SmartyPig to Raise Interest Rate

I know one will not make a trend, but how about two?

Early this month, Capital One surprised me with an announcement of rate hike of its InterestPlus savings account. The increase is not significant, only going from 1.25% to 1.30% APY, it’s the move itself that’s maybe more meaningful because most banks are pretty much still in the cutting mode, a position they have been in for more than two years. As I mentioned in that post, a similar rate increase by Ally Bank last summer was a short lived one and didn’t carry any signal since the bank quickly reversed course and continued slashing rate since then.

A couple of days ago, SmartyPig, which I highlighted as one of the best savings accounts early this year, also came out with a statement that it’s raising the interest rate of its savings account to 2.15% APY from the current level of 2.01% APY on May 19, 2010 for account balance up to $50,000.

Is this a good deal? Well, if you also follow savings account interest rates as closely as I do, then you know this is indeed a very good rate because most banks’ rate have stuck at lower 1.0% for quite a long time. So 2.15% is very appealing. However, since SmartyPig isn’t really a bank (though the savings account is offered through a bank that’s FDIC insured), it has more restrictions than a regular savings account does (see my SmartyPig review if you are not familiar with how it works). Basically, to get the high interest rate with SmartyPig, you will need to

  1. Setup a goal for your savings, at least $250 (only a minimum deposit of $25 is required to start and maintain a goal);
  2. Make regular or manual contribution of at least $10 to reach your goal (for automatic regular contribution, the frequency can be either monthly, twice-monthly, or bi-weekly);
  3. Reach your goal and get your money back (but you can close your account at any time if you want and still enjoy the 2.15% APY).

When I first looked at SmartyPig two years ago shortly after it was launched, I was quite disappointed by the high fees it charged though I liked the idea. Since then, SmartyPig has eliminated most of the fees to make the program more affordable to savers.

In addition to requiring a goal for using SmartyPig that’s different from traditional banks, another selling point of SmartyPig is that it allows others, friends or family members, to contribute to your goal. Even if you don’t have anybody else contribute to your account, a 2.15% APY will sure make reaching your goal faster than a 1.25% APY account does :)

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