SmartyPig just reduced its savings account rate from 1.75% APY to 1.35% APY for balances up to $50K. With this rate cut, SmartyPig no longer has the top rate for a nationally available savings account. However, I only have four banks with non-promo yields above 1.35% in my weekly summary .
It's interesting to note that there was no mention of this rate cut at the SmartyPig blog. Also, there was apparently no email notice to customers. I asked a reader who has a SmartyPig account, and he said there was no notice whatsoever. For the last two rate cuts in September 2010 and in August 2009, SmartyPig management posted on the cuts before they took effect. This makes me wonder if BBVA Compass had forced the rate cut. In this September 2010 NYT article, a BBVA Compass VP explained the reason for the September rate cut:
with long-term rates so low, the spread between how much the bank earns on making loans and how much it pays depositors to finance those loans has been squeezed. Hence the rate reduction.
I would guess he would give the same reason for this cut. The highest rate that BBVA Compass lists for Texas is 1.75% APY for a 5-year CD.
I know banks don't have to notify their customers of rate changes on liquid accounts, but in my opinion, a notification of a significant rate cut is an honorable practice that I always appreciate.
Other SmartyPig Features Offset the Lower Rate?
As described in that September 2010 NYT article, SmartyPig wants customers to focus on the other features of the account that help with savings like goal setting and the cash back with retailer gift cards. Once you’ve reached a savings goal, you can receive cash back savings by placing it on a retailer gift card. Two current examples of cash back percentages include 3% at Amazon and 2% at Best Buy. Unfortunately, like the interest rate, some of the cash back percentages have gone down. Since September, cash back percentages at Best Buy and Staples have gone down from 3% to 2%. In September when I asked readers who are SmartyPig customers about this cash back feature, 11 of 16 readers who voted said they had no plans of using this feature.
Another downside with the retailer gift cards is that you might be charged a fee. According to the SmartyPig's Terms and Conditions:
Goals closed to a Retailer Gift Card may incur a processing fee of $2.25 based on the retailer.
SmartyPig's PR spokesperson noted in the comments of this blog post that retailers that offer ecodes don't have this fee:
If you choose to redeem with one of our retailer’s that offers ecodes, like Amazon.com, the cost is nothing, completely free. In terms of fees, our fulfillment costs are billed at cost, SmartyPig isn’t making any money there.
New SmartyPig Products
In that September NYT article, it was mentioned that we would see new products in the coming months. One was introduced in December. It's a prepaid card called the SmartyPig Cash Rewards Card. For those who use prepaid cards, this looks like a good deal. For those who use credit cards or debit cards, I don't see any benefits.
SmartyPig is now partnered with BBVA Compass. Your money at SmartyPig is held in a separate account in your name at BBVA Compass, an FDIC insured bank.
Please refer to my SmartyPig savings account review for more details about how SmartyPig works.