Not too long ago, when SmartyPig first debuted, I complained about how high SmartyPig’s fees  were. I wasn’t the only one and shortly thereafter, they dropped many of those fees and restructured their program a bit. I think it’s a testament to their openness to feedback and willingness to adapt to their customer’s needs.
So what exactly is SmartyPig ? It’s a website that helps you save towards your goals, giving you a high yield interest rate (currently 2.01% APY) and the ability to have family and friends help you save towards your goal. When you’ve achieved it, you can access it by having it transferred back to your bank, converted to a debit card, or converted to a retail gift card.
How SmartyPig Works
One of the big benefits of ING Direct  was how easy it is to open new accounts for various savings goals. SmartyPig is setup with that same goal in mind, making it easy for you to setup savings goals. The difference is they add a social element, other people such as your friends and family members can contribute to your goals as well (if they fund a contribution with a credit card there is a 2.9% fee, I suspect this is to cover the credit card processing costs).
You can set a savings goal for anywhere from $250 to $250,000 and your minimum deposit has to be greater than $25 to start your goal. Then, each month, you must contribute at least $10 and your savings earn interest (currently 2.01%). Then, once you reach your savings goal, the monthly contributions stop and you can decide what you want to do from there. You can continue to contribute, convert it to a gift card from one of their partners, or have it transfered back into your bank account (for free, this was one of the fees they dropped!).
Gift Card Conversion
Besides the 2.01% interest rate and the ability to send money around, probably the biggest value-add of SmartyPig is in gift card conversions. You can convert your savings into a gift card or voucher to one of their partners with a percentage bonus.
For example, let’s say you decided to save money for a couch. When you’ve reached your goal, you have several options. You can simply transfer the funds back into your bank account or you could convert it into a Macy’s gift card. If you decide to convert it into a Macy’s gift card, you get your goal amount plus 12%. Macy’s is by far the most generous but there are other vendors such as Barnes & Noble (5%), Bed Bath & Beyond (4%), iTunes (2%), The Home Depot (3%), and more.
This can significantly boost your savings’ interest rate.
Your money at SmartyPig is FDIC insured up to $250,000 as the funds are held at West Bank, which is itself a 115-year-old subsidiary of West Bancorporation (WTBA ). Anytime you are looking at a bank, and SmartyPig is essentially a bank account, you need to ensure that your money is protected in some way by FDIC or NCUA insurance.
The final question, after you understand how it works and that your principal is protected, is whether getting 2.01% APY and a potential secondary pop if you convert to a gift card is worth the hassle. I’m discounting the social aspect of SmartyPig, where friends and family can contribute towards your goal, but everything else makes me think that it’s only worth it if you have a large goal in mind and can benefit from the gift card bonus.
I do like the idea of people savings towards their goals with a service like SmartyPig, rather than borrowing via store financing or a credit card. I think with the recession, a lot of people are reverting back to novel ideas like saving up for something. 🙂
If you have personal experience with SmartyPig , please share them with in the comments below. I’m especially interested in any headaches or issues you may have experienced, I’ve learned that they seem pretty receptive to that and hopefully we can get any headaches resolved. If you have a great experience, please share those as well!