Interest rates are not competitive any longer

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The interest rate is dropping in June [again], to 1.10%. I started here when it was 1.75% because of the attractive and untouchable interest rate. Can you explain why the rate has tanked so much over the last year? And how do you plan on staying competitive once your rate drops below several other [good] online banking options?
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jman81

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Posted 4 years ago

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Mike Ferrari, Co-Founder

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Thanks for the comment. Our bank partner sets the rate. They have always been committed to offering a competitive rate. And when you compare SmartyPig to other online institutions we have maintained a very competitive position over the three years we have been in business. If you are looking for the very highest rate in the country at any given day, or are curious to see how financial institutions stack up against one another, here are a couple good sites to visit. One thing to keep an eye out for is minimums to open the account as well as any fees or requirements, such as living in a specific state.

https://www.google.com/advisor/ussavings#!search&Deposit+Range_D=5000.0&si=0&start=0

http://www.money-rates.com/savings.htm

Mike Ferrari, SmartyPig co-founder
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WorkingDaddy

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After watching rates elsewhere continue to drop, I figured SP (or rather, banking partner) couldn't sustain 1.35% much longer.

Time again to think about higher risk alternatives (mutual funds, etc) - which I do believe is what Ben Bernanke would prefer so as to get the economy's money flowing again.
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When I joined SmartyPig several years ago, jman81, it was 3.95%. As you may have noticed, the economy has tanked since then. People were angry about the rate when it dropped to the "untouchable" 1.75% you joined with. Here's what SmartyPig said then:

http://blog.smartypig.com/read/heres-...

The truth of the matter is, we all immediately react this way. Why is it going down? Are they so money hungry? This interest rate isn't even enough to beat inflation, anyway! Yet note that even though I've gotten these unfortunate e-mail notices a WHOLE lot of times since 3.95%...I'm still here, and so is my now decent-looking savings account. And this is why:

http://tinyurl.com/yzjbnbl (Bankrate.com)

Sure there are a couple organizations out there that beat their new interest rate, but there aren't that many, nor do they beat them by such a margin that makes it worth your while to take the time to change your accounts over. I would rather make cookies or take my dog for a walk than chase fractions of a penny. ;)

Also: SmartyPig is staffed by good people. They will raise rates, as they have in my past experience. They do their best to listen to their customers and I believe them when they say they really do wait until the last possible straw to drop interest rates. If you look at that Bankrate link, you'll notice the best one on there is 1.25%, yet we're still sitting at 1.35% at present.

Long story short...I'd be patient. This is a great service, and even at a lower interest rate you're still getting better than what some big bank would give you (Bank of America, Regular Savings in Connecticut = 0.05%, as of today).
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jman81

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Thanks Mike. While I understand your commitment to maintaining that competitive edge, I was curious as to the "normalization" of this rate to a middle-of-the-pack rate, and the rationale for such a decision [surely you must have some insight into this decision]. While your minimums, requirements and fees are minimal, there are several larger issues with smartypig, [such as the black hole your money disappears to for up to 8 days in between accounts, and the inability to do literally anything with an account till funds "clear"] that were mostly offset by the great rate. Its still a good account, just very much less so than it used to be, especially with almost every bank offering some form of goal savings. I'm not here to complain as much as I am offering you a chance to help us understand your companies direction and marketing shift from "offering one of the countries most competitive rates" to "we have gift cards to TGI Fridays".
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WorkingDaddy

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I am offering you a chance to help us understand your companies direction and marketing shift from "offering one of the countries most competitive rates" to "we have gift cards to TGI Fridays".


I don't work for SmartyPig, but is this what you're looking for...?

Meanwhile, Mr. Weinschenk has said that the company’s business model has simply evolved. Instead of rewarding customers with an especially enticing rate for a longer-term savings goal, it’s simply more profitable to reward customers who want to save for smaller goals and then buy something through one of the company’s retailer partners, for which they receive cash back (in addition to the interest earned in a savings account).

And, he said, SmartyPig has increased the cash back rate at a number of retailers. “So I would say that for most customers the rate cut is more than offset by the cash back.”

http://bucks.blogs.nytimes.com/2011/0...

So there you have it...
Old way: save by not spending.
New way: save when you spend.

