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Update March 6: I added two clarifications pointed out in the comments. First, that normal ACH deposits to your own SmartyPig account are free of charge. Second, that the retailers bonus on withdrawals to their gift cards is UP TO 5% (not a flat 5%).
How about this recipe? Take a basic FDIC-insured savings account, spice it up with automated electronic transfers and email communications, mix in g
ift/debit cards, wrap the whole thing up in a social network, and top it with a memorable name. What do you have? SmartyPig, the most innovative financial s
ervice we've seen since Prosper launched two years ago.
The site is in the final week of private beta. To register, you still need an invitation code. The company asked me not to publish it, but it's OK if I distribute by request via email. Send a note to info@netbanker with "SmartyPig" in the subject line. Or simply wait until after this weekend when the site goes into public beta.
How it works:
1. Users create savings accounts at the site. Deposits are held at West Bank, a Des Moines, IA- based financial institution with $1.3 billion in assets. Funding is through ACH (electronic) transfers from outside bank accounts. SmartyPig currently pays a high, 4.3% APY on deposits.
2. After the account is established, users are encouraged to create savings goals funded through automatic monthly ACH transfers until the goal is met.
3. Now here is where SmartyPig diverges from a typical bank account. The savings goals can be made public or kept private. Public goals can be funded in part, or entirely, by outside contributors. Think of grandma and grandpa contributing birthday money to help junior buy a new bike. Contributions are funded through credit card charges with a maximum charge of $500 and a per transaction processing fee of $4.95. To make sure grandma's $50 doesn't go to a Mario game, the money cannot be withdrawn until the savings goal is met (or canceled by the primary account holder).
4. After goals have been met, the user can elect to take the funds out in the form of a MasterCard debit card or a gift card from a retail partner such as Amazon.com. Participating retailers add up to 5% bonus to the savings goal so that $1000 saved for the plasma TV is worth $1,050 if redeemed via Amazon gift card. That's a great added incentive to use the service.
Gift Cards
SmartyPig also sells gift cards that can be redeemed towards new or existing savings goals. These cards, issued in denominations of $25 to $500, are meant to be given as gifts or employee incentives. They cannot be redeemed outside the SmartyPig system. Physical card are produced and delivered for a processing fee of $4.95 plus delivery fees of $5.95 or more. Or consumers can deliver a virtual card through email to eliminate the delivery charge (but the $4.95 processing fee remains the same).
Summary of Fees
- Your own deposits: Free (via ACH transfer)
- Public contributions: $4.95 flat processing fee for each contribution made by an outside contributor. Contributions can be from $25 to $500 and are funded via credit card.
- Gift cards: Gift cards incur a $4.95 processing fee and an optional $5.95 shipping fee. The shipping fee can be avoided if a virtual gift card is chosen which is fulfilled via email.
Analysis
Although, not everyone is going to want to go through the extra steps to save this way, we are impressed with SmartyPig and are awarding it our first OBR Best of the Web award for 2008 
(see note 1). We like how it's part gift registry, part savings account, and potentially a big help in getting users in the habit of saving for larger goals. The look-and-feel is very Web 2.0 and should resonate with teens and twenty-somethings.
There are a few rough edges that need better explanation and/or minor redesign. For instance, there is no way to simply add funds to a savings account without first setting up an automatic funding plan. But the site isn't even officially launched yet, so these issues should be ironed out during the beta period.
The processing fee for outside contributions of $4.95 per transaction is a bit on the high side (there is no fee for funds transfers from your own bank account). One could argue that it's worth price of a triple mocha for the convenience and benefits of the savings account. But for smaller deposits of $50 to $100, it's a pretty high percentage of the overall deposit.
It would be nice if the company could lower the fee, perhaps by creating an ACH funding option. Another way to reduce costs is to lower the 4.3% APR. I'm not sure the savers attracted to this account really need that high of a rate. A lower interest rate combined with lower fees might make the service more palatable overall.
The company may have to tweak its business model going forward. But the real lesson here is that savings accounts can be made stickier with automation and incentives. Leave it to the Iowans to show us the way (note 2).
Screenshots
1. The main account screen: I set up a savings account for my son. Then set a savings goal of $300 for a new bike. SmartyPig requires that the savings goal be funded in equal monthly withdrawals from the linked checking. It would be helpful if you could opt out of the automated savings plan so that the savings goal could be funded manually.
2. Public goals: If you opted to make your savings goal public, anyone can find it by searching via email address under the "Friends' Goals" tab on the top (you can see this one by searching for jim@netbanker.com). 
