Prize-Linked Savings: The Lottery You Cannot Lose

A lottery ticket converts a small certain loss into a tiny chance of a large gain. A savings account converts a small certain gain into a small certain gain. Prize-linked savings (PLS) is the third option: it converts the small certain gain into a tiny chance of a large gain while leaving the capital alone.

That is the entire idea, and it is old. The economists who wrote the standard overview of these products open by noting that "for over three centuries and throughout the globe, people have enthusiastically bought savings products that incorporate lottery elements".

The structure, stated precisely

Kearney, Tufano, Guryan and Hurst define it as cleanly as anyone: PLS accounts "distribute periodic sizeable payments to some investors using a lottery-like drawing where an investor's chances of winning are proportional to one's account balances", and — the decisive clause — they are "unlike a traditional lottery in that the principal is returned to the investor, either at the maturity of the instrument or on demand."

Mechanically:

1. Everyone deposits. The provider invests the pool, or is a government that simply borrows it.
2. The interest that would have been paid to depositors is not paid to depositors. It becomes a prize fund.
3. Each unit of deposit buys one entry per draw. Entries are proportional to balance, so nobody is advantaged per pound.
4. The prize fund is distributed to a small number of winners.
5. Your stake is untouched and withdrawable.

The arithmetic that makes it not a lottery

Write R for the pool rate — the rate the provider would otherwise have paid. If the entire pool interest is distributed as prizes and nothing is skimmed, then for the depositor body as a whole:

total prizes = R × total deposits

so the mean return across all depositors is exactly R. Nobody's expected return is negative. Your worst case is winning nothing, in which case you end the year with precisely what you started with, less inflation.

Compare a lottery ticket, where the equivalent identity is:

total prizes = RTP × total stakes, with RTP around 0.50 for draw games

and the stake is gone either way. That is the whole difference: the lottery raffles your capital, PLS raffles your interest. Britain's National Lottery returned about 55p of every pound staked as prizes in 2024-25. A PLS scheme returns 100% of the pool interest as prizes plus 100% of the capital, because the capital was never at stake.

What PLS does not do is improve your expected return. It converts a certain R into a lottery over R. If you would otherwise have earned 4% with certainty and the PLS pool rate is 4%, you have swapped certainty for variance at par, and — as the next section shows — the median depositor ends up below the mean.

The real schemes

United Kingdom — Premium Bonds. The oldest surviving large-scale example, announced by Harold Macmillan in April 1956 with sales opening in Trafalgar Square on 1 November 1956 under the slogan "Savings with a Thrill!" Prizes are tax-free, capital is repayable on demand, and the scheme is run by NS&I. The distribution is skewed enough to deserve its own treatment: see UK Premium Bonds.

Ireland — Prize Bonds. Run by the Prize Bond Company, a joint venture between An Post and FEXCO, for the Irish state. Bonds cost €25 each with a €25 minimum and a €250,000 maximum per person; there are weekly draws with prizes up to €100,000 and a €500,000 monthly jackpot, prizes are tax-free, and holdings are repayable any time after 90 days.

United States — Save to Win. The first large-scale US pilot, launched in Michigan in 2009 with the Michigan Credit Union League and the D2D Fund, exploiting a Michigan provision permitting credit unions to run "savings promotion raffles". The product was a 12-month share certificate opening at $25, entries capped at 10 a month, interest of 1 to 1.5%, monthly prizes of $15 to $400 and a $100,000 grand prize. In its first eleven months, eight credit unions opened 11,600 accounts and took over $8.6 million in deposits.

South Africa — the Million-a-Month Account. First National Bank's MaMA, a no-fee 32-day notice account paying 0.25% nominal interest with one prize entry per 100 rand, ran from January 2005 to March 2008. By the end it had over 1.1 million accounts and 1.4 billion rand of deposits. It was closed after the South African Lottery Board sued to have it declared an illegal lottery and the Supreme Court found for the Board. The revealing detail is what happened next: fourteen months after the scheme was shut, FNB "continued to maintain 53 percent of the accounts and 83 percent of the balances."

What the research actually found — and what it did not

The Save to Win survey, completed by 6,027 of the certificate holders, is the most cited evidence:

That is a strong signal on take-up: the product reached people that conventional savings products were not reaching, and more than half of them said they had not been regular savers.

It is not a finding about saving. The authors are explicit, and the honesty is the reason to cite them rather than a press release: "to date, there is no evidence on the fundamental issue of whether these products increase total household saving. This remains an important question for future research." Money moved into a Save to Win certificate could have come from a current account, from a mattress, or from a lottery habit — the survey cannot tell you which. Anyone claiming PLS "creates new savings" is claiming more than the data supports.

Why the United States took so long

Under the National Bank Act a lottery has three elements: a prize, awarded by chance, for consideration. PLS accounts arguably satisfy all three, which put them in conflict with both state anti-lottery statutes — often written to protect a state lottery monopoly — and federal banking rules barring national banks from participating in lotteries.

The unlock was the American Savings Promotion Act, passed in 2014, which carved savings promotion raffles out of the federal prohibition. State-level enabling legislation followed: Commonwealth reports that 34 states have taken measures allowing state-chartered institutions to offer them, alongside products such as WINcentive Savings, launched in Minnesota in January 2016 at 14 credit unions, and a Walmart and Green Dot product in December 2016.

How to evaluate one honestly

Three questions, in order:

1. What is the pool rate? This is the mean return, and it is the only number comparable to an ordinary savings account. If the provider will not state it, that is the answer.
2. How skewed is the prize table? The more the fund sits in a handful of enormous prizes, the further the typical depositor falls below the mean. Premium Bonds works this through with real numbers.
3. Is the capital genuinely protected, and by whom? Government-backed, deposit-insured, and neither are three very different answers.

The PLS comparator puts pool rates and prize structures side by side, and the country-by-country list covers what exists where.