  Prize linked savings accounts provide a return in the form of randomly chosen
accounts receiving large cash prizes, in lieu of a guaranteed and uniform
interest rate. This model became legal for American national banks upon
bipartisan passage of the American Savings Promotion Act in December 2014, and
many states have deregulated this option for state chartered banks and credit
unions in recent years. Prize linked savings programs have unique appeal and
proven societal benefits, but the product is still not available to the vast
majority of Americans. There is demonstrated interest in these products, but
the supply side may be the bottleneck, because the prevailing consensus is that
prize linked savings primarily appeal to low income consumers. This paper
examines a less common, dynamic prize, model of prize linked savings and shows
why it might result in a larger average account size. The paper proposes three
methods of managing risk under this model, and tests two of them using a Monte
Carlo simulation. We conclude that both tested methods are effective at
mitigating the most severe risks.
