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Senate Passes Bill To Allow Banks To Offer Prize-Linked Savings Accounts


Senate Passes Bill To Allow Banks To Offer Prize-Linked Savings Accounts

The Senate recently passed a bill that will allow banks to offer prize-linked savings accounts. These accounts offer a chance to win money or a prize based on deposit activity. The tradeoff is that these accounts pay less interest. As an example, instead of earning 0.50% on a savings account, the customer may earn 0%, but he or she would get a chance to win $1,000.

The bill, called the American Savings Promotion Act, was introduced in October 2013 by U.S. Senators Jerry Moran (R-Kan.) and Sherrod Brown (D-Ohio). It passed the House in September. In both the House and the Senate, the bill received broad bipartisan support so the President is expected to sign it.

The main intent of prize-linked savings accounts is to encourage non-savers to save. In short, the chance of winning a prize is much more of an incentive to save for many people than earning a low interest rate. According to the text of the bill:

prize-linked savings products have been shown to successfully attract non-savers, the asset poor, and low-to-moderate income groups, providing individuals with a new tool to build personal savings

This bill, if it becomes law, only amends federal laws to allow banks to offer prize-linked savings accounts (also called savings promotion raffles). States would also have to ensure state laws allow these accounts. At that time, banks would then be able to offer these accounts to customers.

Apparently the federal laws didn’t stop Michigan from allowing its credit unions to offering prized-link savings account. For the last couple of years, several Michigan credit unions have joined together in a program called Save to Win. Here’s an excerpt of the Michigan Credit Union League’s description of the program:

A provision in the Michigan Credit Union Act allows state and federal-chartered credit unions to offer prize-linked saving raffles to their members in which a savings deposit can constitute entries into a raffle drawing. Through 2013, more than 12,500 Michigan credit union members saved $33 million with the Save to Win program.

My Take

I don’t think there are any savers who would choose prize-linked savings accounts that pay little or no interest over regular savings accounts that pay higher interest rates. These prize-linked savings accounts may help some non-savers if they’re motivated to replace lottery spending and other wasteful spending with deposits into these accounts.

Most savers would prefer banks and credit unions work on offering higher interest rates rather than running these prized-link savings accounts.

Also, I think savers would like to see our representatives work on bills that would actually help savers. Unfortunately, a bill that can actually help savers would probably not get broad bipartisan support. For example, bills have been introduced to remove the Fed’s dual mandate of ensuring price stability and maximum employment. The dual mandate would be changed to a single mandate of ensuring price stability. This could make it easier for the Fed to hike rates. However, several economists and lawmakers insist that low interest rates help reduce the unemployment rate. They’re dead set against dropping the dual mandate.

Another type of bill that could help savers involves changes in the tax code. For example, during his Presidential campaign, Mitt Romney, advocated a plan that would eliminate income tax on a certain amount of interest income.

Four years ago I suggested other tax policy changes that could help savers. Unlike the American Savings Promotion Act, these kinds of policy changes affect tax revenue for the government and income tax distribution. These are very partisan issues.

Can you think of any laws that Congress could pass that could actually help savers and receive bipartisan support?

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Anonymous   |     |   Comment #1
One has never gone bankrupt taking advantage of the stupidity of the American people...
Anonymous   |     |   Comment #7
Your one sentence says it all. 

Stupidity and gullibility!  Comes with the dumbing down of the U.S.A.  Uneducated and Ignorant masses!  Get what you vote for and/or get the consequences by not voting at all.
Anonymous   |     |   Comment #2
How about tax free IRA distributions to pay for all healthcare costs?
Anonymous   |     |   Comment #3
A change in IRS Tax Rules to make long-term dividends and deposit account interest taxed at the same rate.
Anonymous   |     |   Comment #5
Annual and/or quarterly dividends are taxed as ordinary income. Long-term capital gains (held past one year mark) are subject to long-term capital gains rates. In any case, the effective tax rate for moderate savers is often below the 15% long-term cap gains rate.
Anonymous   |     |   Comment #4
The Feds are just easing people into inevitable social security cuts down the proverbial road. "Hey, folks, we gave you lottery bank accounts and MyIRA options. Too bad you didn't save enough to offset the new limits on social security payments. Have a nice day"

Anonymous   |     |   Comment #8
SS is already broke, the deficit is already intermingled in the general fund, it is matter of time before this becomes public knowledge, the democrats will allow millions more illegals on the SS benefits in a year or two and that will totally break the system. We can not afford to pay benefits to people that never contributed to the fund and that is how a nation is destroyed.
Anonymous   |     |   Comment #6
Make the threshold on when SocSec payments are taxable subject to a COLA and retroactive to the 1980s when the current amount was set!
Anonymous   |     |   Comment #9
That is far to logical a notian for them to ever let that happen.
Margaret (anonymous)   |     |   Comment #11
What a joke.  After years of contributing to 401K am now having to take required minimum distribution.  Because of income my  Social Security Part B has been doubled as has my Part D for drugs.  The generous 2.7 increase in Social Security has been offset by a decrease of $200.00 in my SS monthly payment.   Leaves me wondering if it is worth saving for retirement and what will be the next grab at my savings.
Anonymous   |     |   Comment #12
Not fair at all and most likely based on your income, 85% of your social security will be taxable.
Anonymous   |     |   Comment #13
Your 401k (contributions AND earnings) was not taxed for many years. Minimum distribution is simply a way of collecting the tax owed in a timely manner. Also, you're quite free to invest the remaining money from the withdrawals you are required to make. The SS data is here for everyone to see and use in planning. http://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html

Social security COLA was 1.7% for 2015, not 2.7%.

