Prize-linked savings accounts can provide meaningful incentives for consumers to increase their savings, according to Brian Plum, president and CEO of Blue Ridge Bank in Luray, Va. An ABA member, Plum testified today before a Senate Aging Committee hearing on innovations to promote financial security.
Blue Ridge Bank was the first bank in the country to offer a prize-linked savings account, he said, following legislation by Congress in 2014 and in Virginia the following year that permitted banks to offer the product. Blue Ridge’s PLS program — called “Jackpot Savings” — provides one prize entry for every $25 in a customer’s account, with monthly drawings for up to $200 plus an annual drawing with a $10,000 grand prize. After just a year of offering the program, Plum expects to hit the $1 million mark in PLS balances this summer.
At Blue Ridge, the interest rate is the same as on traditional savings; however, PLS participants are limited to one penalty-free withdrawal per month to encourage saving. “One of my favorite stories is of a customer who was motivated to open a savings account after reading about the product,” Plum said. “She wanted to set money aside to pay for a vacation she has been planning for a long time instead of utilizing credit. Not only has she made significant progress toward her goal, but she was also one of our monthly prize winners.”
Plum added that his bank is partnering with a tech startup to develop gamification tools to promote savings. “This partnership provides a tremendous tool to fundamentally improve the lives of consumers, and I suspect we are only at the very beginning of that trend,” he said. “Community banks like Blue Ridge Bank can be a nimble and able partner for so many looking to offer financial literacy solutions.”