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Social Group Savings with SmartyPig

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SmartyPigWhen SmartyPig first debuted, they had a bunch of expensive fees that made me sour on the otherwise good idea. To their credit, they made a lot of changes and turned a great, albeit expensive, idea into a great idea that I’m surprised more people don’t know about (then again, a lot of people don’t know about ING Direct and they’ve been around for a very long time!).

In a nutshell, I think the best description for the service is social savings with a nitro-boost at the end. The mechanics of the site are simple. The first step is to set up some savings goals, which can be of nearly any size (you only earn 2.15% on balances under $50,000), and then you start saving. When you hit your stated goal, you can withdraw it or convert it into a gift card to take advantage of the boost. As you’re saving, it earns an above market rate of interest and you can close it anytime you want if you change your mind.

There are three aspects of SmartyPig that make it really great for savings:

  • You earn 2.15% APY (as of August 2010), which is much higher than what you’d get from a high yield savings account. More importantly, the assets are deposited at BBVA Compass, which is FDIC insured.
  • Friends and family can contribute to your savings goals, which adds a social group aspect to an otherwise lonely endeavor.
  • When you reach your savings goal, you can get an immediate boost to your savings by converting it to a gift card (for example, with a Macy’s card you get a 12% boost).

Taking Advantage of Boosts

I read through the FAQ and I don’t see anything that would preclude you from opening a savings goal, save towards a goal, and get an immediate percentage boost by converting it to a gift card. If you change your mind, you can withdraw your funds immediately at zero cost. There are no maintenance fees, there are no “early termination” type of fees, and it seems almost too good to be true. In fact, the only fee appears to be if you contribute towards a savings goal using a credit card. The 2.9% fee covers the transaction costs of processing a credit card.

I’ve always said that if it sounds too good to be true, it probably is, right? This does sound too good to be true but I believe (and I don’t know this for sure) SMartyPig makes money off the gift cards. One of the surprising statistics from the CARD Act legislation was that billions of dollars are lost in gift card value each year (known as breakage) because of inactivity and maintenance fees.

Finally, many of the cards offering a boost are popular retailers like Amazon (4%), Banana Republic (10%), Gap (10%), Lowe’s (35), and of course, Macy’s (12%). These aren’t obscure retailers or stores hardly anyone shops at and they represent retailers you could visit to reach your goals (home improvement? new wardrobe?).

Social Savings

The social savings piece is what I really think helps give you an edge over your traditional savings account. The higher rate of interest is certainly better but when you add the social aspect of family and friends helping you out, I think it gives the saver a bit of an edge. Grandparents can help younger kids save towards something they want, parents can help their kids save for home improvement, etc. Saving for a new house fund or a baby fund? No problem. Change your mind about the baby or the house? Again, no problem. The permutations on this are limitless and something I think they don’t emphasize enough.

Now that the fees are nearly gone (the 2.9% for credit card transactions is reasonable and expected), is there any reason why you wouldn’t want to take advantage of this? you guys are usually pretty savvy to these types of things and I’m curious to know if you see something you don’t like.

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14 Responses to “Social Group Savings with SmartyPig”

  1. I’ve been going back and forth on opening an account for a while. For now, I think I am better off sticking with a high yield checking account (4%). I do really like the end boosts though. We have been doing a lot of home improvements, so the Lowes interest bump would be nice.

  2. otipoby says:

    So, let’s say you were going to build a deck and knew about what it cost. What would prevent you from setting up an account with a goal close to the cost of the deck. Then, transfer funds from a savings account to SmartyPig, thereby meeting your goal. Convert to Lowes giftcard, build your deck, and pocket the bump?

  3. Shirley says:

    SmartyPig announced on 9/7/2010, that their interest rate will be dropping from 2.15% to a much lower 1.75% for account balances less than $50,000. Account balances of more than $50,000 will still be receiving the same interest rate of 0.50%. [source: DoughRoller]

  4. KP says:

    Thanks for sharing this Jim! The concept is very interesting – I’m just wondering how long it will last. You know everything these days is subject to CHANGE.

    Nonetheless, there are a lot of benefits (structure, flexibility, FDIC backed) with SmartyPig today.

    • Jim says:

      Everything is subject to change. The rate you get for a savings account is not locked so there isn’t much you can do. SmartyPig has been like this for a while.

  5. daenyll says:

    My only real specific savings goal at the moment is a buffer for monthly student loan payments. And they automatically withdrawal from my ING account so it’d be a bit of a hassle transferring things back and forth, even for a boost in the interest.

  6. M. Stewart says:

    Been using it for 3 months now and like it a lot. I have $325.00 saved towards my $2,000.00 “Autumn Vacation 2011″ goal. It painlessly takes the money from my checking twice per month and is a regimented way to save for specific goals.

    They are now affiliated with my normal bank, BBVA Compass. I highly recommend it.

  7. Eli says:

    I opened an account and set up a $49,500 goal for a down payment. I immediately transferred $48,000 and am adding 100 monthly. Interest is great, but is credited quarterly. I’ll set up a new 5k goal as I approach 49.5k and then move the money and close out that goal (xfer back to checking) to avoid going over 50k and getting a lower rate. I love it but am slightly bummed about The new, lower rate.

  8. While this is a great idea for savings, it’s not the first social savings program. Upromise has been doing it for years. Your family can contribute to your kids’ education by registering their credit cards and store cards to get cash back rewards put in your kids’ accounts.

  9. Reno Gulch says:

    I’m about a month into my membership with SmartyPig and I really like it. Altho rate has dropped from months ago, it’s way better than my credit union for simple savings. I also like that I can transfer between goals. I plan to have one big monthly transfer each month into one main goal and then fund my other goals from that main one — that way I don’t have so many different transfers out of my bank and I can distribute the dollars myself on the SmartyPig side. You do have the transfer the minimum $25 to set up a goal but you DON’T have to have recurring contributions to each one. I’ve also had a chance to redeem a goal into an Amazon.com card — worked slick, and I received the electronic gift code within about 10 minutes (they advertise 2-4 days). The bonus cash wasn’t huge (3%), but felt like free money since my purchase was tax-free and delivered free.


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