Most lotteries are a sucker’s game. But a group of credit unions in Michigan has come up with a lottery that everyone wins. The idea is that each time a customer makes a savings deposit of $25 or more, he or she is entered into a raffle to win $400, plus a chance to win the $100,000 annual jackpot. Even if you lose, you’ve still increased your personal savings. The Wall Street Journal reports that the savings lottery has brought in some $3.1 million in new deposits so far. [%comments]
A Lottery for Smart People
TAGS: lottery
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. You can also watch it on 
don’t forget the opportunity cost of saving
Why don’t they just pay out more interest? I don’t see why this lottery would be for smart people – they won’t lose as much as they would if they entered all their money in the lottery. But I’ll bet (pun intended) that on overage the credit unions pay out less in interests + jackpot money than credit unions who don’t participate in the scheme.
How much money have they lost in receipt paper due to people who now deposit $25 a day instead of all at once? How do they know the 3.1 million new deposits wouldn’t have been deposited without the marketing campaign?
It seems entirely possible that this lottery is also a sucker’s game. How are the credit unions paying for the jackpot? By cutting customer service? By offering slightly lower interest rates? By taking higher risks that make it slightly more likely that they’ll go out of business?
Truly “smart people” would go for the investments that naturally have a higher interest rate because they don’t offer a prize. A lotto savings plan like this is essentially tricking people “who are bad at math” into saving. Better than no savings, but still suboptimal.
How is accepting a below-market rate of return smart?
There is no free lunch. The raffle is just a sales incentive. Would you rather have 4.25% ROR and a toaster, or 4.5% without a toaster?
If I were to deposit a $1,000, I would do so by making 40 $25 deposits. And then the next day withdrawing the money and redepositing it the next day.
Is this not a similar concept to UK Premium Bonds?
Premium bonds were launched by the UK government in the 1950′s to encourage savings amongst those who liked a flutter rather than a guaranteed interest income. An investment buys a ticket in a monthly lottery. There were ?25billion invested in premium bonds by 2004…
The only differences with this Michigan concept seem to be the one off nature of the lottery and “some” interest protection against inflation for the sum invested.