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There's Gambling Going On at This Bank, and It's Perfectly Legal

Can games of chance get people to save more?

From the outside, at least, Blue Ridge Bank looks pretty ordinary. It’s a small brick building on the main street of Luray, Virginia, a town of 5,000 people in the Blue Ridge Mountains.

But this bank is now in the gambling business.

It’s the first in the U.S. to take advantage of a new law that allows banks to offer cash prizes to depositors. The idea is to make saving a little more fun. The more you save, the greater your chances of winning monthly or yearly cash jackpots. It’s an extra inducement for low-income people to put money into an emergency fund at the bank rather than buying lottery tickets.

Since the 1950s, the U.K. has been issuing “premium bonds” that come with a chance to win a million-pound jackpot. An experiment at a South African bank 10 years ago boosted customers’ savings by 38 percent.

Now, D2D Fund, a nonprofit group focused on developing savings tools for low-income groups, has been pushing the idea in the U.S. It helped start “prize-linked savings” accounts at credit unions, which could take advantage of a loophole in federal law that allowed the contests. It also lobbied legislators to undo federal and state laws that banned cash giveaways by banks. President Barack Obama signed the American Savings Promotion Act on Dec. 18. A change in Virginia law took effect in July.

Brian Plum, Blue Ridge Bank’s 35-year-old president, was ready and waiting. He’d read about the concept last year and was eager to try it. He saw it as a way to help customers save more while also attracting new customers and new deposits to the $260-million asset bank. 

Each month, the bank has a drawing with one $200 winner and four $50 winners. At the end of the year, it will give away a jackpot of $5,000. Customers get one drawing entry for every $25 increase in their account balance. To encourage savings, the bank allows only one withdrawal from a jackpot savings account per month, or else depositors pay a $5 withdrawal fee.

“We’re helping people do something that makes sense for them,” Plum said. He points out that even those who lose will end up with extra savings – currently the average balance in a jackpot savings account is $1,300.

At first, customers seemed confused by the idea of bank-sponsored games of chance. “It takes a little longer to grasp the concept,” Plum said. “It’s a really different product from anything else out there.”

Since July, only about 60 jackpot savings accounts have been opened at Blue Ridge. That gives those customers excellent odds of winning, but Plum hopes it won’t last. Sign-ups are accelerating. With just 45 full-time employees in its five branches in Luray and nearby towns, Blue Ridge Bank has a small advertising budget, but photos of jackpot winners are going up on the bank’s Facebook page. Next year, Plum plans to raise the $5,000 jackpot.

Across the country, banks and regulators are likely to take a lot longer than Blue Ridge Bank to wrap their heads around the concept. Timothy Flacke, executive director of the D2D Fund, said it typically takes a year or two for banks to respond to changes in the law. And in this case, it’s nonprofits and academics, not the banks themselves, lobbying for new laws. “A lot of the banks are frankly not aware of it,” he said. 

That’s changing. Plum said he’s getting calls from banks in other states that want to try out the concept. And more and more states are following the federal government’s lead by ending their bans on bank jackpots. The latest are Oregon, Illinois and Minnesota. 

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