issuing bank.

Acorns

If you prefer to invest and earn passive income instead of playing games of chance, Acorns is a good fit. You can start investing with as little as $5 into a taxable or retirement account.

Acorns can round up your payment card purchases to the nearest dollar and invest the difference. There’s also an online shopping portal to earn cash rewards that Acorns invests with your normal contributions.

An online checking account is available with Acorns mid-tier Personal Plan($3/month) and upper-tier Family Plan($5/month). This checking account offers up to 55,000 fee-free ATMs, a “Smart Deposit” micro-savings tool, and up to $250,000 in FDIC insurance.

If you only want a taxable investment account, the monthly fee is $1. If you invest regularly, you can offset the monthly fee.

To start saving money for your child, Acorns offers custodial investment accounts with the Family Plan. Your child can take ownership of this fund as an adult and potentially make tax-free withdrawals.

See our Acorns app review to see your investing options.

Summary

Prize-linked savings accounts are not as common as traditional banking products. However, they can be a free and exciting way to save money each month. Even if you don’t win the grand prize, your deposits earn interest and you have more cash for a rainy day.