Yesterday I asked if anyone had heard of SmartyPig and if so, what you all thought. One reader said, "don't know anything about them, why don't you give us some details?" So I emailed some questions to SmartyPig co-founder Mike Ferrari. He responded with the answers below.
1. What is the purpose of SmartyPig?
SmartyPig is like an online piggy bank that helps consumers save money for specific goals in their life. A wedding. Family vacation. Home improvements. A down payment on a house or car. Medical expenses. And if you choose, you can save socially allowing friends and family to contribute to your interest-bearing savings goals. We are trying to change the credit card mindset of "buy now, pay later". If you save for that family vacation with SmartyPig, on the trip home the only thing you have is memories, not a credit card statement waiting for you.
2. How does it work?
Setting up an account on SmartyPig is safe, secure and easy. Once registered, you setup your savings goals. When you setup a goal on SmartyPig, you indicate what you are saving for (A Family Vacation), how much you want to save ($5000), when you want to reach your goal (March of 2010), make an initial deposit of at least $25, and SmartyPig calculates a monthly recurring contribution that will be automatically withdrawn from your existing checking or savings account and transferred into your interest-bearing SmartyPig goal.
But here's the really great part, you also decide whether your goal should be "private" or "public". If it's private, only you can see it. If it's public, your friends and family can contribute. Let SmartyPig send out an automated email to your friends and family, letting them know about your family vacation goal, or you can place a SmartyPig widget on over 30 social network sites like your Facebook or MySpace page. Or simply direct your friends to the SmartyPig site and ask them to click on the "Friends' Goals" tab and enter your email address. (enter mferrari(at)smartypig(dot)com and you can see what my wife and I are saving for. Contribute if you like!!!!!).
You are free to make additional contributions to your goal at anytime. Up to $10,000 a day. And you can close your goal at anytime. No penalty for closing your goal early. When you do wish to close your goal, you have three unique options to get your funds. All options are FREE.
1) You can choose to redeem your funds plus interest on a SmartyPig MasterCard® Debit Card. Customers like the fact that the funds don't go right back to their checking account. They like to carry the debit card around, it reminds them of their hard-earned savings. The card is reloadable with the future redemption of SmartyPig goals, and can be used at ATM machines.
2) You can place your funds plus interest on a retail gift card and receive up to a 6% cash boost. Say you've saved up $2000 over the course of the year. And you've earned $60 in interest. Well you can place those funds on an Overstock.com retail gift card and get an additional 6% CASH BOOST. That's an additional $123! We've partnered with over 20 retailers like Amazon.com, Pottery Barn, Best Buy, Home Depot and Royal Caribean. Cash boosts are up to 6%. 6% is the highest and is Overstock.com.
3) Simply transfer (ACH) the funds back to your bank account.
3. Who would use it and why?
Anyone that wants to save sensibly. 70% of our customers are 18-35 years old. We have college students saving for college expenses and spring break. Families saving for vacations and home improvement projects. Couples saving for weddings. Military men and women in Iraq saving to save. We have quite a few parents using SmartyPig as an educational tool to teach the value of savings with their kids. One mom told us that she could finally have a meaningful discussion about finances with her kids. We could not agree more.
4. How many people are currently using it?
We do not release that information. But what I can tell you is that in 3 short months of going live, we had customers in all 50 states. The average goal size is $9000 and just over 4 years.
5. Is everything on the site free?
You can register for an account, setup as many goals as you like, and redeem your funds to any of the three options I've listed above, and it won't cost you a penny in fees.
If you want to contribute to a friend's goal with a credit card, we charge a 2.9% processing fee (we simply pass on the merchant processing fee). You can bypass this fee if you have a SmartyPig account and contribute using your funding source (checking or savings account). Oh, and if you lose your debit card, we'll charge you $6 to reissue.
6. Is there anything else Free Money Finance readers should know about SmartyPig?
Yes. SmartyPig is as safe and secure as your bank down the street. SmartyPig savings accounts are held at West Bank (WTBA:NASDAQ) and are FDIC-insured up to the maximum amount allowed by law. As of today, accounts held at SmartyPig earn 3.9% (APY), one of the most competitive rates in the country. We welcome questions, comments and suggestions. Please email me anytime at mferrari(at)smartypig(dot)com. Follow us on Twitter! @SmartyPig.