Users can publicize their goals with a widget (see inset, and link at bottom of screen above) or by sending email to friends.
After making a contribution, the following screen is displayed.
Note:
1. Online Banking Report (OBR) Best of the Web awards are given for products that "raise the bar" in online financial services, usually for pioneering a new feature. Recent winners are covered here. Five awards were been handed out in 2007: two for Wesabe, and one each for Jwaala, Buxfer and Obopay. In the past 10 years, 67 companies have won the award.
2. Full disclosure: I was born and raised in Iowa and my brother lives within a few miles of the SmartyPig world headquarters.
Comments (15)
Reminds me of www.ChipIn.com, seems a similar service like SmartyPig isn't?
Posted by Erik van Roekel | March 4, 2008 5:43 AM
Posted on March 4, 2008 05:43
Jim Bruene hit the nail on the head. SmartyPig is like a savings account + a social network rolled into one. And the best thing about it for me is that it's TOTALLY FREE. I was selected to be a BETA tester for SmartyPig and really enjoyed the experience. Congrats on the award! Much deserved!
Posted by Craig Judkins | March 4, 2008 6:24 AM
Posted on March 4, 2008 06:24
I've used ChipIn a few times and it seems ok for raising money. Looks to me like SmartyPig is really focused on goals. It also looks like SmartyPig is FDIC insured and the money you save earns over 4% interest. ChipIn doesn't do either.
Posted by Brian Morlan | March 4, 2008 7:55 AM
Posted on March 4, 2008 07:55
I too was selected to participate in the BETA and it's been awesome. Yes, as Craig points out it is free, which is totally cool. More than anything it has changed the way I look at purchasing and the use of buying on credit. I now consciously look for things I can set up savings goals for. It's a truly rewarding moment to save up, hit your goal and then get the extra incentive boost to go make your purchase. Great review Jim. Go SmartyPig Go.
Posted by James Clark | March 4, 2008 8:58 AM
Posted on March 4, 2008 08:58
You reference a (note 3) at the end of the analysis, but i THINK you mean to reference (note 2), as there IS no (note 3).
Posted by Buster | March 4, 2008 10:36 AM
Posted on March 4, 2008 10:36
(Editor's Note: Jon is a co-founder of SmartyPig)
Jim, thank you so much for the incredibly thorough story. I have gotten so much positive feedback already this morning from BETA testers and board members alike. Really, I am flattered you think so highly of our company/concept. I do want to clarify a few things, though, as I know there are many moving parts to SmartyPig and am hoping you hear from some readers.
1. Using SmartyPig is free to anyone and everyone. Signing up, opening an account, monthly transactions all of it is free - no fees. You do not indicate otherwise, but I thought it was worth mentioning in case a reader asks. Fees are only for pubic account contributions and gift cards, and we are working on a way to make them as fair as possible.
2. Goals can be closed at any time, not just when the goal is met. But you are correct in that a minor cannot manage the money.
3. The incentive boosts from our retailers are "up to" 5% not 5% across the board. They shift, and all are different from Home Depot to Best Buy to Royal Caribbean.
4. While you cannot yet opt out of the automated monthly withdrawal, you can manually add money to your account using an existing funding source at anytime for free by clicking on the "add money" button where you manage your goals.
Best, Jon
----------------
Jon Gaskell
http://www.smartypig.com
Posted by Jon Gaskell | March 4, 2008 10:43 AM
Posted on March 4, 2008 10:43
@Craig-Thanks for catching my numbering error,it's been fixed.
@Jon--Thanks for adding your observations and elaborating on the FREE nature of the service. It's important that people understand the core savings account is totally free, including the user's own contributions via ACH.
Also, I fixed number 3 in the post. Thanks.
I look forward to seeing your demo at our FINOVATE Startup conference.
Posted by Jim Bruene![[TypeKey Profile Page]](http://www.netbanker.com/nav-commenters.gif)
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March 4, 2008 10:51 AM
Posted on March 4, 2008 10:51
A traditional savings account is typically free at any bank or credit union. I fail to see how TOTALLY FREE is such a cool feature because you pretty much get it anywhere else. Without SmartyPig, one can set up multiple savings account at say ING Direct, one for each goal. Collecting money from Grandma can be done by PayPal.
From the write-up, it sounds like you can't take *money* out. You can only get debit card or gift card? If that's the case, it should be highlighted -- you can add money, but you can't withdraw. Beware of breakage on debit cards and gift cards.
