In this era of post zero-down mortgages, the key to buying a house is saving up a solid down payment and getting your finances in order. In this post, Matt Browne begin_of_the_skype_highlighting end_of_the_skype_highlighting of Tree.com/HomeSpace writes about his experiences using SmartyPig, a website and bank that has created a unique savings tool built on segmentation, accountability, and technology.
I’ll admit it, keeping tabs on my savings hasn’t been easy. One of the main reasons for this: too many things to save for. I tried the traditional route, setting up a savings account (actually two) with my banking institution. I would squirrel money away after each pay period, moving it over to my savings account. However, I wasn’t really saving for any one thing… I was just saving for everything in one account. This works well, until you want to spend your savings. I found that invariably one savings goal would cannibalize the other. It works like this:
I have a list of needs (eh hum… wants). All of those wants are being saved for in the same account. When one desire emerges as urgent, it cannibalizes the entire savings account to meet the need. In short, whatever was the most pressing ‘want,’ would take over all my other savings goals. This made it practically impossible to save for anything long term and the cycle would repeat itself.
Enter SmartyPig
There are other great financial tracking tools out there. What makes SmartyPig different, in my opinion, is its combination of segmentation, accountability and technology. The reason SmartyPig works for me is that I can have an account for every one of my savings goals. What’s more, I can share those goals publicly and get recognition from my friends when I achieve my goal. But that, in and of itself, isn’t the genius in SmartyPig. SmartyPig works for me because when you achieve your savings goal, they send you a debit (or gift) card loaded with your savings on it. The card is exclusively for the savings goal that was completed, and not co-mingled with other funds that may tempt you to break the bank.
Furthermore, they’ve got the best interest rate I could find in the business at 2.15% APR on all accounts less than $50,000. If you were to max out your savings account, you’d earn approximately $500 per year in interest over any of their competitors (this includes online banks like eTrade and brick and mortar banks).
I’ve created several accounts with SmartyPig. I’ve got a travel fund, a homeownership fund, a medical fund, and a rainy day fund. I can transfer money between my accounts, or withdraw and close my piggy banks at any time. Though your money is perfectly accessible, it often takes 1-3 days for a transfer back into your spending accounts. This is just enough of a hurdle that you typically avoid depleting your savings account unless you are in a real emergency.
Saving for a down payment
SmartyPig President Jon Gaskell tells me I am not alone. “An average SmartyPig customer has a little more than three goals going at any given time and about 3/4 of our users come with 30 days of their goals.” Jon also noted that currently 8% of their users have a goal for a down payment on a new home: “This is a substantial part of our deposit base and a testament to the determined nature of our customers.”
After using SmartyPig for the last year, I’ve successfully saved for things I couldn’t have otherwise. I have long-term and short-term goals where I can save aggressively for some things, and save at a more leisurely pace for others. I haven’t yet used the social features where you can get public support for the things you’re saving… for me, it just seems too personal to share. Though, I know many over-sharers who would love the accountability from their social sphere.
Even though SmartyPig was created to help people save for smaller-scale purchases like travel and TVs (as an added bonus, when you reach your goal, you get as much as a 10% bonus when redeeming with their retail partners, such as Banana Republic, Macy’s and Gap), it could also become a more popular savings vehicle for larger purchases, such as buying a home. In fact, Jon from SmartyPig tells me that “by the end of the year we will be announcing a program to help incent(ivize) individuals, couples and families who have the dream of a new home.”
By Matt Browne, VP of Marketing & Social Media/Tree.com
(Disclaimer: The views expressed here are that of the author and not of Tree.com or its properties.)
Got a SmartyPig story – or other unique ways of saving money for a down payment? Share it with us in the comments section below:
