SmartyPig Getting Ready to Buck Trend and Raise Savings Rate to 2.15% APY

SmartyPig is getting ready to buck the trend of declining savings rates by announcing that it is raising its rate to 2.15% from 2.01% APY. As part of that increase though, it's creating a tiered rate system. Only the first $50,000 will receive the higher rate. The tiered system works like this:

*Effective May 19, 2010:

• Interest rate earned on balances $1 - $50,000 will earn 2.133% (2.15% APY)
• Interest rate earned on balances above $50,000 will earn 0.499% (0.50% APY)

So, if you plan on investing more than $50,000 SmartyPig is not the place. The 2.15% APY though is one of the top savings and money market rates according to the BestCashCow rate tables.

Here's what SmartyPig's CEO had to say in the press release announcing the rate increase:

"With credit card issuers expected to raise interest rates to 16 or 17 percent by the fall(3), we believe it is important now, more than ever, that consumers adopt responsible financial habits," said Bob Weinschenk, chief executive officer, SmartyPig. "Which is why we firmly believe in rewarding customers who want to save and spend smartly, and give them the opportunity to get ahead again and stay there."

Several Things to Know About SmartyPig

SmartyPig is not a typical savings account. The site works by creating goals that you can save for: a vacaction, college tution, a new television, etc. Then, when you are ready to withdraw the money, you can do so in one of three ways:

• You may put all of your savings plus interest on the flexible SmartyPig MasterCard® debit card
• Have it sent back to your bank
• Receive up to a 12% cash boost on your savings by placing it on a retail card like Amazon.com, Best Buy, Travelocity or Macy’s

So, if you're saving for a television or cloths at Macy's, the savings get an extra boost. If you just want to use it like a regular savings account, you can have the money sent back to your main bank when you are ready to widthdraw funds.

The second thing to know is that SmartyPig does not actually keep your money. They are not a bank. Instead, your funds are held by West Bank, an FDIC insured bank. There has been some debate on various sites about whether those individual accounts are FDIC insured. In the past I have spoken with West Bank about this issue and they assured me that each individual account was insured up to the maximum allowed by the FDIC.