I guess I'm a dinosaur. I'm firmly in the tried-and-true "save by not spending" camp.
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jman81

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Yeah, that's what I figured, and I agree saving by spending isn't actually saving. I need a good vehicle for just socking away money, which to be honest, smarty pig can be due to the fact that its a little hard to get at your money immediately, which, is subsequently also its biggest weakness.
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WorkingDaddy

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And ya know, if you've set up a goal to pay for, say, upcoming surgery, are you really going to be receptive to SP's "Dine Out, Earn Money" campaign instead of just eating at home? Or what if your goal is just to hold you kids' allowance? The gift card promo seems out of touch with the serious saver. JMHO
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Randy Burgess

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I can understand the economy makes it tougher for you to offer higher rates, but, at the same time, you need to lessen the burden on how the money is processed if your rates are going to be less competitive. What's the point of putting up with less liquid holdings if the rates are close to other vehicles with easier processing?

Also, given that your big marketing push pointed directly at the generous rates, it might have been nice to get some kind of explanation in the email you sent rather than a straight, factual "rate is dropping" message. Your clients are probably folks that pay close attention to a change like this (see: twitter), unlike bigger institutions.

So, now, when my wife and I take a look at our savings, the time it takes to access money, the rates involved, etc, we have to now weigh things much differently than before.

It also sucks how much we touted the rates to our friends (and some of your clients) and now that's all gone away.

We have loved SmartyPig and feel this is not an attempt to squeeze your clients, but the bank you chose is not making this easy.
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WorkingDaddy

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it might have been nice to get some kind of explanation in the email you sent rather than a straight, factual "rate is dropping" message.


I tend to agree with this. But FWIW, me-thinks the explanation that SP gave last September is appropriate now too. (Well, except the numbers have changed, of course.)
http://blog.smartypig.com/read/heres-...
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Mike Ferrari, Co-Founder

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Thanks for the feedback here. I will pass along to our banking partner. And yes, the explanation back then holds true now as well.
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WorkingDaddy

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“Others moved down two to three months ago and we held out longer than anyone,” [Bob Weinschenk] said. “BBVA is still paying a top-tier rate and when rates move back up (hopefully) we’ll adjust accordingly.”

I fear for SmartyPig if BBVA "holds out" longer than anyone else when the rates move back up.
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WorkingDaddy

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it’s simply more profitable to reward customers who want to save for smaller goals and then buy something through one of the company’s retailer partners...


Oh, those pesky $20,000 goals.

(The goals' owner knows who he is... ;) He's since concealed the figures. )
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Mike Ferrari, Co-Founder

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I concealed the figures? Hmmm...
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WorkingDaddy

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(Initial reply to "I concealed the figures?" is posted below. See "Yep, gone now." Then fast-forward a couple years and...)

Whelp, now the entire goal is gone (that is, redeemed or hidden). "Testing goal configuration displays"...?
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WorkingDaddy

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Yep, gone now.


(I wudda added a comment right under yours, but getsatisfaction doesn't appear to allow images in those kindsa comments.)
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Mike Ferrari, Co-Founder

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Ahhh. Was testing goal configuration displays and facebook/twitter autoposting on my sharing page. I'll reset. Or maybe I won't....! :)
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WorkingDaddy

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Heh. That's the beauty of the config settings - you can do what ya want!
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WorkingDaddy

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HEY! So now where'd your "Christmas 2011" and "New Road Bike!" goals go? We're not THAT close to Christmas nor - turning to the road bike - were you that quickly closing in on $6K (24% as of 3 months ago).
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Mike Ferrari, Co-Founder

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Sadly my new bike goal was replaced with a new set of wheels for my bike so I cashed out early. Christmas is still there. Just hidden. :) What are u sav'in for?
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WorkingDaddy

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A couple dozen goals for things big and small. (But I don't have a facebook account, and rarely use my twitter account.)

But I dunno. I mean the co-founder sayeth, "Share your dreams and aspirations with your social network. Chances are you’ll get encouragement and possibly a little cash from friends or family members who want to help you on your way!" and then unshares his own Christmas goal. From the outside, it seems incongruous.

Those wheels are only gonna last so long, btw. Never too early to start a new Road Bike goal!

Orrrrr.................... DID you. ;-)
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Mike Ferrari, Co-Founder

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Ha! So true. I SHOULD start that bike goal again now that you mention it...
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WorkingDaddy

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Fast-forward 2 years. Too curious not to ask: was it ever started? Don't see it shared.
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Mike Ferrari, Co-Founder

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Started, still going, not shared. :)
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WorkingDaddy

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Alas, I'm gonna go ahead and predict SP's rates drop to 0.90% or 0.80% this Sept or Oct.
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WorkingDaddy

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So here we are, 0.70% in December. Do I get partial credit? :-)