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A banking system that offers its accounts a sizeable amount of money annually instead of an interest rate.

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prize-banking

A banking system that offers its accounts a sizeable amount of money annually instead of an interest rate.

Introduction

Suppose that a bank offers a 3% annual interest rate to its savings accounts. The bank, with the same expected risk, can offer a 1% chance of increasing each account's balance by 300%.

Individuals tend to overinflate "underdogs" and unlikely events, which encourages them to save more money in the hopes of collecting the annual large payout from the bank. By incentivizing aggresive saving, individuals will exercise better fiscal responsibility and restraint.

Types of Systems

Fixed Risk

In a fixed risk system, banks will offer each savings account a fixed risk at increasing their principal, in this case, 1%.

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A banking system that offers its accounts a sizeable amount of money annually instead of an interest rate.

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