When 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?).
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.