The average online savings rate dropped more than 1% in the past year while the average credit card interest rate rose more than 1% in the past six months – costing consumers hundreds if not thousands of dollars. We here at SmartyPig feel it is high time to take care of the people who are trying hard to save and spend smarter rather than gouge them like everyone else. With the average interest rates on credit cards reaching 14.26% in February and poised to leap to 16-17% by fall, how can we not?
On May 19, 2010, the APY on balances* of less than $50,000 will go up to 2.15%, while balances* of $50,000 or more will see a rate decrease to 0.50% APY. This tiered structure will greatly benefit more than 95% of our customers who are working hard towards their goals and using our redemption program to earn even more cash when they reach those goals. While a small portion of our users will see a rate decrease based on their limited use of the service, we feel strongly that our mission will greatly benefit our core customers who are saving for various milestones in their everyday lives.
See, when we recently went over some ideas with a few of our customers, what we overwhelmingly heard was this: Help the people who use SmartyPig the way it was designed – everyday people with everyday needs and wants – by giving them a higher rate, more cash incentives and the royal treatment usually reserved for high-balance customers at big banks who typically crush young, working people with fees and gimmicks while lending a deaf ear.
SmartyPig would be nothing without these folks. We applaud them for wanting to change for the better and having the courage as well as the resolve to make it happen. We are going to work as hard as you to help you get to where you want to go and make sure you stay there.
Please let me know at any time how we can be of service or how we can make an even better SmartyPig. Your continued support is greatly appreciated and, as always, best of luck with your goals!
For additional information, please click here to read the complete press release.
Oh and one more thing: The only time we ever make money is when our customers make money. With our decision to focus on our goal-oriented customers, we hope to help you earn even more.
Bob Weinschenk, CEO
*Balances: For purposes of calculating balances for determination of the rate tier that applies, total balances of all goals within your SmartyPig profile will be aggregated.
**** UPDATE by Bob Weinschenk – April 19, 2010: 10:20 pm CST ****
I’d like to thank everyone who took the time to post on our blog. All comments are appreciated and help us create a better product.
To clarify, there was no intent to spin a bad story (the rate decrease for deposits over $50K) into a positive (the rate increase for deposits under $50K). We made a change that positively affected 95+% of our customers and stated the truth. To the 5% of our customers who could experience a rate decrease (if deposits are not brought below $50K) in no way shape or form was there an intention to miscommunicate the facts. Also, we truly hope to keep your business. We are just unable to pay above market interest rates for balances above $50K. We hope you will maintain a balance of under $50K, enjoy our industry leading rates, and further use our vendor redemption programs to receive cash boosts of up to 12%.
I’ve received a number of requests for the rationale behind our decision today and felt it appropriate to address it further here:
We live in a multi-tiered interest rate world. The base of this tier is called Fed Funds. This is the interest rate at which private depository institutions (mostly banks) lend balances to other depository institutions, usually overnight. Another way to look at this – it’s the interest rate banks charge each other for loans. Today the Fed Funds rate sits at 25 basis points (bps) or 0.25%. Consider this to be the base interest rate. SmartyPig lives just above this rate (We are not a CD, for example; our customers can take their money out at any time without penalty) and hence our banking partners are limited by state and federal regulation as to how these funds can be invested or loaned out. So here’s the math – we were paying 2.01% and could get between 0.5% and 0.75% for our deposits. Any difference comes at a cost.
So how does SmartyPig make money? I can assure you that SmartyPig has never made any money on our customers’ deposits. We make our money through our redemption program. Our customers get cash back boosts of up to 12% and we get a marketing fee for the transaction – it’s that simple. We can use some of this marketing fee to boost interest rate for our customers, which is what we’ve chosen to do on an across the board basis up until now.
We’ve learned two things after the past 24 months of operation. First, 95% of our customers have deposits below $35K and second these customers tend to use our redemption program. These two facts were the reason behind the decision we made. Like you, I have a goal, as well – mine is to grow SmartyPig and provide our core customers with the best product possible. It wouldn’t be possible without this change.