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When Wesley Villafane, a health care worker from San Francisco, decided to open a prize-linked savings account, he was just trying to find a better way to get his money to work for him.
“I wanted to try another aspect of banking out because my normal bank interest rates were not giving me any significant returns," he said.
2020’s low bank rates meant he wasn’t earning much interest on his regular accounts, so Villafane decided to go with a lottery-style savings app called Yotta. The app enters its customers into weekly cash prize drawings in exchange for saving money and referring others to the app.
For a while Villafane only won very small amounts — less than a dollar — in the drawings. Then, the Monday before Thanksgiving, he got the news. He had won $2,500.
While not everyone will win big, prize-linked savings accounts can be an opportunity for consumers to win money simply by saving it.
Tara Krejcarek, a spokesperson for one such program called Saver’s Sweepstakes, says prize-linked accounts help consumers improve their financial well-being.
“There are zero risks. Participants earn entries to win cash prizes by depositing a minimal amount each month. It’s a no-lose proposition,” she says. “Even those who don’t win cash prizes still win because they are saving money to help secure their financial future.”
Here’s how these accounts work and what to know about them.
A prize-linked savings account works like a lottery or a sweepstakes, in which consumers open a savings account and enter to win sums of money ranging from less than a dollar to millions. After an initial period during which people can join the contest, sign-ups close and a winner or winners are selected. Here are some examples of these accounts from around the country.
The opportunity to win cash. It's an obvious pro: a chance to win money with little effort.
It encourages saving. Some prize-linked accounts give people more chances to win money the longer they contribute to a savings account. So even if the customer doesn't win a prize, they’ll beef up their savings account in the process.
“It’s not always easy to save,” said Krejcarek. “Saving is like dieting; you have good intentions, you know it’s good for you, but you keep putting it off because it’s not fun or you are not motivated. Prizes motivate savings. Prize-linked accounts tie the thrill of winning to saving.“
If it’s a sweepstakes, you can typically enter without opening a savings account. Sweepstakes in general usually have a stipulation in the fine print that no purchase is necessary to enter. In the case of a prize-linked savings account, you may be able to enter a sweepstakes without opening an account, such as by mailing in an entry or emailing your contact information to the sweepstakes organizer.
The account might not be the best fit for your needs. Potential prizes aren’t the only thing to consider. Make sure the account has low or no fees and that its services are accessible to you via branches, ATMs or online services. You also may want to check how easy it is to close your account if you decide you no longer want it.
There’s a good chance you might not win cash. Depending on the number of other entrants and the size of the prize, your chances of winning may be pretty low.
There are some other types of accounts out there that can reliably help boost savings, too.
Bank bonuses. Some banks offer sign-up bonuses and promotions for opening various accounts. to customers who open a savings account and deposit at least $10,000 in money that's new to Chase within 20 days of opening the account, maintain a $10,000 balance for 90 days and keep the account open for six months. Note that with bank bonuses generally, you’ll have to pay taxes on the bonus.
High-yield savings accounts. Though you might not get quite the payday that you would from a big cash prize, a high-yield savings account is a solid option to steadily grow an emergency fund or cash for other short- to medium-term goals.
Though not everyone can be a prize winner, Krejcarek says that for those who do win, the money can be life-changing. One winner, she remembers, was able to put a down payment on a new home, while another used the money to help fund their grandchild’s college education.
“One of our winners had $5 in her checking account when she received the call that she had won $5,000,” she said. “The money she won enabled her to get back on her feet.”