Does Prize-Linked Savings Work? What the Research Shows

Swapping interest for a chance at a prize sounds like a marketing gimmick, so it’s fair to ask whether prize-linked savings actually works, or just sounds fun. It turns out to be a real question with a real answer. For more than a decade, researchers have tested the idea inside credit unions, at a South African bank, against fifty years of UK Premium Bonds sales, and in controlled experiments, and the findings line up: when saving comes with a chance to win, people who never saved start saving. What follows is the evidence, including the parts that flatter it less.

Does prize-linked savings actually work?

Yes, by the measure that matters most: it gets people to save who otherwise wouldn’t. That result shows up across very different settings and methods, from real bank programs to online experiments, which is what makes it convincing rather than a single hopeful study. What it doesn’t do is beat a good interest rate on average return. It changes behaviour, not the arithmetic of a prize.

Five pieces of research carry most of the weight. They span four continents and several different ways of measuring the same question, and they mostly agree.

None of these was run by a company selling the product, which is the first thing to check on a claim like this. Three are peer-reviewed academic papers, one is a working-paper overview from the National Bureau of Economic Research (opens in a new tab), and one is the tracked results of a live program. They’re worth taking one at a time.

What happened when credit unions tried it in the real world?

The clearest real-world test is Save to Win, the first large prize-linked savings program in the United States. Eight Michigan credit unions launched it in 2009: save $25 into a special account and you earned an entry into monthly and annual prize draws, up to a $100,000 grand prize. The more you saved, the more chances you got. Then researchers watched what people actually did.

In its first year, more than 11,000 accounts (opens in a new tab) opened and about $8.6 million was saved, and the striking part is who was doing it. Fifty-six percent of participants said they had not been regular savers before joining. The program wasn’t skimming savings off people who already had the habit. It was reaching people the traditional savings account had lost. Save to Win later spread to credit unions across many states and is still running (opens in a new tab) more than fifteen years on. If you want the fuller history of it, and of the UK program it borrowed from, we cover both in our guide to the Canadian equivalent of Premium Bonds and Save to Win.

Is it new saving, or just money moved around?

This is the sharp version of the question, and the one a careful skeptic asks. Maybe prize-linked savings doesn’t create any new saving at all. Maybe people just shuffle money they’d already set aside into the account with the prize attached, so the totals look good while nothing really changed. The best answer comes from South Africa.

Starting in 2005, First National Bank offered a “Million-a-Month Account” that paid prizes in place of some interest, and it ran for about three years before a court ruled it an unlawful lottery and it was discontinued. Because the researchers could see people’s accounts, they could test the shuffling worry directly. Shawn Cole, Benjamin Iverson and Peter Tufano published the results (opens in a new tab) in Management Science: participants raised their total savings by about 1% of annual income, a 38% jump over what they’d saved before, and the money substituted for lottery gambling rather than cannibalizing their ordinary savings at the same bank. A lot of it was genuinely new saving, drawn from cash that would otherwise have been gambled away.

An Australian team found the same pattern in a cleaner setting. In a controlled experiment (opens in a new tab), Kadir Atalay and co-authors gave people a budget and a menu of choices, and when a prize-linked option appeared, saving jumped by more than 25%. Most of that money came out of what people would have spent on lottery tickets, and the effect was strongest among lower-income people and those with little saved.

One honest caveat travels with the South African study: the researchers could only see accounts at that one bank, so they can’t completely rule out that some money moved in from savings held elsewhere. But two very different methods, a field study and a lab experiment, land in the same place. A meaningful share is new saving, and much of the rest is money redirected out of gambling and into a balance the person keeps, which is arguably the better result anyway.

Why does a prize get people to save when a rate doesn’t?

Because a few dollars of interest on a small balance is invisible, and a chance at a life-changing prize is vivid. People treat a tiny probability as bigger than it is, which is the same quirk that keeps lotteries in business (we get into it in why people play the lottery). Prize-linked savings borrows that pull and removes the loss: the draw is exciting, and your balance is still sitting there afterward.

Tufano’s fifty-year study of UK Premium Bonds shows the mix plainly. Sales rise and fall with the size of the top prize and how lopsided the prizes are, exactly like gambling, even though those big prizes (opens in a new tab) make up only about 2% of the expected return. Yet sales also track the overall return, like a normal savings product. People are pulled in by the jackpot and kept by the fact that it’s real saving.

The deeper lesson is that this is a design choice, not a lecture. Telling people to save more rarely changes what they do, but changing how saving is structured does. The classic proof is Save More Tomorrow, where Richard Thaler and Shlomo Benartzi lifted employees’ saving rates from 3.5% to 13.6% over about 40 months by changing the default rather than handing out advice. Prize-linked savings sits in that same family of behavioural design, and we walk through why saving is so hard to will yourself into in this piece on the behavioural science, and why systems beat advice in our look at automation.

What the research doesn’t prove

An evidence review that reports only the flattering findings isn’t worth trusting. The research is strong on one thing, getting non-savers to save, and quiet or unproven on several others.

The most important line is the third one. A prize is not an interest rate. The expected value of most draws sits below what a good high-interest account pays, so on average you’d earn more from steady interest. Prize-linked savings trades that small, certain return for the chance at a much bigger one. UK Premium Bonds make the point concrete: their advertised prize rate is an average spread across millions of holders, and most individual holders (opens in a new tab) have never won a single prize. The average return is not your return.

Two smaller caveats round it out. The prizes are concentrated, so in any given draw a few people win and most win nothing, which means the real benefit is the saving habit, not the payout. And the “56% were non-savers” figure describes people who chose to open a Save to Win account. It shows the product attracts non-savers, not that it would convert everyone. What’s solidly established is narrow and genuine: add a prize, take away the risk, and people who weren’t saving start to save.

How Lodavo fits in

Prize-linked savings has real evidence behind it, and Lodavo brings the model to Canada as a free app. You save in the bank account you already have, and the more you save each week, the more free tickets you earn for the weekly draw, with a chance to win up to $10,000 and a guaranteed prize of at least $100 going to a user every week.

There’s one way Lodavo improves on the programs in the studies. In those, prizes were funded out of the interest you’d otherwise earn, so a prize really did come instead of a rate. Lodavo holds none of your money, so your savings stay in your own bank and keep whatever they already earn, and the draw is funded by partners rather than your interest. The prize-versus-rate trade-off the research describes barely applies: you keep the rate and get the draw on top. You can see past results any week under winning numbers, and read how Lodavo works end to end.

The case for prize-linked savings was never that it’s magic. A prize is simply a reason to save that a fraction of a percent in interest never manages to be, and study after study shows that reason works on the people who need it most. Take away the risk, keep the draw, and saving starts to happen where it wasn’t before.

Want to try the version the research keeps describing? Download Lodavo free on the Apple App Store (opens in a new tab) or Google Play Store (opens in a new tab) and earn your first tickets by saving this week.

Terms and conditions apply. No purchase necessary (alternate method of entry available). Skill-testing question required. Open to legal residents of Canada who are the age of majority. Odds depend on the number of eligible entries received. Full rules and odds at our contest rules.