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SmartyPig Will Be Raising its Savings Account Rate But Will Cap Top Rate

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SmartyPig

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.

  Tags: SmartyPig, savings account

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Comments
12 comments.


Comment #2 by Anonymous posted on
Anonymous
The previous post on SP had folks debating whether it was really completely FDIC insured or not.  Has anyone found out for sure?

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Comment #3 by Anonymous posted on
Anonymous
not fdic insured

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Comment #4 by ALEMANIA (anonymous) posted on
ALEMANIA
 FROM BERLIN  MOST INFORMATIVE SITE

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Comment #6 by najdorf (anonymous) posted on
najdorf
SmartyPig as an institution is not a member of the FDIC.  However, they deposit all money with Westbank, which is a member of the FDIC and is insured.  The SmartyPig website states that your money is in a separate account under your name with standard FDIC insurance.  While it's conceivable that this claim is false, the FDIC is pretty aggressive about marketing compliance and almost certainly would have stopped them by now if it were.  They may not do a good job with some aspects of macro regulation, but they tend to be pretty good about making sure my brokerage statements say "NOT FDIC INSURED.  MAY LOSE MONEY." 

I suspect the reason for the arrangement is that SmartyPig and Westbank want to be free to go their separate ways, and if Westbank takes deposits directly from you they face more regulation about selling them (you can't just sell your deposit customers to another bank).

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Comment #7 by marc (anonymous) posted on
marc
on a related note, West Bank's stock has soared in the last few weeks, and up over 50% since mid-Feb.  Not sure if it's related to the Smarty Pig deal, but perhaps.  In any regard, good to see a bank with good rates surviving the tough economy.

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Comment #8 by Anonymous posted on
Anonymous
I have sent an inquery to FDIC last week, I believe I will get a response pretty soon. I wll let you know once I receive a response from them.

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Comment #9 by Anonymous posted on
Anonymous
The FDIC has informed me that their position is that SmartyPig is not FDIC insured, and that it is why the logo is not included anywhere on the SmartyPig site.  SmartyPig does discuss the FDIC in a page on their site below Truste, Primeon, Verisign and MacAfee, stating that the account is held in a separate account at WestBank.  The FDIC's position is that it is not responsible for verifying the accuracy of the statement.  Even if it were true, would you let your neighbor give you an extra $5 so that they can open an account for you at the bank and monitor your spending habits?  Wouldn't you just prefer the certainty of going to the bank yourself?

4
Comment #10 by Gaelicwench posted on
Gaelicwench
Ken, I, too, was thinking that perhaps another bank has picked up SmartyPig. Oddly, however, I thought it would be of the opposite venue; rates would go down. As for the tiered rates now, it isn't an issue for me currently. As stated from very early - by you, I believe - SmartyPig's main mission is for people to set up goal-attaining accounts.

I like many things about this system. It essentially "forces" me to save....way in advance. Set it and forget it. And it's nice that they've shortened the length of transfer, too.

As an aside, I've set up an alert from SmartyPig to give me heads up regarding its rate, whichever direction it's headed. I have to say that when I opened up my email yesterday, had I not been sitting down already, I'd have fallen out of my chair. :-P

I have a money market with Bank of Internet, and they've just reduced their rates, yet again. It's the same as FNBO Direct and HSBC Savings.....

Have a good one, all!

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Comment #12 by Peter (anonymous) posted on
Peter
Hot - hot - hot! Today April 30 announced: West Bank, effectively where all SmartyPig deposits are held, reported that FDIC is concerned about its amount of nonperforming loans and adversely classified assets. The bank has entered into a memorandum of understanding with FDIC and the Iowa Division of Banking, an informal enforcement action that could precede stricter, formal actions. The understanding requires West Bank to implement tougher credit administration and underwriting practices.

SmartyPig is leaving WestBank.

Press Release April 29, 2010, 4:10 p.m. EDT: "...Deposits associated with SmartyPig(R), the online savings program developed by Des Moines entrepreneurs, totaled $231 million at quarter end. As previously reported, SmartyPig's(R) success in attracting deposits is outgrowing West Bank and at this time we would expect the SmartyPig(R) deposits to transition to a much larger bank by the end of the second quarter. West Bank has been planning for this transfer and has adequate liquidity to facilitate that transfer..."

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