SmartyPig just notified its customers that it will be raising its savings account rate from 2.00% to 2.15% APY. However, this will no longer apply to all balances. SmartyPig is taking a tier rate that's similar to reward checking accounts. Below is the email that the reader forwarded to me:
Dear Valued SmartyPig Customer,
We wanted to give you the heads up on some exciting changes at SmartyPig. As part of our commitment to help people undo their "buy now, pay later" credit card mindset, we're boosting our interest rates to 2.15% APY starting May 19, 2010 for all of our customers with total goal balances of $50,000 or less.
SmartyPig will be moving to a new variable interest rate effective May 19, 2010. The interest rate and annual percentage yield (APY) for your account depends upon the applicable rate tier. Effective as of May 19, 2010:
Interest rate earned on balances* $1 - $50,000 will earn 2.133% (2.15% APY) Interest rate earned on balances* above $50,000 will earn 0.499% (0.50% APY)
*Balances: For purposes of calculating balances for determination of the rate tier that applies, total balances of all goals within your SmartyPig profile will be aggregated. The interest rate and APY are variable and subject to change after account opening. Fees may reduce earnings.
Note, the tier rates are not based on the balance, but the balances of all goals within your SmartyPig profile.
There's more info on this at the SmartyPig blog. The blog post admitted that some customers will see a reduction in interest due to this change:
This tiered structure will greatly benefit more than 95% of our customers who are working hard towards their goals and using our redemption program to earn even more cash when they reach those goals. While a small portion of our users will see a rate decrease based on their limited use of the service, we feel strongly that our mission will greatly benefit our core customers who are saving for various milestones in their everyday lives.
The reader who forwarded me this email was wondering if this change may be an indication that West Bank has found another bank to be the holder of SmartyPig deposits. In January West Bank announced in its quarterly earnings report that it intended to transition SmartyPig to a larger bank. Another related possibility is that SmartyPig is trying to position itself better for another bank which will want to replace West Bank.
It's also possible that this change has nothing to due with the transition away from West Bank. Customers with large balances don't seem to be SmartyPig's target customers. This NYT Bucks blog post described SmartyPig's business stratey:
But the company is not in the business of attracting rate chasers like me, since it works with a partner bank and doesn't make money from lending out customer deposits. Instead, SmartyPig earns a small cut from its partner retailers if customers save toward a goal and then meet that goal by buying a television, say, or a vacation through those partners.
For more details of SmartyPig, please refer to my December SmartyPig review.