Posted by The Finance Buff | March 4, 2008 1:26 PM
Posted on March 4, 2008 13:26
@Finance Buff
Good comments. ING Direct is the only other place that I know of where it's easy to create sub-savings accounts to support goals. So they are a simpler solution in many ways to SmartyPig. But they don't have as many tools around goals.
Your point about taking the money out only on a card is valid...on the one hand it makes the money "stickier" which helps you not spend it on frivolous things, but it also is not so user friendly.
I think the company might want to revisit that...perhaps with a withdrawal penalty of the current month's interest or something to put up a small barrier.
Posted by Jim Bruene![[TypeKey Profile Page]](http://www.netbanker.com/nav-commenters.gif)
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March 4, 2008 1:55 PM
Posted on March 4, 2008 13:55
@Finance Buff
Thanks for the input. Our system was designed for competing against the mindset of buy now, pay later... like a piggy bank, you save up. ING is definitely valuable for what you describe and definitely more convenient if you want cash now - I have an ING account myself. SmartyPig, though, is more like a 529 plan. In fact that is where the idea came from. You have a goal, you fund that savings account until you reach that goal. Then you aren't stuck owing and paying interest on top of what you owe. Not to mention, you can stop your goal at any time and get your money. As for our debit cards, they are FDIC insured and refillable using the proceeds of other met goals. Thanks again. I like your blog. -Jon
Posted by Jon Gaskell | March 4, 2008 2:09 PM
Posted on March 4, 2008 14:09
@Jim: haven't received an invitation code, yet. Probably a lot of requests??
Posted by Erik van Roekel | March 5, 2008 2:14 AM
Posted on March 5, 2008 02:14
@Jim
Great find. Thanks as always.
@Jon
I'd be interested in knowing who the expected user is here. Clearly, it seems to work for a parent showing a child how to fulfill a savings goal, but a gaggle of $20 goals is not going to pull much volume to the service.
Do you intend to replicate an ING-ish demographic of young(er) more affluent customers, or is this aimed elsewhere?
Posted by Ben Rogers | March 5, 2008 6:58 AM
Posted on March 5, 2008 06:58
@Erik
The codes going out right now...forgot to tell my office what to do with all the "smartypig" emails. Sorry for the delay.
Posted by Jim Bruene![[TypeKey Profile Page]](http://www.netbanker.com/nav-commenters.gif)
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March 5, 2008 9:16 AM
Posted on March 5, 2008 09:16
Our target market is definitely - at least at the onset - late teens and 20-somethings, as well as younger parents. But overall, SmartyPig is for anyone who wants to save responsibly for a specific goal. There was $2.2 trillion in purchases and cash advances put on credit cards in the U.S. alone last year, and those credit card companies raked in $18.1 billion in penalty fees alone. The percentage of people delinquent on making payments on their credit cards is at a three-year high. We want to give everyone the opportunity to reverse these trends and reward them for doing so. Is SmartyPig for an 18-year-old who wants an iPOD? Yes. Is it for a father and mother to teach their older children about saving in a fun way? Yes. Is it for the washer and dryer my wife wants? Yes. My business partner, Mike, is using SmartyPig to fund a trip to Italy, and his family members skipped his usual birthday presents just last week to help him fund his goal by making public contributions.
We had a corporate executive tell us recently after seeing our demo that he wants to use SmartyPig so that his kids, who cannot afford the expensive bike he wants, can give him birthday and Christmas presents in the form of public contributions toward that goal. We had never thought of that before, because we hadn’t thought of him to be in our so-called demographic. While yet another exec. type told us matter-of-factly, “I will never have to figure out what to get my grandkids for their birthdays again.”
So, who is SmartyPig aimed toward? The younger people I mentioned above. Who will use it? We think anyone who wants to get back to that piggy bank mentality of save now, buy later rather than the way that has gotten us into the hole we are collectively in from a credit standpoint.
Sorry about the long answer.
Posted by Jon Gaskell | March 5, 2008 9:36 AM
Posted on March 5, 2008 09:36
Please help me out here. Can I use SmartyPig as a savings account only? 4.3% is pretty good on liquid funds, but are they truly liquid? For instance, if I push 200k into the account do I have to keep making monthly deposits? Can I just stop with my initial deposit? And can I withdraw my money at anytime by writing a check or doing an ACH to another bank? Without fees? I don't want to get stuck with a 200k giftcard to Amazon or to anywhere else period.
Thanks.
Posted by Forsi | April 22, 2008 7:32 AM
Posted on April 22, 2008 07:32