Prize-Linked Savings Accounts: Can “Savings with a Thrill” Work in India?

Prize-Linked Savings Accounts (PLS accounts), also known as lottery-linked deposit accounts, are an innovative financial product designed to encourage savings by combining the security of a traditional savings account with the excitement of a lottery-style reward. Instead of offering higher interest rates, these accounts provide depositors with a chance to win cash prizes—without risking their principal.

Globally, PLS schemes have been used as a tool for financial inclusion, particularly to attract individuals who may otherwise remain outside the formal banking system. However, their compatibility with India’s regulatory framework raises important legal and policy questions.

What Are Prize-Linked Savings Accounts?

A prize-linked savings account offers depositors an opportunity to participate in periodic prize draws based on the amount they save. The core idea is simple:

• Depositors place money into a savings account.
• Each qualifying deposit earns them one or more entries (“tickets”) into a prize draw.
• Prizes are awarded purely by chance.
• The principal amount deposited remains protected at all times.

For instance, a bank may require a depositor to maintain or deposit ₹2,500 every month to receive one digital ticket. For every additional ₹2,500 deposited, the depositor earns another ticket—similar to purchasing additional lottery entries, but without spending money irreversibly.

Prizes may be announced daily, monthly, quarterly, or annually, depending on the scheme design.

How PLS Accounts Differ from Gambling or Lotteries?

PLS accounts are often distinguished from traditional lotteries and gambling products on a crucial point: there is no loss of principal. While lotteries require participants to risk money for a chance to win, prize-linked savings ensure that the depositor’s funds remain intact and accessible.

This combination of capital protection and chance-based rewards is what has made PLS products attractive to regulators and policymakers in several jurisdictions seeking to promote savings without encouraging speculative behaviour.

Global Evolution of Prize-Linked Savings:

United Kingdom

Prize-linked savings schemes can be traced back as early as 1694 with the “Million Adventure.” However, the most well-known example is the Premium Savings Bonds, launched in 1956 to encourage post-war savings.

Marketed with the slogan “Savings with a Thrill!”, Premium Bonds replaced interest payments with prize draws and proved immensely popular. These bonds are currently governed by the Premium Savings Bonds Regulations, 1972.

United States

Historically, the National Bank Act prohibited federally chartered banks from participating in lotteries, primarily to protect the safety and soundness of the banking system. A scheme would be classified as a lottery if it involved:

1. A prize,
2. Awarded by chance, and
3. Consideration (money or value paid to participate).

Because PLS schemes technically met all three criteria, they were largely prohibited.

This position changed in December 2014, when the American Savings Promotion Act amended multiple federal banking statutes to exclude “savings promotion raffles” from the definition of prohibited lotteries. These were defined as contests where the sole consideration is the deposit of money into a savings account, with each entry having an equal chance of winning.

This legislative shift paved the way for widespread adoption of PLS products across the U.S.

Global and FinTech Examples:

PLS products are now offered by both traditional banks and FinTech firms, including:

• Jackpot Savings – Blue Ridge Bank (Virginia) (discontinued now);
• FirstPrize $avings – First County Bank (Connecticut);
• Save to Win CD – Telco Community Credit Union (North Carolina);
• Save to Win CD- Adventure Credit Union (Michigan);
• Lucky Piggy Savings – BankFive (Massachusetts).

A notable example is the Walmart MoneyCard Vault, launched in 2016 in partnership with Commonwealth and Green Dot Bank. Each dollar saved earned an entry into a monthly draw, with prizes ranging from $25 to $1,000. In its first year, users reportedly saved over $500 million, demonstrating the behavioural impact of prize-linked incentives.

Regulatory Framework for Lotteries in India:

In India, lotteries are regulated under:

• The Lotteries (Regulation) Act, 1998, and
• The Lotteries (Regulation) Rules, 2010.

These laws regulate state-run lotteries and permit State Governments to appoint private distributors or selling agents. However, they do not permit privately run lotteries independent of state authorisation.

