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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SmartyPig Should Be Compared With CDs, Not Savings Accounts
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