Thursday, February 19, 2009

Online Bank Comparisons: SmartyPig

This is the third and final part of my series of online banking reviews. The first installment covered ING, and the second reviewed HSBC.

This post has been edited to provide the current interest rates for the listed companies. They are correct as of 2-19-2009.

My most recent online savings account is with SmartyPig. I came across an ad for the site, and was impressed by its high interest rate and friendly appearance. I joined, and have been using various savings goals to save up my money.

Which brings me to the main issue to consider with SmartyPig: It's not an ordinary online savings account. Rather, it functions more like a piggy bank; you set up a savings goal with an amount and the time you need to meet the goal, provide the initial deposit, and it calculates how much money needs to be added each month to reach the target fund level. That amount is pulled from a linked account every month, making the savings automatic. The only way to withdraw funds is to close a savings goal, making a SmartyPig savings goal more akin to an online CD (with no early withdraw fees) than a regular savings account.

How does this unique system fare when compared with my other online accounts? Let's find out...

Ease of Use: SmartyPig is a very intuitive, easy to follow system, which I picked up without any serious problems. It's a simple matter to open up a new savings goal and to deposit extra money. The automatic withdraws can be adjusted by shifting the desired closing date and total desired funds, but it can be a bit tough to get exactly the amount you want to deposit each month. (Although, I understand the management is trying to change that, to allow users to set a desired deposit amount directly, say $100 per month). Withdrawing money is tough, as well, requiring you to close one of your savings goals in order to get your money (with the interest earned to that point) returned to you.

Transfer Speed: SmartyPig has a fairly slow transfer speed, requiring at least three business days from the time the transfer is initiated until the funds are deposited. Given that the process is initiated automatically (for the monthly transfers, at least), this usually isn't an issue, but the slow speed, and the fact that the funds aren't credited to your account until the transfer is complete, do lead to a loss of some potential interest when using a fund transfer.

Interest Rates:
This is where SmartyPig shines; the interest rate they offer is usually well above and beyond what is offered at other online banks (even including many long-term CDs). The current rate of 3.25% is well above that offered by its rivals (more than 1% higher than ING, for example). Once you've deposited your money, it'll definitely be working harder for you here than just about any other online bank.

SmartyPig is fairly unique among online savings sites, and offers numerous features:
-It's a social site as well as a savings account. You can post your goal on your website or elsewhere, encourage friends and family to donate, and allow them to see the progress you're making towards your goal. It could definitely provide an interesting way to fund a wedding, for example. (I haven't tried to post any of my savings goals, so I can't critique how well the process would work.)
-They offer affiliations with a number of online retailers (see them here), and if you choose to cash out your savings goal in the form of a gift card, you can end up with a boost of up to 6% in extra funds. If you're saving up in order to a large purchase, it's an added bonus for your savings.
-They offer numerous features to track your progress. (I'm somewhat addicted to using their interest tracker to monitor my earnings.)

4/5 The high interest rate and social features make SmartyPig more interesting (and profitable) than the average financial site, but difficulty in getting your money out and slow transfer speed decrease its versatility. As an alternative to a CD, it offers a very attractive rate and more flexibility, but it's never going to be your primary banking web site. If you understand its limitations, though, SmartyPig is an excellent choice for your online savings.

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