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SmartyPig Is Outgrowing Its Bank


West Bank, the bank that holds SmartyPig accounts, released its fourth quarter results today, and they had some very interesting news related to SmartyPig. Here's an excerpt of the press release:

West Bank's deposits totaled $1.25 billion at year end 2009 compared to $1.16 billion a year ago. Deposits associated with SmartyPig, the online savings program developed by Des Moines entrepreneurs, grew $179 million during 2009 and totaled $187 million at year end. SmartyPig's success in attracting deposits is outgrowing West Bank and in all likelihood SmartyPig deposits will transition to a much larger bank in 2010. West Bank has been planning for this transfer and has adequate liquidity to facilitate that transfer.

My main concern is how this might affect SmartyPig's interest rate. According to SmartyPig's FAQ #9:

The Average Interest Yield (APY) is determined by our bank partner, West Bank. The APY may be changed without notice.

A new partner may not be so generous with the interest rates as West Bank has been.

SmartyPig was launched in early 2008, and its rates have remained near the top for nationwide savings accounts (see SmartyPig's rate history). It's currently paying 2.01% APY.

The SmartyPig account is different than the typical online savings account. Those expecting a typical online savings account may be annoyed with some of the account requirements and features. This NYT blog post has a good description of why it's different:

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.

SmartyPig doesn't keep all of the money it gets from its partner retailers. Some of it goes to the cash boosts that SmartyPig provides to its customers. So even if the interest rate does become less competitive, these cash boosts can still make it an attractive account, at least for the non-rate chasers.

For more details of SmartyPig, please refer to my December SmartyPig review.

Related Pages: SmartyPig, savings account

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Gaelicwench   |     |   Comment #1
I have a savings goal set up with SmartyPig. The requirements and features don't bother me a bit. As a matter of fact, they've made it much more flexible as to where the customer can have the money go to once the goal is reached.

What would truly annoy me is if one of the "too big to fail" banks gets its grubby claws on SmartyPig. I can [just about] guarantee that rates will be lowered almost immediately with all manner of "rules" attached to this method of saving.

The problem with these large banks is that they don't understand the true meaning of, "If it ain't broke, don't fix it!"

Rant over....
Jeff Smith
Jeff Smith   |     |   Comment #2
Smartypig isn't fdic insured. They talk loosely about insurance on their site, but they don't claim to have FDIC coverage. It is a social group with one account with West Bank with the sum of all of their deposits so all of SmartyPig's money is insured to the tune of $250,000 so long as it remains with West Bank. You can call the FDIC to confirm. Look out below!
AtHomeDad   |     |   Comment #3
Re: Jeff's post and FDIC Insurance at Smarty Pig

From Smarty Pig's FAQ, cited in an earlier post by Ken:
"SmartyPig accounts are held at West Bank and are insured by the FDIC to the full legal maximum. At present FDIC insures everything up to $250,000 per account holder"

From Smarty Pig's FDIC page:

"Your SmartyPig account is held at West Bank, an FDIC insured bank. FDIC insurance covers an individual account holder for up to the maximum amount allowed by law in accounts held at West Bank." 

I suppose these can be loose ways of saying, "Your account is part of a collective SmartyPig account at West Bank".... Seems grass knoll territory to me.

Can anyone else verify this? I haven't called FDIC, but I did look on their website, and found no refernce to SmartyPig. West Bank is there. This would be amazing if it didn't have FDIC insurance for each account holder! I don't have an account with SP yet, but have considered it for a joint account with my nephew.
zig   |     |   Comment #4
The customer service representative at West Bank verbally told me that my SP "account" was FDIC insured, however, could not (and would not) confirm in writing. Furthermore, when I requested my account information, I was told that no account number exists for my SP "account". I've used SP previously, but am staying away at this point. Has anyone verified with FDIC?

Chris   |     |   Comment #5
With up coming rate tier system at SmartyPig, and the discussion in their blogs it seems to me that Western Bank isn't paying the 2% interest rate at all. (or at least not all of it)  It very much looks like SmartyPig just has a business account with Western Bank, and the interest they pay is really just part of their business model.  Their business model is to get people that would have used credit cards to buy stuff, to instead save up and buy things with the cash cards that they provide.  And in turn they get their money from the commissions on selling those cards.  Which is in turn probably providing at least some of the interest paid to the SmartyPig depositors.

This is the main reason they are trying to push the $50,000 accounts out, because they are losing money on them, because these people don't use enough of the cash cards to pay for the interest they get (or I should say use to get).

They say most of their customers have $35,000 or less.  I think the most important thing to note is this is a business that makes its money on cash cards not a bank that loans out the money.
Anonymous   |     |   Comment #8
To clarify the FDIC rules; even though Smartypig may hold all deposits made thru their portal in one account that exceeds the FDIC max $250,000, as long as they keep proper records of individual stakeholders within the account, their deposits are insured up to the individual FDIC limit. This arrangement is most typically done for trust accounts with multiple stakeholders.

As for the previous comments on the subject: With the banking structure I described above there would be no individual account number at West Bank. And I can't see any bank taking on the liability of "verifying in writing" as to the business practices of one of its clients.
Small Business Loan Guy
Small Business Loan Guy   |     |   Comment #9
@zig: How odd. There must have been a mistake on the spelling or might be during your registration.

Never had this kind of problem before though.



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