Prize Linked Savings: combining gambling and saving

Prize Linked Savings: combining gambling and saving

Did you know that one-third of Canadians admit winning the lottery or receiving a large inheritance is part of their financial plan? Think about that for a second. Then think about how many people you know who’ve actually won the lottery or received a large inheritance. Yeah, exactly.

Now that we’ve established that very few people will actually win the lottery or receive a large inheritance (certainly not one-third of Canadians), you’ll also likely agree with me that these 3 statements are true:

  1. We don’t save enough money.
  2. Many people are looking to make money, but don’t necessarily want to put in the effort.
  3. Canadians love to gamble (a recent study showed that low-income families spend 9% of their annual income on lotto tickets)

So what if there was a way to potentially win a huge jackpot, without having to risk losing any money at all?

Enter this thing called Prize Linked Savings (PLS). Maybe you’ve heard about it before. There was a Freakonomics podcast on it back in 2010, but I hadn’t heard about it until just recently. Basically, it’s a kind of savings account that pools the money from all depositors, and pays out a big “lottery prize” every so often based on a portion of the interest generated from that pool of money. This combines the excitement of playing the lottery, with the safety net of having your money in a legitimate savings account. The best part is, you would never be able to lose the money you originally deposited – you’d just lose out on some of the interest (and subsequent compound interest) for the duration your money is “invested.”

This isn’t a new concept; it was once run so successfully by a bank in South Africa that the government decided to sue the bank after its own lottery revenue started dropping (and this was after iniitally approving the program). In Michigan, their Save To Win program (offered by credit unions) is going strong, and awards monthly cash prizes as well as an annual prize of $100,000.

Here are some thoughts I had about Prize Linked Savings, and what it would mean in Canada:

Wouldn’t you earn more investing your money instead?

That was my initial thought when I first started doing research into Prize Linked Savings. You aren’t guaranteed a win – you might never win. So wouldn’t it make more sense to invest your money in indexed funds or even a regular savings account, and watch your money grow that way? Plus I wonder, even if you did end up winning the lottery at some point, if you would actually come out ahead over X amount of years if you carefully invested your money (and earned compound interest) instead of leaving it up to chance.

Isn’t this perpetuating gambling addictions?

I asked this to a friend, who was also interested in learning more about Prize Linked Savings. Isn’t it morally wrong of banks (or any organization) to endorse gambling as a means to make money? As stated above, low-income families spend 9% of their annual income on lotto tickets. Perhaps it would be more advantageous to teach them better money management techniques by saving and investing their money, instead of feeding into a potential addiction.

But, my friend made a good point: he said that people are going to gamble regardless of how much effort we put into informing and teaching the public about good money management. They always have, and they’ll likely never stop. So maybe we need to take that part of people’s lives seriously and find a different and unique way to help them save, instead of trying to force them to do something they don’t think they have the capacity to do. For many people, they think that the lottery is their only chance at becoming “rich” … but at least with a PLS, they’re actually saving the money they’re “gambling” away, instead of losing it all in a slot machine or playing blackjack. That’s fair.

Would it work in Canada?

I don’t know. PLS kind of has an identity crisis. Is it a banking product, or is it a lottery? Still, I can see there definitely being a market for something like this. As a nation, we aren’t saving enough money. In 2012, our savings rate was 3.3% (down from 3.8% in 2011). And the projected number for 2013? Even lower, at 3%. :| Giving people the opportunity to potentially win a life changing amount of money, while still putting cash away for the future? That’s a really big incentive. Plus, if you consider how ridiculous our savings rates are these days, perhaps your money is safer in this PLS lottery system, than investing it in mutual funds or any other financial product that has an element of risk to it.

The Save to Win program in Michigan has seem tremendous growth. In 2009, the program had 8 credit unions participating, with 11,700 accounts for a total saved of $8.6 million (average account balance was $734). By 2010? They had 36 participating credit unions, 16,200 accounts, and a total saved of $27.9 million (average account balance was $1,268). That’s a huge jump. But it does make me wonder how much of that money being put into Save To Win accounts, has been potential revenue lost for the state-run lotteries.

So for that reason, I don’t see the Canadian government allowing something like this to happen if it means taking a bite out of their lottery profits. I do think it would be good for Canada to have a product like this. There’s a market for it, and it’s an interesting and unique way for non-savers to save.

Would you participate in a prize linked savings lottery?