Following the Supreme Court’s decision in All Kerala Online Lottery Dealers Association v. State of Kerala (2016) 2 SCC 161, states were permitted to ban lotteries altogether. As a result, lotteries are currently prohibited in most Indian states.

Further, Section 294A of the Indian Penal Code criminalises the keeping of any place for drawing a lottery that is not authorised by the State Government.

Cross-Border and Online Lottery Concerns:

Although certain international online lotteries claim to permit Indian participation, significant legal barriers remain. Under Schedule I of the Foreign Exchange Management (Current Account Transactions) Rules, 2000, the following are expressly prohibited:

• Remittance out of lottery winnings; and
• Remittance for purchase of lottery tickets, sweepstakes, or similar schemes.

This restriction effectively rules out the feasibility of Indian residents legally participating in or benefiting from foreign prize-linked savings schemes.

Positioning of the Fello Model under Existing Indian Law:

Notably, platforms such as Fello have attempted to structure savings-linked engagement in a manner that claims to avoid the essential elements of gambling:

• No monetary consideration is charged for participation in Fello Games.
• Users receive free entries into games for savings or investments made on the platform, or for referrals in accordance with defined referral terms.
• Users are not permitted to pay any money or equivalent consideration to participate in the games.
• Upon withdrawal, funds are routed directly to the investor’s registered bank account through partner AMCs or gold suppliers within a defined settlement period.

This design seeks to rely on the principle that games lacking consideration do not qualify as gambling under Indian law. However, in the absence of explicit regulatory recognition for prize-linked savings, such models continue to operate in a grey zone, exposed to interpretational and supervisory risk.

Can Prize-Linked Savings Work in India?

From a policy perspective, PLS accounts offer clear advantages in promoting savings and financial inclusion. However, under the current Indian legal framework, such products risk being characterised as unauthorised private lotteries, exposing banks or NBFCs to regulatory and criminal consequences.

Any viable implementation in India would therefore require:

• Explicit legislative or regulatory carve-outs, similar to the U.S. model; and
• Clear guidance from financial regulators to distinguish savings-based incentives from prohibited lottery activity.

Until such reforms are undertaken, prize-linked savings accounts remain an intriguing but legally constrained concept in the Indian financial system.

What Regulatory Change Would Make Prize-Linked Savings Viable in India?

1. Statutory Recognition of Savings-Linked Incentives:

A critical reform would be the introduction of an explicit statutory or regulatory carve-out—similar to the U.S. Savings Promotion Act—clarifying that prize-linked incentives attached to bona fide savings or investment products do not constitute “lotteries”, provided no separate consideration is paid for participation.

Such recognition could be introduced through:

• An amendment to the Lotteries (Regulation) Act, 1998; or
• A sector-specific clarification issued in consultation with the RBI.

2. Clarification on “Consideration” under Gambling and Lottery Laws:

Regulatory guidance clarifying that free entries linked to savings or investments—without any payment for participation—do not amount to consideration would materially reduce legal uncertainty.

This distinction is particularly relevant for models where:

• No money is paid to enter a game or draw; and
• Participation is incidental to a primary financial transaction.

3. RBI-Approved Product Design Framework:

The RBI could prescribe a principles-based framework allowing banks, NBFCs, or regulated fintech partnerships to offer prize-linked savings, subject to:

• Full principal protection;
• Transparent odds and disclosures;
• Board-approved product governance;
• Prohibition on separate entry fees or top-ups for prize eligibility.

Such a framework would bring these products within supervisory oversight rather than leaving them exposed to penal risk.

4. Consumer Protection and Disclosure Standards:

Explicit disclosure norms—covering probability of winning, prize pool funding, and withdrawal rights—would address mis-selling concerns while aligning the product with the Consumer Protection Act, 2019.

5. Regulatory Sandbox or Pilot Approval Route:

A sandbox-based or pilot approval mechanism would allow regulators to test prize-linked savings products in a controlled environment, enabling evidence-based policymaking rather than blanket prohibition.