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FNBO Direct Currently Offering 1.10%, Considering SmartyPig with 1.75% APY?

This article was written by in Banking. 28 comments.


A little over a year ago, I introduced SmartyPig to Consumerism Commentary, a savings account with a higher rate. Their current rate yields 1.75%, by far the highest among high-yield online savings accounts. Accounts held with SmartyPig are fully backed by the FDIC. SmartyPig’s philosophy is designed to focus on goal-oriented saving, and the bank encourages redeeming (withdrawing) your funds only when the goal is reached, and preferably in the form of a gift card offered by one of several retailers partnering with the bank or of a prepaid debit card.

If you opt to redeem your account in the form of a gift card, SmartyPig offers a bonus above the value of the cash you have saved, but keep in mind that where legal, many of the gift cards “expire” if not fully redeemed after a period of time. Is the higher interest rate worth the hassle?

Updated October 13, 2010 and originally published April 1, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He 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 Luke Landes on Twitter. View all articles by .

{ 14 comments… read them below or add one }

avatar Sean

Just FYI, SmartyPig is about to drop their rate to 3.05% Granted this is still quite a bit higher than FNBO and even slightly higher than my credit union rewards checking, but I just thought you should know before you make any final decisions.

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avatar Luke Landes ♦127,373 (Platinum)

Good information to have. Thanks, Sean!

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avatar Stephanie PTY

I’m not surprised that they’ll be dropping their rate… but yeah, 3.05% is darn good. SmartyPig has been tempting me for a few weeks now. What I really want to do is pick my SmartyPig goal carefully, because I would like to take advantage of all the aspects of SmartyPig, including the part where other people can contribute to the goal. I’m thinking I might transfer my “new car” fund there.

Keep in mind that SmartyPig requires a monthly automatic transfer of at least $10 into the account. That’s why I’m thinking of using my new car fund – right now I’m only contributing $10/month to it anyway, so it might be my best bet.

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avatar Miss M

Really, that sucks. I like FNBO and have had an account there for several years. What prompts these decisions, the economic news has been about the same the last few months yet the savings rates continue to drift down.

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avatar MyJourney

I hate to be “that guy” but what are the odds that SmartyPig isn’t going to bring down its saving rate within the month. It seems unproductive to swap accounts for 1.5% pre tax dollars.

Using Stephanie’s example:
$20K in her car account (although at 10 bucks a month it is likely less). $20K @ 3% yields 600 a month
$20K @ 2% yields 400 a month
$200 is then taxed at 25% or so = 150/yr or $12.50 more per month

IF AND ONLY IF Smarty pig doesn’t come down in the next year…which again is very unlikely.

Thoughts?

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avatar Luke Landes ♦127,373 (Platinum)

I don’t advocate chasing high rates and moving money around every month to earn an additional 0.5% APY. Any bank that’s on top now may not be on top in the future. I do advocate finding the best place for depositing new money. SmartyPig’s probably not the answer for me, but it is worth mentioning for those who find it a good option.

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avatar Stephanie PTY

I don’t normally rate chase – what I do could more accurately be defined as “rebalancing.” I have several high yield savings accounts open, from years of “bonus chasing” (I’ll admit to that one!). Right now, each one has a purpose, each a different savings goal. I put my most aggressive savings goals in whatever account is offering the highest interest rate at the time I start the savings goal.

So for example, last month I decided to start putting a significant portion of my savings toward paying for attending my brother’s wedding, which will be in Florida. As soon as I decided on that as my current aggressive goal, I looked at all of my savings accounts to see which one is giving the highest current rate, and started using that one for the new goal. I’m not moving any money around, I’m just plowing new money into the account with the highest rate.

SmartyPig is sort of a special case, with the restrictions it has. If I’m going to open an account with them, I want it to be a goal that my friends and family might actually want to contribute to (no one is going to want to contribute to my savings for my brother’s wedding, except for maybe my mother!), so maybe people will want to put money toward a car for me, for a birthday or Christmas or graduation present. Also, it needs to be a goal that I would put at least $10/month toward. So the rate is important in deciding whether I want to open an account or not, but less important in deciding which goal to use it for.

Ideally, if I wanted to take full advantage of SmartyPig, I would pick a goal that I could get one of their gift certificates for, and get a 10% boost or whatever. The only thing is that I don’t currently have any material goals that would match up with a gift certificate. Unless they start issuing gift certificates for the Department of Education to pay off student loans! ;)

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avatar unimax

You can do ACH transfer out instead of GC’s if you are worried by their expiry dates.

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avatar Danny

Last I checked, SmartyPig only credited interest on a quarterly (rather than monthly) basis. While it seems this difference has less of an effect than rate chasing, something about getting paid only 4 times a year bothers me.

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avatar Holly

SP uses the daily accrual method to compute interest; you are still earning the interest daily…it’s just that they will only post your earned interest quarterly for you to see. I use it for long-term goals (emergency funds, private high school for my 3 kids), so how often it’s posted really doesn’t matter to me.

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avatar Luke Landes ♦127,373 (Platinum)

If interest is only posted quarterly, you can miss out on up to three months’ worth of interest by withdrawing your funds at the “wrong” time. In the worst case scenario, that would reduce effective yields — interest actually received — from 3.05% (assuming that’s the offered APY) to about 2.29%. With bank accounts where interest is credit monthly, you can’t lose as much earned interest, keeping your effective yield closer to what’s advertised.

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avatar Holly

OK, THANKS FOR CLARIFYING. The site states that you will receive any and all earned interest upon w/d (I read that to mean up-to-that-date), but I will make sure to watch when I choose to do the ACH, so that I’m not sacrificing any interest. I knew there had to be a catch!
P.S. Keep up the great posts!

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avatar Luke Landes ♦127,373 (Platinum)

I’ll have to check the site for myself, but if they they credit your accrued interest on withdrawal, you shouldn’t miss out on anything.

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avatar Roger

Interesting topic. I for one happen to be a very satisfied SmartyPig user, and I do highly recommend it. Some thoughts on what’s been discussed:

-I can confirm Holly’s comments about the interest that’s paid; if you close your ‘goal’, as the individual SP accounts are called, you do receive all the interest you’ve accrued to that point. You don’t have to ensure that you’re at the start of a new quarter to get your money.

-While it’s true that changing rates can mean that a bank that offers the best rate now might have a comparatively lower rate in the near future, I’ve noticed that SP seems to have been about a full percentage point higher than ING (my ‘main’ online bank) since I started investing with them over six month ago. Granted, that’s far from conclusive, but I’m reasonably confident that SP will continue to stay competitive in this respect.

-As unimax noted, you don’t have to get gift certificates when you close your account (I haven’t, at least not yet). I did think they gave you a boost in the amount you could get if you went the gift card route, though (something along the lines of a 10-20% bump, depending on what store you were going for.)

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