SmartyPig: Savings Site With Strings Attached SmartyPig automates transfers to a savings account to help you fund a big-ticket goal--and it might help you encourage pals to chip in.

You don't need to be a finance whiz to recognize that the least painful way to pay for a big-ticket item--a new car, say, or a dream vacation--is to save small amounts toward it, week by week, month by month, paycheck by paycheck. But how many of us are disciplined enough to set aside money for a planned future purchase?

SmartyPig promises not only to help you save toward a goal but also to make it simple for family members and friends to contribute (think birthday gift)--and, in many cases, the service might even help make the goal itself cost less. But while the general concept sounds good, the implementation hides a few notable gotchas that might prove annoying to some.

Basically, SmartyPig gives you a savings account with a competitive annual percentage yield (the site's banking partner is West Bank of Des Moines, and at this early-June writing the APY was 3.9 percent), to which you must set up regular, automatic monthly transfers from an existing bank account (SmartyPig says that nonautomated funding will be available soon to allow people to set up accounts for wedding registries and similar goals). Each account must be tied to a savings goal (you don't need to have an actual item in mind, but you must set a dollar figure), which you can change at any time. You can opt to make your goal public, so that people can contribute toward it by visiting SmartyPig and entering your e-mail address. You can also encourage such gifts by putting a SmartyPig widget on your blog or on personal pages on sites such as Facebook, Google, Live, and MySpace.

Adults can set up SmartyPig accounts for minors by designating the children as co-owners who can then track their progress toward a purchase--an Xbox 360 or Wii, for example. SmartyPig positions itself as a tool to help kids understand the concept of saving.

To Market, To Market
Now for the caveats. SmartyPig accounts are free, but when you reach your goal, you can't easily cash out: SmartyPig would much rather help you actually buy something.

First, you can check SmartyPig's list of retail partners (which include such blue-chip outfits as Amazon.com, Apple Tours, Best Buy, Gap, Home Depot, and Lowe's) to see if one of them is selling whatever you were saving for at a good price; if so, you can have your savings converted to a gift card for that retailer, which SmartyPig will ship to you for free.

This setup can save you a bit of money, since the retailers on SmartyPig all offer small boosts (of a couple of percentage points, up to 5 percent) to the face value of the gift card. Gift cards, however, often have their own drawbacks--time limits for use, for example. It's up to you to investigate the terms and conditions on each retailer's site.

Alternatively, you can have your savings and interest converted into a SmartyPig debit MasterCard, which you can use either to make a purchase at any place that accepts MasterCard or to withdraw cash at an ATM that accepts debit MasterCards. Keep in mind, though, that most ATMs limit the amount of cash you can withdraw on a given day to a few hundred dollars.

Also, ATM fees may apply, and they can quickly mount if you're forced to withdraw your sum over several days. You face no fees for using the card at ATMs in the Shazam network, which has ATMs in 27 states (including West Bank ATMs). Regardless, to use the card, you must maintain a SmartyPig account.

Check by Snail Mail
What if you need to take out the cash in your SmartyPig account for an emergency? You can have SmartyPig cut you a check, but you'll have to wait for it to arrive via snail mail; the company says the process takes five to seven days after all pending transactions have posted to your account. SmartyPig will not electronically transfer funds to other bank accounts (although the company says that feature will be supported soon).

SmartyPig also charges a fee to people who want to contribute to your goal using a credit card--2.9 percent of the amount of the gift. The convenience might be worth the extra cost to some gift-givers, but other folks might prefer to save a few bucks by dashing off a check. (SmartyPig account holders, however, can use their funding accounts to contribute to other account holders' goals free of charge.)

I have mixed feelings about SmartyPig. You could accomplish a lot of what it does simply by setting up automatic transfers to a savings account (yours or your child's) on your own--and you wouldn't have to sacrifice the ability to withdraw your cash easily on a moment's notice. The 2.9 percent fee for credit card donations from non-SmartyPig account holders would discourage me from giving such a gift.

On the other hand, getting a discount (even a small one) from a retailer you might patronize anyway beats a free toaster as a come-on for a savings account, and whenever I've checked, SmartyPig's interest rates were on the high end of those available. The premise is gimmicky, sure, but if SmartyPig helps you avoid putting a big-ticket item on your credit card, it's worth a try.