After glossing over various reports about SmartyPig, I’ve finally done a little homework.  While a SmartyPig isn’t the best financial instrument in the history of banking, it really is a pretty cool idea.  Here’s how it works and why I’m willing to give it a thumbs up.

Let’s say you really want to buy a new set of those spinning wheelcovers for your old Renault LeCar.  Due to the obscurity of your horrible vehicle and your gaudy taste in accessories, they’re gonna set you back a cool grand.  How are you going to save that $1,000.

You could toss all of your spare change and one-dollar bills into an over-sized jar stationed right by your front door.  Of course, you know that the kids will get their paws in there when you’re not looking.  It won’t be a very consistent march to your goal, either.

You could set down every time you do the bills and cull off a little extra money to stuff into your savings account until you’ve reach your target amount.  You’ll need to keep on top of the math to handle the co-mingling of funds.  That consistency problem is at play, too.

You could solve the consistency issue by setting up an automatic transfer into savings every month of a designated sum.  You could even set up a separate savings account to bling out the Renault.  That would do the trick.

But there may be an even better way…  SmartyPig.

SmartyPig accounts are actually FDIC-insured savings accounts held by West Bank, an Iowa-based operation with regular retail banking outlets.  They offer a better interest rate than your standard accounts (check with SmartyPig for the current rate) and actually compare favorably with most online high-interest savings accounts.

SmartyPig is a little different than your run-of-the-mill account.  DigeratiLife described them like this:

It’s an FDIC secure free online savings account that is meant to encourage you to save for your financial goals in a more concrete fashion and which allows you to invite others to contribute to your savings goals as well. It reminds me of Upromise, because it invites the possibility of sharing a savings goal with family and friends, thus turning the task of saving money into a social activity, if you so choose.

That sharing part is a good chunk of what separates SmartyPig from alternatives.  They make it easy for others to chip into your account and even offer online tools to make adding your SmartyPig pitch to your blog or website.  I’m on the same page with The Simple Dollar on this aspect of the program.  It’s pretty cool:

[T]he idea of sharing saving goals with others is very intriguing. Personal finance and saving money has the potential to be as social as any other activity – we can involve our friends and family in the process and make it a point of conversation and a point of pride.

That’s only part of the story, though.  The bright swine has partnered with various retailers who’ll give you a bump if you cash out for a gift card.  That can add up to 12% to the value of your savings.  Not too shabby.  If Amazon sells those LeCar hubcaps, you’re golden.

Now SmartyPig isn’t perfect.  When people make those contributions to your account they do get stuck with a 2.9% charge for using their credit cards.  You can’t yank a little bit of money out of your account, either.  Part of the goal-oriented savings program includes an all-or-nothing approach to balance building.

Overall, it’s a pretty nifty way to set aside goal-specific savings.  SmartyPig isn’t quite an innovative as some people would like to make it out to be, but it is a solid and fun way to get the job done with a few cool extras.  It’s a good way to trick out your LeCar.