My Financial Journey

I am currently actively saving for a house my wife and I want to build in the next few years. I have about $20,000 saved up at ING Direct and am adding to it at a rate of about $1,000 per month. I have been a happy ING Direct customer for a number of years and I think everything about their service is top notch and I have never had a problem with them. The only issue is they have been slashing their interest rates at a torrid pace the last few months (as has everyone else).

Normally the difference in interest rates between ING and their competitors is usually pretty negligible where I feel the ease of use of the ING Direct’s site outweighs the few extra bucks I would get in interest. This time however I am accumulating a pretty significant cash savings and as it currently stands SmartyPig’s interest rate is currently double that of ING Direct. So I’ve decided to make the switch for now.

Now SmartyPig and ING Direct certainly aren’t apples to apples. ING Direct is a pretty standard savings account and certainly has a lot more flexibility than SmartyPig. For those of you that don’t know SmartyPig is a goal oriented savings bank where you can’t just deposit and withdraw funds as you please (at least not if you follow the intention of their user interface).

In order to have an account at SmartyPig you have to setup a savings goal. So you enter in an amount you want to save and when you want to reach the goal by and it calculates a monthly contribution that is automatically withdrawn from your checking account once each month. Interest accrues daily, but it is only credited to your account quarterly. In order to withdraw your money you have to close your savings goal and then you can withdraw the money to your checking account via ACH, receive a Debit Card with the balance, or a gift card for the retailer of your choice. Deposits to and from SmartyPig take 3 days before they post to your account, which I believe is 1 day longer than they take at ING Direct. For those of you that are wondering, SmartyPig is FDIC insured and they partner with West Bank to store your money, so you have that peace of mind.

Now granted all of the nuances with SmartyPig may turn some people away, but here are a few ways around their interface that could allow things to work a little more like a traditional savings account. SmartyPig has a minimum goal of $250. So you just setup a goal for $250 and just make a $250 initial deposit. At this point your goal should be reached so it will not require any automatic monthly deposits. Interest keeps accruing on completed goals and you can add money at anytime to a completed goal. Then simply deposit money as you would your normal savings account. About the only drawback is when you want to withdraw money you have to withdraw the entire amount.

I’ll admit even with these workaround SmartyPig may be too rigid for a lot of users, but for my situation where I will only be depositing and likely withdrawing all at once it is not a big deal to me. I setup a trial account with them last July after receiving a SmartyPig gift card and that made me comfortable enough to make this switch. Currently the rate difference alone if all things stay equal will result in $320 extra in interest a year and like I said I am depositing about $1000 a month so the interest difference is enough for me to make the change.

Now granted SmartyPig could and very likely will lower their interest rate on their accounts as well, but they have enough of a cushion right now and seem to be cutting rates slower than the competition so I feel comfortable with the switch for now. If SmartyPig slashes rates and gets anywhere near the ING Direct range – I will simply close my savings goal and go back to ING.

What do you think? For me right now their interest rate makes this a no-brainer in my situation. Am I overlooking something major as right now this seems a little too good to be true given the interest rate environment out there right now.