There it is. So what do you think now?
I would definitely open up an account with them had I not opened an online savings account a year ago with igobanking.com, which is currently just giving out 3.28% interest... besides the higher APR, sounds like smartyPig has an extra step on the motivation side when it comes to saving... their "saving goals" idea is a really interesting concept...
Posted by: bob | October 02, 2008 at 12:19 PM
Sounds good for two reasons:
1. If you have a common savings goal among a group
2. 3.9% is a great rate of return for an online savings account (provided that doesn't change later which is possible with any of them)
You would want to avoid the 2.9% processing fee for sure.
Posted by: Todd | October 02, 2008 at 12:54 PM
Wow, that doesn't sound like too bad of an idea really. Currently I have a seperate account for my savings/vacation money at HSBC, but this rate even beats theirs. My first impression is that this is at least comparable to doing it with my high yield savings account, not really sure if it is completely worth the switch though.
Definitely an interesting concept, and it would be nice if I was able to get some other people to contribute to my vacation fund. Has anybody actually used this yet?
Posted by: Gino | October 02, 2008 at 12:57 PM
Thanks for the info, FMF. Seems like a pretty good interest rate. I may have to check it out.
I wonder if you can bypass their calculated monthly transfer though? Just for my peace of mind I'd rather control that myself.
Posted by: Kevin | October 02, 2008 at 01:10 PM
3.9% is a great return. West Bank also gets 3 stars out of 5 in Safe & Sound CAEL ratings.
Still, a lot of people are hesitant to put money in a smaller bank even if investments are fully insured. Sign of the times.
Posted by: Ken | October 02, 2008 at 01:31 PM
They mention getting "up to 6%" boost in your funds if you buy a gift card from participating retailers. They say Overstock is the highest at 6%. But I can't find the % boost for the other retailers anywhere. The list is at : http://www.smartypig.com/about/best-in-class
Any idea what bonus you get for gift cards from the other retailers?
I ask because if you get 3.9% savings and then add up to 6% boost on top of that then you're looking at a potential 9.9% gain. Thats VERY good if you know with certainty what store you're going to be using. But the "up to" language when they mention the gift card bonus leaves it vague.
Jim
Posted by: Jim | October 02, 2008 at 02:28 PM
Mike Ferrari here. I am one of the founders of SmartyPig.
@Kevin - At present, a monthly recurring contribution is mandatory. In addition to your monthly contribution, you can transfer up to $10,000 each day.
@Jim - Great question on the "cash boosts". And we get this question often. Please visit this page: http://blog.smartypig.com/read/overstockcom-new-smartypig-retailer-with-6-cash-boost
Mike Ferrari, SmartyPig co-founder
Posted by: Michael Ferrari | October 02, 2008 at 02:42 PM
Thanks for the answers, Mike. I guess the trick would be to set a lower per month contribution and then add to it if more funds are available.
Posted by: Kevin | October 02, 2008 at 03:50 PM
@Kevin - I think that would be a good way to approach it.
Thanks!
Posted by: Michael Ferrari | October 02, 2008 at 05:41 PM
@Jim
Don't confuse 3.9% APY + 6% bonus as 9.9% because one is compounded over time while the other is fixed. 6% is a bigger deal if you withdraw your money after a month than it is if your goal takes 5 years. I'm sure you knew that, but I thought it was worth clarifying.
Posted by: Andy | October 03, 2008 at 07:50 AM
I currently create sub accounts in ingdirect for each goal or seperate saving stream such house fund. This looks like taking this idea and consolidating it into a product. Nice job.
Posted by: AJ | October 03, 2008 at 02:05 PM
Hello Mike,
I am MOST concerned with the safety of West Bank being a very small bank. It is nice to know that all accounts are FDIC insured but worse case scenario if you go out of business do you know how long it would take me to actually get my money back from the FDIC? It would take indeed a long time and more importantly a ton of my personal time to track it down that of which I do not have the patience for. What can you do to make me feel more comfortable investing with a NEW start-up and bank that i have never heard of ?!?
Posted by: Glen Fagin | December 26, 2008 at 11:22 PM