SmartyPig has announced that today, their interest rate will be dropping from 2.15% to a much lower 1.75% for account balances less than $50,000. Account balances of more than $50,000 will still be receiving the same interest rate of 0.50%. The reason that SmartyPig gives for this, fairly large drop in APY is the following:
As you may know, interest rates on deposit accounts at many banks have been declining over the past several months due to poor market conditions. Likewise, the rate on your SmartyPig savings account is being reduced as a result of these same economic conditions.
Previously, you may have read my “rant” about how SmartyPig made a terrible decision to lower interest rates for large depositors while increasing interest rates for smaller depositors. It made no sense to me whatsoever that a bank would distance itself from it’s greatest future asset, which is cash. Now, with the decision to decrease that very same interest rate by 40 points just 3+ months late, I’ve learned that SmartyPig may not be too bright at all.
You see, I’m not buying this canned SmartyPig explanation. It’s been established that SmartyPig makes their profits, not on loans of the money you deposit, rather on your goal conversions for gift cards, where they receive a sizable commission from merchants. The reason that SmartyPig can offer a higher interest rate than that of other banks was because their profits come from gift cards. Who cares if the economy is doing well … in fact, the worse off the economy is, the better off SmartyPig is. Lower interest rates from banks means that SmartyPig can offer you an even higher margin for your money.
Has the economy really dropped off from mid-May, when SmartyPig increased their savings rate to 2.15% to today? Other online banks like EverBank, Discover, ING Direct etc. haven’t touched their interest rates in months. Why all of a sudden do you find SmartyPig, a bank which held a 2.01% interest rate for the longest time, increasing their rate minimally only to decrease it substantially soon thereafter?
The obvious and most plausible answer is that things at SmartyPig just aren’t going as planned. When the interest rate was increased in May, we were also told of new and exciting products and given an estimated 60 day time-frame for their launch. 100 days later, we’re still sitting on the same ‘ole savings account offer, whose hurdles to deposit and withdraw money are less tolerable with a 40 point reduction in interest rates.
During this time, SmartyPig moved from West Bank, the small and cozy Iowa based institution to BBVA Compass, the 8th largest bank in the US. It appeared that SmartyPig was growing far too large for West Bank to accommodate and while that’s true, it’s certainly not the only reason. I’m willing to wager (although I don’t do that anymore!) the 2.15% interest rate wasn’t sitting well with SmartyPig’s competitors and considering the rules and regulations that other FDIC insured institutions need to follow in regard to interest rates, SmartyPig will now have to play ball.
Now I don’t know all there is to know about SmartyPig or their future but based on their last few actions in and out of the online channel, it would appear that this is not the first rate decrease you’ll find before the year is out. Granted, the holiday season is fast approaching, which should mean a lot more gift card conversions for SmartyPig but considering the herky-jerky movements of the company in the last four months, be prepared for anything.
SmartyPig is still a great place to park your money (for deposits of less than $50,000) and if you’re looking to convert your funds into a gift card, it’s even better. Your money is always FDIC insured, so there is absolutely no risk but the high level of rewards you stand to gain may not be around much longer.