About Krystal Yee

I'm a writer, personal finance blogger, and marketing professional based in Vancouver. I'm a former Toronto Star (Moneyville) columnist, author of The Beginner's Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I'm not working, you can usually find me running, playing field hockey, or plotting my next adventure.


  1. ” In 2012, our savings rate was 3.3% (down from 3.8% in 2011). And the projected number for 2013? Even lower, at 3%. :| ”

    I used to think this was a bad things. But then, out of the blue, a wild Demographics 201 appeared!

    Canadians are getting older and older. According to the 2011 census, 4 945 055 canadians were 65 years and over. In other words, there are more seniors in Canada than the total population of Beautiful British Columbia.

    When you are older, it is normal to spend your savings – that’s the reason why we have RRSP, to save for old age.

    So, it is normal for canadians to save less and less because more and more canadians, like the baby-boomer generations, is getting in that stage of life where you should be spending your money.

    Because the meaning of life is not to work your life to save money to then spend it on medical services and medical drugs. Insert function [fun] after program [debtfree] is completed ;)

    Otherwise, that mid-life crisis will hit hard… real hard.

  2. I don’t think I would be interested in something like that. It just seems like a waste of time. I would rather save or invest my money but for some people it might help them curb their gambling addiction while actually saving money.

  3. I don’t think I would participate in something like this because I could do far better with my money investing it elsewhere and keeping the interest. For folks who are absolutely horrible with savings though, I like this approach. Yeah, they might never see any interest on the account but at least they are saving principal. It beats them spending that money on lottery tickets and saving nothing.

    • I agree. I don’t think I would participate in something like this either, because I think I can make more money investing and saving in something else. But like you said, it will work for those who are absolutely horrible with savings. At least they’ll be able to put a little bit of money away. Still, I would love it if we could somehow educate people about saving, instead of feeding into a potential gambling addiction.

  4. The UK has been selling Premium Bonds for ages with a prize-winning component – there’s a great article about it here:

    • Thanks for the link! Yeah I know the UK has been doing it for a while. It’s such an interesting concept – and if it works for the UK and in states like Michigan, I can see how it could work for us here in Canada.

  5. I personally would not participate but think it is a great idea. as the above comment, I think tying it in with bonds would be great and may also take away the moral dilemma of private companies profiting from gambling. The government is already in the gambling business so why not expand it. I am a believer in harm reduction initiatives and think this almost fits in that category. if low income families instead put 9% in savings that might win a prize, that would be a HUGE victory.

  6. Actually, Britain’s been running a successful program along these lkines for decades: NS&I Premium Bonds. My wife (an ex-pat) has chits dating back at least 30 years. While the amounts are small, the process is the same — you buy your ticket and can cash it in at any time. During the period between purchase and redemption, you numbers are in the monthly draws. Some eyars ago, we did a check and found that, like the vast majority of gamblers everywhere, we had exactly diddly-squat in winnings.

  7. I’d never heard of these plans but I think they’re interesting. They may motivate savings from people who otherwise would not save. (Sort of like hospital and disease lotteries encourage “donations” from people who often don’t give to charity.) In both cases, hopefully it leads to regular savings and regular charitable giving. I doubt the target is people who are already saving.

  8. Since that time I have put aside the money that I would have put toward the lottery and instead have placed it into CDs. I’ve opened 5 CDs over the last 2 months which has my savings at more than $125 — an amount that I haven’t had saved in years. I plan to continue to place the money I would have spent on the lottery into CDs for the rest of the year and should have close to $1000 in savings by then. And if I’m lucky, I may win some cash prizes along the way or $100,000 at the end of the year.

  9. This is the first I have heard of this and I have to say that I think it is a great idea. Who wouldn’t love a lottery where you get your money back. I rarely play the lottery but know people who do (and some of the probably shouldn’t) so this could be an alternative.

  10. I would take advantage of this as long as my money could be pulled out at anytime. This would be perfect for my accounts that I regularly add money to for short term savings. For example my Big Vacation savings, and my Emergency savings account. I’m not particularly looking for interest on these and what i have them in now earns negligible interest.

    If i had the chance to win $1k or $10k a month, or even $100k a year, i’d be all in. Bring it!

    • That’s true! I always thought of PLS as long-term saving… but you’re completely right. For short-term savings, or even an Emergency Fund, that would be a pretty awesome way to potentially earn money.

      • Yes, I expect it would depend on the rules of the PLS, and the benefit for the banks/credit unions running them, to determine minimum deposits/length of deposit to qualify for the prize drawings.

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