One of the more interesting and innovative ways to save up for specific goals is to make use of SmartyPig. SmartyPig is a free online savings tool that allows you to save for for specific financial goals. Whether you want to save up $500 for back to school shopping, or $5,000 for a family vacation, it is possible to use SmartyPig to reach that goal. The concept is fairly straightforward, and works simply.
First of all, it is important to note that SmartyPig is not a bank. SmartyPig accounts are held through BBVA Compass (As of Aug 1st, 2010 SmartyPig account will move from West Bank to BBVA Compass, the 15th largest bank in the US). They are FDIC insured for up to $250,000 (drops to $100,000 on January 1, 2014 unless things change). You can set up as many goals as you want for yourself and your family. In order to start at SmartyPig, you need the same items that you would need to open a regular savings account:
- State issued ID (or driver’s license)
- Social Security Number
- Current address (plus previous address if you’ve moved in the last two years)
- Email address
- Birth date
- Phone number
- Checking or savings account information to fund SmartyPig
You also need at least $25 to begin funding your account. Your maximum is $250,000. Once you have everything set up, you enter your goals. Then, you can fund your account with money from checking or savings. Linking your bank accounts to SmartyPig can make it simple to transfer money for your goals. You can also use a credit card to fund your savings goals, but this is not something I would recommend. Friends and family can also contribute to your savings goal easily (great way to get family involved in college savings goals!), and you can help others with their goals. When you are ready, you can withdraw money from SmartyPig. You can withdraw money to a debit card, bank account or retail gift card.
Advantages of SmartyPig
The three main advantages of SmartyPig are the high yield on the account, the cash boost you receive when you withdraw your savings to a retail card, and the ability for friends and family to contribute to your goals. Currently, SmartyPig offers 1.75 % APY, which is more than you will get at a lot of online and offline financial institutions, even for high yield savings accounts.
The cash boost allows you to get more when you take advantage of retail gift cards. If you withdraw $500 to a retail gift card, you receive a bonus of up to 14%, so you end up with $60 extra. That’s free money on your gift card! Retailers include Macy’s, Amazon, Kmart, iTunes and more. This is great if your goal is to save for holiday gifts or a birthday, for example.
You can socialize your savings goals. With SmartyPig you can create widgets to post to places like Facebook or your web page. You can also integrate your account with places like Twitter so friends and family can see how much you are contributing.
There are other advantages to SmartyPig. You can access your account from anywhere, including your cell phone, and SmartyPig can be integrated into your money management applications. You can easily track your savings, and you can make automatic contributions to simplify the process of saving for your goals. Also, you can split up your savings goal redemption among a debit card, retail card, or bank transfer. This way the money can be used in your best interests.
Drawbacks of SmartyPig
There are some downsides associated with SmartyPig. First of all, the fact that you can use a credit card to fund your savings goals can defeat the purpose if you get impatient to see your account grow. The 1.75% interest you are earning at SmartyPig does not come close to overcoming the high interest you pay on your credit card. Another issue is that once your saved balances across all goals reaches $50,000, your APY drops to 0.50%. So the efficiency of SmartyPig drops if you are planning to save up large sums of money.
Also, you can’t partially withdraw funds from your goals. Say you want $100 out of $500 that you have saved so far. You can’t do it without closing out your goal. The point of this though, is to make sure you actually keep to your goals rather than use the account like a regular savings bank (this is actually a good thing but you need to be aware of it).
SmartyPig is great for short term savings goals. You can earn a reasonably high rate of return, and you can get a cash boost if you withdraw your money in the form of a retail card. This makes SmartyPig great if you have a plan for spending your money in the next two to four years. SmartyPig can also be helpful if you want to get a higher yield for your cash — as long as you move your cash out of SmartyPig and into some other product (like a jumbo CD) before your balance reaches $50,000.
SmartyPig can be a great tool to help you reach your money saving goals!
As always, you should check the fine print before opening any account to make sure the account is right for you and you understand all of the details.