Prize-Linked Savings: A new way of saving while winning exciting rewards

Saving and multiplying the hard-earned income is a human instinct. For decades, the earning populace continued to build assets with their long legacy of savings. People from every remote corner of the country are actively working towards building a substantial savings portfolio. Undoubtedly, having a financial cushion can help individuals bear unexpected expenses without having to resort to debt or financial burdens.

However, the onset of the Covid-19 pandemic changed the entire scenario of the global financial health. Considering India’s landscape, the financial behavior of the country is eye-opening as around 69% of households struggle with financial insecurity and vulnerability.

Also Read: Should you invest in Fixed Deposit or Recurring Deposit? Check the difference

Prize Linked Savings:

Traditional banking institutions have long offered schemes that provide secure yet predictable returns on savings. However, in today’s digital landscape, the younger generation seeks more engaging and dynamic approaches to savings, leaning towards investments in stocks and digital assets. Prize-linked savings, a concept prevalent in several global markets, has now entered India aiming to revolutionize savings for tech-savvy millennials. This innovative model incentivizes saving by offering periodic rewards while ensuring competitive returns and easy accessibility to funds. By combining the security of savings with the excitement of potential rewards, it strives to make saving money a more engaging and healthier habit for the future.

These also sound equally exciting, right? These are some of the most prominent campaigns that are being run by prominent companies, banks, etc and such campaigns have been around in India for a while across savings and spending. But of these two campaigns, which one do you think has worked better? If you thought of the second set of spending campaigns, then you are right. This is a behavioral psychology of a retail consumer in India where they get excited when a specific reward is pegged to an activity.

Now when the same reward is pegged to a savings activity, do you think people would save more? The answer is yes! And this has been proved by the concept of Prize Linked Savings – A prize-linked to your healthy savings. Sounds new right? But this has been around for ages in the form of Premium Bonds in the UK, Yottasavings and Prizepool in the US, Save to Win in the US, and Lottery Bank accounts in the UAE. Through these, consumers were brought into the behaviour of healthy savings in the safest, secure and the most fun way possible

Key Mechanism of Prize-Linked Savings Account

Let’s take the example of Yotta Savings, a prominent Prize Linked Savings app in the USA. For every $25 saved through the app, users get a lottery ticket. With this lottery ticket, they can play the daily lottery and if they win, they get rewards from $1 to $1M. Even if they lose the daily lottery, their money doesn’t get affected because it is safely and securely stored in their bank accounts of Yotta Savings which gives them yields and returns. On one hand, their money grows as per banking returns and on the other hand, they get a chance to win a jackpot of $1M. So the more they save, the more they can increase their chances of winning. This idea has led Yotta Savings to get over 500,000 savers on their application and today they are backed by Y Combinator and some of the leading global investors and growing at a massive pace.

This is how Prize Linked Savings accounts work where a prize is linked to healthy saving.

Unlocking value with distinctive advantages

In India, Less than 30% of Indians have emergency funds and this was seen significantly during Covid where people found challenges to meet their emergency needs. This proves that young Indians are not inclined towards the behavior of healthy savings. A significant chunk of Indians still feel that saving money is the money left in the bank account after spending and those accounts give an average of 3%-4% which is less than the national inflation rate. So it is important to bring young Indians towards healthy savings and investing.

Prize-linked savings play an instrumental role in elevating the financial health of the economy. It acts as a powerful motivator for the younger populace to adopt savings as a healthy practice. Additionally, it enhances their financial literacy about how digital assets can be transformed into an engaging and rewarding experience.

Bottomline

Savings accounts have existed in the market since the beginning of banking. But, these accounts do little to stimulate savings beyond the offering of higher rates. With changing times, tech innovations have boosted the emergence of fintech-based gaming platforms, allowing customers to make more than average with a minimal amount and effort. Henceforth, prize-linked savings are projected to penetrate deeper into the lives of new-age money savers, allowing them to embark on an exponential financial growth trajectory.

(By Manish Maryada, Founder and CEO of Fello, India’s leading rewarding savings app)

Disclaimer: This is the author’s personal opinion. Readers are advised to consult their financial planner before saving or making any investment.