Social Savings Site SmartyPig Launches with High Yield Savings Account

I just finished speaking with Jon Gaskell, a co-founder of Smartypig. Smartypig is a new company that launched several weeks ago and it has already generated a lot of buzz. It bills itself as a social savings site. On the site, users open a bank account, create savings goals, create automated payments to achieve these goals, and have the ability to invite friends and family to help contribute towards the goal.

High Yield Savings Account

There are a lot of social features on the site we’ll get to but let’s start with what most of you care about - the rate. At least for now, SmartyPig is in the game. The core savings account is provided by West Bank, a $1.3 million FDIC insured bank.

The account currently (3/28/2008) pays a competitive rate of 4.30% APY, which is second on the BestCashCow rate chart and far above the ING Orange rate of 3% APY. I’d look for the rate to come down after their launch period is over but for now, it’s highly competitive.

But, before you jump to open the account, there are a few things to consider.

Savings Goals and Social Savings

SmartyPig is set up around savings goals. User set a goal they are saving for and then they can make those goals public and have others (family, friends, etc.) contribute towards them. So, for instance, you may choose a goal of saving for a trip to Florida. If the goal becomes public, you can send the goal to your friends via email, easily place it on your Blog with code they will give, or tell others to look you up on the site with your email address. You can keep goals private and not share them if you prefer.

This is the social side of SmartyPig. Jon said that from their initial feedback parents are excited about setting up goals for their kids and that members really like the social aspect of the site. Users can customize their page, ad avatars, and form savings groups with their friends.

On SmartyPig it’s free for someone to set up an account and transfer money in via ACH. It’s also free for SmartyPig members to transfer money into another SmartyPig member’s account. For a friend or family member to add money to an account via a credit card there is a 2.9% charge.

“That’s a standard charge anywhere whether using a credit card or PayPal,” Jon told me. He said SmartyPig can’t afford to eat $2.90 for ever $100 transferred into the bank.

Transferring money out is a bit more cumbersome. Users have several options. They can use their savings to purchase gift cards from participating members, including Amazon, Best Buy, Circuit City, Lowes, etc. Often these gift cards provide a 2-5% bonus, providing a nice yield boost. Users can also have funds sent via a prepaid debit card or mailed as a check. There is a $25 fee to receive a check.

Jon said that early reaction has been positive. They have customers from more than 30 states who are creating goals and feedback has been positive. He declined to provide the number of goals created.

The NetBanker hailed SmartyPig as one of its Best of the Web and lauded its SmartyPig as " the most innovative financial service we've seen since Prosper launched two years ago.”

User comments have varied. Some love the service and others see the lack of an easy, online way to withdraw money combined with the $25 fee to receive a check, as a big drawback.

I think most are missing the fact, or don’t realize just how competitive SmartyPig’s rate of 4.30% is. Of course, this rate could change at any time but for now the high yield would more than make up for the $25 check fee.

If you’re willing to forego a big of flexibility in withdrawing money, and plan to buy from one of the merchants listed, then SmartyPig might be a good option. As long as they keep their rate high, SmartyPig might be a good option regardless of whether or not you have an explicit savings goal.

Update - April 10, 2008

Here's an interview with Jon Gaskell that I found on Marketwatch. It provides more information on SmartyPig.