Anonymous   |     |   Comment #14
Proper Prior Planning Prevents ...Poor Performance.  The infamous 6/7 Ps.  I have the issue too but I not as big since started in my 60s taking from an IRA so that I was just under the next tax bracket...I like to now have after tax assets to draw on.  AND, having (hopefully this year but we'll see) the benefit of the Qualified Charitable Distribution there is no problem for some/all.  Thus, those coming to 70 1/2, plan for the event!
Anonymous   |     |   Comment #18
Regardless of what you do, the IRS will sooner or later get the taxes that you owe on the tax deferred IRA.  Not sure there are really any good strategies on how to minimize the taxes either.  I have looked at Roth IRA conversions, but you still have to pay taxes when you do the conversion. 
Anonymous   |     |   Comment #16
"The generous 2.7"
It is 1.7% and your SS income is taxed at 85% and may put you in higher income bracket and you lose twice.
Anonymous   |     |   Comment #17
I'll take the 1.7% increase in social security, but I would also like to see the income brackets that are used for determining taxes on my social security adjusted higher due to inflation.  This is where a retiree is getting ripped off.  These income brackets have not been adjusted higher and are the same as they were since 1994.,
RJM   |     |   Comment #19
Kind of pitiful that the senate doesn't have bigger things to worry about that "gaming" like bank accounts.

Besides, doesn't our economy depend on spenders ?
paoli2   |     |   Comment #20
How does this stupid idea help retirees who need to live off of their interest?  You can't pay that bill with the idea that you "might" win a prize at some time.  I cannot believe how dumb they think savers really are!
Anonymous   |     |   Comment #21
They don't have to "think" about it. The financial institutions pay research firms to tell them how "dumb" people really are and what it takes to get them to deposit money with their banks and credit unions.
Anonymous   |     |   Comment #22
It's not a bank's job to help anyone live off interest.
paoli2   |     |   Comment #23
#22  You are right.  It's our job but we can't do it if they don't give it to us even at the dismal rates they are doing now.
Anonymous   |     |   Comment #25
What exactly are they supposed to give to you? Retirement planning should not include such nonsensical thinking. Markets fluctuate, end of story.
paoli2   |     |   Comment #30
#25 If you are a poster on DA you should know that banks do not "give" us anything.  It was the wrong use of the word give.  Ever since I have been a saver, it was always a known fact that when we "loaned" our funds to banks as deposits, they usually paid us for the use of our money by "giving" us interest on these accounts and/or CDs.  If your retirement planning doesn't include making extra money on the money you are trying to save then I don't know how you can ever build up a decent savings or make money to use now.  Haven't you ever heard the expression "Make your money "work" for you"?  This is what interest and dividends we earn does for us.  It makes our money "work".
Anonymous   |     |   Comment #31
In the current market what interest rate(s) do you think your FDIC-insured deposits should earn?
paoli2   |     |   Comment #33
I would be thrilled with a 3% 5 year CD rate but in the current market realistically, I would have to go with 2.75% .  That would fit my needs for the time being but I just don't see it happening any time soon.  Unfortunately, we are now a One World Economy and what happens to other nations can affect what our banks can do here.
Interested Party
Interested Party (anonymous)   |     |   Comment #24
Um, back on topic... How about a savings account that offers an additional 1% at year end on ending balance in the account. That might get a non saver's attention.
Anonymous   |     |   Comment #26
Instead of waiting for some sort of Cracker Jack prize I think I'll just go out and buy a brand new $50k pick-up truck. Everyone else in my neighborhood seems to be doing that.
Anonymous   |     |   Comment #27
While I agree with your "Cracker Jack" prize comment, I wouldn't go out and buy a new $50k pick-up truck just because others in your neighborhood are buying them.  Try to "keep up with the Joneses" is what go a lot of people in financial trouble.
DCGuy (anonymous)   |     |   Comment #28
This would make savings almost like a lottery.  Get rich quick.  Makes one closer to being a day trader (or Publishers Clearing House contestant).
Anonymous   |     |   Comment #29
This whole idea is about as worthwhile as a piggy bank retirement savings strategy. It means absolutely nothing and is unworthy of congressional action. People who don't save are fools and changing fools into small time gamblers is even more foolish. The only money attracted to these accounts comes from people who understand what .05% interest really means. Heck, why not take a chance while earning 0%. Idiots are not abandoning lottery tickets in favor of these accounts!   
emdtech   |     |   Comment #34
In the early 1980's recession, Feds instituted the "All Savers" product to allow you to earn tax free up to $2000 in interest income to help people save. Unfortunately this program ended as now the government in more interested in people spending their money verses saving. 
Anonymous   |     |   Comment #35
This is a scam to get the American people to give their hard earned money over to the treasury to play with 
Anonymous   |     |   Comment #36
Or the bigger scam of requiring Wall St. to get hold of it!