What is a Prize-Linked Savings Account?

Let’s face it – saving money can be hard! When you have extra cash on hand it can be tempting to spend it, but impulse buying can wreak havoc on your savings goals. The good news is that there is a type of savings account that can provide you with a sense of “instant gratification” while still allowing you to save. It’s called a prize-linked savings account. Sometimes referred to as “sweepstakes accounts” or “lottery-linked savings accounts”, they come with a chance to win prizes based on your saving habits, typically in the form of cash. 

Let’s take a closer look at prize-linked savings accounts and how they can be beneficial:

How do prize-linked savings accounts work?

When you open a prize-linked savings account, you deposit money just like you do with a regular savings account. Then, when you meet the requirements of the account you become eligible for a chance to win a prize. Typically, you’ll need to deposit a certain amount of money within a specified period of time in order to be eligible for the prize drawing.

The frequency of prize drawings, and the minimum requirements for being eligible, will vary depending on the financial institution. In some cases, the more money you deposit, the more money you can win. In other cases, the more money you deposit, the greater your chances of winning. This is the case with BankFive’s Lucky Piggy Savings Account which allows you one entry to a monthly $1,000 prize drawing for every $25 you deposit throughout the month*. 

If you do win a prize from a prize-linked savings account, it’s important to note that your winnings will be subject to income tax. In most cases the bank will deposit cash winnings directly into your prize-linked savings account, and will report the prize on your 1099-INT form.

It’s also worth noting that prize-linked savings accounts aren’t available everywhere. Some states have laws that restrict financial institutions from offering them. For example, while prize-linked savings accounts can be offered by both banks and credit unions in Massachusetts, they can currently only be offered by credit unions in Rhode Island. For this reason, BankFive’s Lucky Piggy Savings Account is currently only available to residents of Massachusetts. 

What are the benefits of a prize-linked savings account?

1. They’re low risk. A prize-linked savings account allows you to experience the same kind of thrill provided by a lottery ticket or a slot machine – without the risk. When you gamble, there is a fairly high probability of you losing your money, but with a prize-linked savings account there’s nothing to lose. If you don’t win the prize, your savings are still intact.
2. They provide an incentive to save. If additional deposits can increase your chances of winning, or increase the amount of money you can win, you’ll likely want to deposit as much as possible. This additional encouragement to put money into your savings account on a regular basis can help you reach your savings goals faster.
3. There’s typically a low barrier to entry. Most prize-linked savings accounts can be opened with a minimum deposit of around $25. This is true of BankFive’s Lucky Piggy Savings Account. A low opening deposit requirement can be a huge benefit to those who are just getting started with saving and who don’t have a large amount of money on hand.
4. You could win! Let’s be honest – it’s fun to win prizes. With a prize-linked savings account you can experience a thrill each time there is a prize drawing. Plus, if you win, you’ll have some extra cash to buy something special, or keep in your savings account to reach your savings goals even faster.

A prize-linked savings account can provide a boost of excitement for any account holder. If you’re a Massachusetts resident who is interested in learning more about our prize-linked Lucky Piggy Savings Account, visit BankFive.com/LuckyPiggy or visit one of our branches today.