Gambling your money away to a safe place

Eight Michigan credit unions are offering an unusual way to save: putting $25+ into a one-year CD comes with an entry to a raffle with a monthly prize of $400 and a yearly grand prize of $100,000.

This unusual CD is federally guaranteed by the National Credit Union Administration and pays between 1% and 1.5% annual interest, a bit lower than conventional rates. In 25 weeks, the program has attracted about $3.1 million in new deposits, often from people who have never been able to set money aside.

This reminds me of a recent observation by Sam Arbesman:

An intriguing coincidence: The repayment rate of individual loans in Kiva (a broker for individual loans around the world) is 98.50%, which is quite similar to the payback percentage of Las Vegas slot machines.

Why not put the lottery effect to work with Kiva? Instead of straight-up loans, enter lenders in a raffle and slightly decrease the return rate to account for the prize money. I bet (ha!) the lending rate would increase accordingly. (via waxy)

Update: Several people pointed out that British Premium Bonds have worked this way for decades. (thx, christopher)

• economics
• finance
• Kiva