Connecticut bank sees success in offering prizes for saving

By Macaela J. Bennett, Greenwich Time

What if you didn’t have to gamble to win the lottery?

The payout isn’t exactly PowerBall, which won someone nearly $759 million last year; it’s typically closer to a few thousand dollars. But it’s a prize people can win for investing in their savings.

First County Bank, which is based in Stamford and has branches around southwestern Connecticut, says one of its most popular savings accounts acts sort of like a raffle, complete with $1,000 prize payout that’s awarded quarterly.

Customers don’t use scratch-off tickets or pull levers on slot machines. They make deposits of $25 or more in their “FirstPrize $avings” accounts, and each deposit — capped at ten per month — win them another chance to win.

First County Bank has offered the product for a little more than a year, opening up hundreds of accounts every month, said Chairman and CEO Rey Giallongo. The winners have used prize money to save for a new car and fund vacations, but, most importantly, executives believe the chance of winning is prompting people to save more than they otherwise would, said SVP of Retail Banking Willard Miley.

“The importance of financial education to our constituency is embedded in our DNA,” Giallongo said. “We vetted this product extensively, and the reason we began offering it goes back to our mission to promote savings. It provides an additional incentive to promote savings. The prize might be just enough to entice people to save.”


Lottery or raffle-style savings products are often called prize-linked savings accounts, or PLSAs.

While countries all over the world have been offering iterations of them for decades, the United States is relatively new to the game, because it was illegal for most American financial institutions to tender them until 2014.

Until the federal government passed the American Savings Promotion Act, most states had a monopoly on hosting lotteries. Previously, several states had individually passed laws to allow some PLSAs, but the federal legislation opened up the opportunity to banks across the country.

Years before the federal government took up the issue, First County Bank and the Connecticut Bankers Association were lobbying Connecticut to join other states in passing legislation to make PLSAs legal, Giallongo said. Those efforts culminated in a law passed in 2013 and amended in 2014, which made it possible for First County Bank to offer a prize-linked savings option, according to Tom Mongellow at CBA.

First County Bank learned of the concept through Massachusetts-based industry group Commonwealth, which helped several states launch successful programs.

Combining excitement with certainty

Analysis of some of America’s earliest prize-linked savings programs show there’s sizable consumer demand for accounts that blend gambling with the certainty of saving.

“This overlap between prize-linked savings and lotteries is important as survey results show that low-income American families believe they are more likely to build wealth by playing the lottery than by traditional saving with compound interest,” according to a paper published in 2008 by several Harvard Business School professors and a Commonwealth executive. “The power of compound interest provides little incentive to savers with short and uncertain savings horizons and small principal balances that generate meager amounts of interest.”

Depending on the bank, PLSAs operate differently. At some, customers forfeit their interest, which is used to fund the prizes. That’s not the case at First County Bank, where account holders earn interest at a tiered rate on par with its other savings products, Giallongo said.

That’s a crucial distinction, according to Phil Lane, an associate professor of economics at Fairfield University. “Is it a way to encourage people to save? Yes,” he said. “It’s another service to help people put aside more than they would.”

But a prize can’t replace the power of compounding interest on savings, he said.

Lane acknowledges that PLSAs have the potential to cultivate better saving habits, especially among those who may not otherwise save at all, but he warns they won’t necessarily help someone “achieve long-term financial stability.”

It will take more time for First County Bank to gather the data that will help them determine how their prize-linked savings option influences customers’ savings options, Miley said, but they’re happy with the outcome so far.

Looking ahead, the bank is considering more ways to use PLSAs. “The fundamentals would stay the same,” Miley said, “but maybe we’ll change it a little for tax season where if you have your tax return deposited in this account, we’ll double the prize.”