I think there's a missing point: the convenience factor.

Earlier this week, I went and set up a certificate of deposit. It took half an hour, making arrangements to visit on the rare day their hours didn't clash with mine, presenting two forms of identification, and having a significant amount of money to contribute to the account at once.

I also bought a Powerball ticket the same day, which was a $3 commitment and took 20 seconds at the all-night Kwik-e-mart I was already visiting.

Yeah, people keep coming up with various gimmicks (apps, automatic transfers, rounding up your purchases) to encourage saving, but that still targets an audience fairly high up the curve-- people with savings accounts or at least bank relationships already.

If you made a product reminiscent of the UK Premium Bonds, made them a bearer instrument (to minimize friction in purchase, no account or KYC stuff needed), and sold them in every store that offered Lotto tickets, you'd have a product which could get a lot of people onto the savings bandwagon. You've got $10 to put away? You're undocumented? You're 12? No bank will touch you, but you can start squirreling away these bonds, and in a few years, have a nice little nest egg, even if none of them pay out.

You could make this pay out better than actuarially-fair prizes, by having the savings fund invest some of the lottery jackpot in call options on a diversified portfolio. That way, the fund would be able to pay out more prizes when the markets are doing well, while still keeping a "baseline" level of draws at all other times. The reason why this would provide better-than-fair payouts is that these options are effectively on the capital markets line, i.e. investing in them is essentially removing risk that other market participants would otherwise have to face!

A little over ten years ago I cofounded a startup in Boston that was attempting to do something along these lines. We couldn’t believe how much money people were spending on such a bad investment. We were going to sell our own scratch tickets that had a positive EV. You’d scratch a ticket and reveal a code which could be redeemed for a fractional share(s) of stock in one of a basket of companies. The hope is we’d come close to the entertainment value while at the same time helping people save and earn a massive jump in ROI over regular scratch tickets (which paid 50 to 85% or so). The numbers would work at scale if people liked it. We weren’t the right people to do it, but I hope other people someday will offer something similar. Stockcards is something a little close to it, which is cool to see.

Amazing! I had a similar idea, which was to simulate lottery tickets by selling shares of far-out-of-the-money options. They would rarely pay out, but when they do, it would be a lot.

So kind of like https://www.nsandi.com/premium-bonds ?

Those are government bonds, but it's not far off your idea.

Edit: for clarity, the effective rate paid does vary over time according to interest rates, which usually have some relation to how well the markets are doing.

> interest rates, which usually have some relation to how well the markets are doing.

Uh, maybe? There is a positive correlation of sorts, but it's nothing to write home about. It doesn't seem like this product was designed with any attention to the potential of better-than-fair payouts.

Its 1.4% at the moment - which is good for the UK

... or the operators could simply invest the float for their own benefit above baseline, which is no different from what the operators of a fixed rate savings account might do.