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SmartyPig Should Be Compared With CDs, Not Savings Accounts

by Flexo on July 6, 2009

in Banking

I enjoyed Tom Dziubek’s discussion with Jon Gaskell, the CEO of SmartyPig, in the latest episode of the Consumerism Commentary Podcast. If you have a chance, listen to the part discussion in which they discuss SmartyPig’s interest rates. Tom asked how SmartyPig can continually offer high interest rates. Jon Gaskell intimated that SmartyPig’s restrictions and requirements result in a banking relationship in which customers’ accounts are much less liquid than a typical savings account.

According to the CEO, the average saver using SmartyPig is saving for a goal over four years away (fifty-one months). Customers are generally not withdrawing their money early, so they are “sticky deposits.” SmartyPig therefore offers a savings product that has more in common with certificates of deposit (CDs) than with savings or money market accounts.

Keep this in mind when shopping for banking products. As of today, SmartyPig is offering a 2.75% APY, but if you are going to let your money sit without withdrawals for four years, consider some better priced options like Ally Bank’s 48-month CD, currently offering 3.0% APY.

To be fair, SmartyPig does have an advantage over certificates of deposit. You can (and must, according to SmartyPig’s rules) make additional deposits towards your goal each month. If you consider your goal as a fixed point in the future, each month, you are earning the current interest rate on a decreasing term length. With a certificate of deposit, each monthly contribution would mature one month later than the previous month’s deposit.

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Tagged as: Banking, cds, smartypig



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Flexo, the owner and creator of Consumerism Commentary, has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow him on Twitter.

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  • I think another important difference between SmartyPig and a traditional CD is that with a SmartyPig account you can withdraw your money at any time with no penalty and the interest rate is variable. Granted, lately that variable rate has been a bad thing, but if at some point in the next 48 months the interest rates go up then you will benefit.

    In the example you gave of the Ally Bank CD, your money is locked in for 48 months and if rates go up or you need the money for an emergency you could end up losing money to a penalty or lost interest. However, given the trending of rates, maybe the rate going up is unlikely. I just like knowing that I can get my money at any point without paying a fee.

    By the way, keep up the good work with the podcast, it has been really interesting to hear more about some of these online services.
  • That's a great point, Sean. A saver should ask himself whether he wants complete, unfettered access to their money. If so, SmartyPig with its unique requirements might not be the best choice. On the other hand, if the saver is mostly confident that the money can be set aside for a certain period of time, he should find the best interest rate offered whether in a savings account or CD. SmartyPig falls somewhere in between.
  • Donny Gamble
    I haven't yet had the chance to try Smarty Pig yet because I have been stuck on ING Direct CD's. I have been hearing all this buzz about it. I definitely plan to give it a second look whenever I get the chance to.
  • I like the way SmartyPig links financial goals with a savings account. This is yet another way to make saving more appealing to people and will probably work very well for a pretty large segment of the population. I am sure that the adage "different strokes for different folks" also applies to savings behavior and all other things "financial".
  • Scott
    There is another aspect to SmartyPig, too. Unlike so many banks, they are approachable people (both online and off) and make SmartyPig just plain fun to use. Banking... fun? What? For example, right now they are running a "Dream Big" video contest. Here is our entry, we had a blast making it.

    http://www.youtube.com/watch?v=rzh_3RquXW0
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