So I recently heard about Yotta Bank from a Graham Stephan video. It is essentially a high-yield savings bank except that they gamify the savings using a lottery system.
The whole principle of it described by Graham was really intriguing and I love the concept that it might actually encourage a lot of low-income individuals to invest their money with Yotta instead of wasting it on an actual lottery.
But there was one aspect of Graham’s video that bothered me, and that was the claimed annual percent yield. The annual percent yield (APY), if you don’t know, is a value that describes how much money you could earn on interest just by holding your money in that bank account. As an example, if you have $5,000 in a high-yield bank account that offers a 0.60% APY then you can expect to make $5,000 times .006 or $30 at the end of the year.
Graham referenced an article where some folks had worked out statistically what the average equivalent annual percent yield was for a Yotta savings account and they placed it around 1.62%. This is an extremely high APY relative to other banks which are currently offering at most a 0.70% APY.
I decided to look into it myself, and, as you probably could have guessed, that number is not exactly accurate. I developed code to run a lottery simulation so that I could run thousands of iterations to determine what the average result was of their lottery system. Code can be found on GitHub here: https://github.com/QuantumAbyss/YottaSavings. And I should mention, the results of my simulations are really only accurate at the time of publishing of this article, since they could easily change the parameters of the lottery by changing the prizes or the range of numbers that a drawing could select from (don’t worry, I made an app that should generalize decently well for those of you in the future; more on that later).
My simulation code begins with a function to randomly generate a ticket. Where the first six numbers can be any number from 1 to 70 without replacement, and the last number (Yotta ball) can be any number from 1 to 63.
I then have a function to create an array of potential tickets, since the Yotta app will you give you one ticket for every $25 you hold with their bank account.
I then simulate the weekly drawing in a function that takes as its’ input a number of tickets to randomly generate, and then compare to the “master_ticket” the actual result of the drawing. Depending on how many numbers in each ticket matches the master_ticket, the winnings are tallied up for that week. In the case below, I simulated the lottery system if you did not win any of the pooled prizes (which are very rare) so in that sense the results of this can be seen as a worst case scenario if you were to never win any of the big prizes.
Then, finally we have a function that will take as its’ input a number of weeks to simulate, along with the number of tickets for each week. Winnings are summed up.
With these functions, I was then able to simulate a full year (52 weeks) for 1,000 individuals who each had 200 tickets and determine the average amount of money won. For 200 tickets, which would require having $25 x 200 = $5,000 in their bank account, the average amount of money earned in a year was $17.67 with a standard deviation of $1.72.
Now, in terms of an APY this is equivalent to $17.67 divided by $5,000, or a 0.353% APY. I repeated this experiment several times, with different numbers of tickets, and even allowing for the pooled prizes. And with the exception of some simulations winning the $1,000 prize, the average APY for most people came out to be around 0.35%. This means that if you were to have a Yotta bank account, you could expect to have an APY of 0.55% (with 0.35% coming from the lottery system, and 0.20% due to their base APY rate). Relative to the other banks linked above, this rate turns out to be fairly competitive.
Running Your Own Simulation
Also, as promised I have developed a calculator that will let you determine how much money you can expect to make from a Yotta bank account. The simulation code exists on GitHub, and MyBinder.org will allow you to build the app code. Simply, go to the site, fill out the form exactly as shown below and click “launch”. It can take up to several minutes for the app to load, but it beats hosting a full web application myself.
The app will allow you to adjust the 2 numbers which are selected as the lottery drawing ranges along with the number of tickets you have. Those two numbers are likely to be what Yotta will change in the future to adjust their average APY (as they have done this in the past). It, unfortunately, does not allow you to change the prizes they offer, which they may also adjust. Once, you’ve selected your parameters and click simulate, it will run 100 simulations which will be enough to determine an average APY since their lottery system is actually quite statistically stable. It can take several seconds for the simulations to complete.
Is It Worth It?
So is it worth it? Well, it seems to depend on how their average APY changes in the future relative to other banks. At the moment, I only use a high-yield savings account as an emergency fund; keeping enough money for 6 months to a year of living expenses. So, hypothetically, if I put $10,000 into the best high-yield savings account at this moment, which is offering a 0.70% APY, I could turn that $10,000 into $13,231 over the course of 40 years. However, with a Yotta account and an effective 0.55% APY, that $10,000 would become $12,460. Personally, I’d rather take the extremely slim chance of winning a lot of money over making a guaranteed extra $800. And I know that winning one of the pooled prizes is very unlikely, even over the course of 40 years, but I admit the psychological component of the possibility existing is still extremely compelling.
However, if other banks began increasing their APYs and Yotta did nothing to adjust their lottery system to compensate for this change, I may be tempted to switch to another bank. Which is why every now and then I’ll be using my simulation code to ensure I’m still getting a competitive rate in the future.
Additionally, I’ll be making use of their referral program to get myself extra tickets, so if you’d like to try out Yotta and get yourself an extra 100 tickets, you can use my referral code: CHRISTOPHER415