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SmartyPig Announces a Major Rate Cut

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SmartyPig

SmartyPig just announced a big rate cut that will take effect on December 9, 2011. The yield will be slashed from 1.10% to 0.70% for balances up to $50K. The rate will remain the same (0.50%) for balances over $50K. Hat tip to reader carnholio who posted this news in the forum.

This news was announced on the SmartyPig blog in a post by Jon Gaskell, SmartyPig co-founder and president. Here is the explanation for the rate reduction:

Interest rates on deposit accounts at many banks have been declining over the past year due to poor market conditions. Likewise, the rate on your SmartyPig savings account is being reduced as a result of these same economic conditions.

The blog post also emphasized SmartyPig's cash-back options and how SmartyPig helps encourage saving instead of buying on credit:

SmartyPig remains a strong competitor in the marketplace due to our strong interest rate, no fees, and cash-back options of up to 11% from your favorite retail and travel companies. These incentives, as always, allow you to get the most money for your money when you use SmartyPig, where we help reverse the credit card mindset of “buy now, pay later.”

My Take on SmartyPig's Rate Cut

First, I thank SmartyPig for being upfront with this rate cut by making it public a week before it takes effect. I wish all banks and credit unions would be this open.

I understand that SmartyPig and its partner BBVA Compass (which holds the deposits) have to adapt to the market place and this interest rate environment. However, you would think it could keep rates higher than other competitors like ING Direct and Ally Bank. In the past, SmartyPig's savings account has maintained interest rates above the rates offered by ING Direct and Ally Bank. Even after the last rate cut, the rate remained higher. After this new rate cut, SmartyPig will be way below both ING and Ally. You can see below how SmartyPig rates have declined relative to these other two internet banks:

Today (Dec 2, 2011)
  • SmartyPig - 1.10% APY up to $50K (soon to be 0.70%)
  • ING Direct - 0.90% APY
  • Ally Bank - 0.89% APY
After last SmartyPig rate cut (Jun 2011)
  • SmartyPig - 1.10% APY up to $50K
  • Ally Bank - 1.04% APY
  • ING Direct - 1.00% APY
1 year ago (Dec 2010)
  • SmartyPig - 1.75% APY up to $50K
  • ING Direct - 1.10% APY
  • Ally Bank - 1.09% APY
Deposits moved to BBVA Compass (Aug 2010)
  • SmartyPig - 2.15% APY up to $50K
  • Ally Bank - 1.29% APY
  • ING Direct - 1.10% APY
2 years ago (Dec 2009)
  • SmartyPig - 2.01% APY
  • Ally Bank - 1.59% APY
  • ING Direct - 1.30% APY

Based on this history, it appears Compass is the main reason for these big rate cuts. If you look at Compass Bank CD rates, the 1-year CD APY is only 0.50% in Texas and California. Compass probably considers a 0.70% APY on a liquid account a good deal.

Compass and SmartyPig are probably hoping that the cash-back and saving features of SmartyPig will keep customers. Last year when I asked readers how important this cash-back feature was, 71% said they had no plans to use it. This same sentiment was expressed by the NYT reporter Tara Siegel Bernard who admitted that she is "not all that interested in saving for a smallish goal and then redeeming the money for a gift card." She just wants to use SmartyPig as a savings account in which interest rate is the most important feature.

I'm afraid it keeps getting harder for savers. I hope our leaders will one day be telling debtors instead of savers that they need to sacrifice for the greater good.


Related Pages: SmartyPig, savings account

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Comments
10 Comments.
Comment #1 by Anonymous posted on
Anonymous
Wow, nearly a 50% rate cut.  I'm in the 71% who have nearly no interest in the SmartyPig gift card program; time to take a serious look at Ally, AmEx Bank, or Discover Bank.  I guess all those who predicted this outcome from the Compass takeover were correct, after all.

2
Comment #2 by Anonymous posted on
Anonymous
Very nice review. Hopefull BBVA Compass can realize that the way to "remain a strong competitor in the marketplace" is rates not talk. Smartypig has an exciting business model but #1 is a competitive rate and #2 is ease of use.

2
Comment #4 by Eric (anonymous) posted on
Eric
Well, I just transfferred my 45K out of SmartyPig this morning.

3
Comment #5 by primerate (anonymous) posted on
primerate
I'm waiting until the actual cut - then it all goes back to ING Direct.

Oh, guess what? They just cut THEIR rate TODAY to .85%.

2
Comment #6 by Anonymous posted on
Anonymous
Yea, I'm going to wait till it kicks in then transfer it all out. This way they know why I am taking it out and if enough people do it, maybe they will realize they should maintain a more competitive rate.

1
Comment #7 by rjm (anonymous) posted on
rjm
ING savings down to .85% as of today.

Checking rates also down.  .95% for $100k

1
Comment #8 by primerate posted on
primerate
rjm - 2 days behind dude :).

 

Well here it is, Friday December 9, and what does SmartyPig's home page still say? You guessed it, 1.1%APY... Annual Percentage Yield (APY) is effective as of 12/9/2011. Balances $0.00 - $50,000.00 earn 1.095% (1.10% APY).

 

??

1
Comment #9 by primerate posted on
primerate
It's as if they read my post here :)... It's just been changed.

"Annual Percentage Yield (APY) is effective as of 12/9/2011. Balances $0.00 - $50,000.00 earn 0.698% (0.70% APY)"

1
Comment #10 by Anonymous posted on
Anonymous
ING is now paying .85 APY as they recently reduced their rate too.

1
Comment #12 by Anonymous posted on
Anonymous
BBVA/Compass is a SmartyPig PARTNER and holds SmartyPig deposits.  It does NOT, however, own SmartyPig.  I think what we are seeing is serious trouble at SmartyPig itself.  From what I hear, their business model is simply not working out (not enough retailers are seeing the benefits of a SmartyPig partnership).  It wouldn't surprize me if SmartyPig is out of business in 6 months.

1