High Yield Savings account options

Ally Bank has the bucket feature. I think it is pretty common these days. I think the first place I saw it was with PNC about ~13 years ago.

You may want to consider rotating your funds to get bank bonuses. Usually you have to be a new account owner and keep the funds in the bank for ~3 months or so. You can just google 'bank bonuses' and many will come up.

SoFi has this feature and calls it "vaults"

I agree with others that $20k is not a large emergency fund (even in a LCOL area). Mine is 12m because it will likely take me at least that long for me to replace my job in my field.

I'm also going to agree with others and say Capital One is not great for savings account rates. What I recommend is separate banks. Put your emergency fund in a HYSA that you'd have to work to get to a little bit if you need the money. Then you have your "normal" bank (this could be Capital One) for your everyday expenses. Saving in your buckets here would be appropriate for vacations, a new car, etc. You would cash flow from this account. You shouldn't be touching your emergency fund for any expenses that can be planned. Emergency funds are for emergencies (ie. ER visits).

First of all, marital harmony is a perfectly legitimate reason to do things that aren’t necessarily the most optimized way, right up there with hassle factor and ability to sleep well at night!

As for HYSA options, we tend to pick a bank with a decent track record and reputation, while looking for the best rate (currently CIT). Just be aware that they will often gradually drop the rate over time with no notification. You have to check it every once in a while and if they have and the rate’s no longer competitive, either threaten to move the account, or actually do. We treat them like insurance companies or streaming services- shop them a couple times a year. Most of the time they’ll give you a better rate, but sometimes you might actually want to change to another bank. Not a big deal, just not a set it and forget it thing.

I would rather skip any bucket functionality and instead go for a higher rate. Brad has mentioned CIT Bank (not Citibank) which has a platinum savings account at 4.1% verse cap one's 3.2%.

I have a friend that gets crazy anxious to even think about having an emergency fund of less than $100k but he grew up in an house in which the lights would get turned off every now and then. He knows he could earn more in the market but sometimes you have to do what feels right and lets you sleep at night verse what makes perfect financial sense. Kind of how some folks prefer to pay off a 3% mortgage so they know at least they will have a roof over their heads.

There are several options. Some that we have used include Marcus (part of GoldmanSachs), Fidelity, Vanguard, AmEx, eTrade, US Bank (or any other credible bank), and Wells Fargo. Just confirm they are FDIC insured and their transfer policy matches your needs (i.e. look for an account where the transfer can complete the same day to maximize liquidity). I stay away from some of the trendy high yield account and stick with those that I am familiar with. Honestly, it is better to get the money into any high yield account with a good reputation as soon as possible and then spend time analyzing options after the money is already earning higher interest. My experience is they are all about the same. If you decide to change accounts, just move money out of a high yield account to your bank account electronically and then move it to the new high yield account. Many firms can move the money the same day which makes the process easier and faster.

Simple option - I use Barclays for my savings accounts/buckets. No fees, no minimums, quick and easy to transfer to my main checking account. Current rate is 3.5%. I’ve been with Barclays for 8 years and the interest rate has always been very competitive among other banks.

Can I suggest Fidelity cash management account instead of an HYSA for this purpose? Advantages over HYSA: Free printed checks, free check writing, free ATM withdrawals, free online billpay, no fees, no minimum deposit. Similar to HYSA: Default totally liquid money market option SPAXX is currently yielding 3.2% but importantly it's 55% state tax free, so your net income can be competitive with current HYSAs that are 100% state taxable, and if you prefer more net income, you can keep your funds in FDLXX, similar liquidity, yielding 3.29%-3.91% and 99% state tax free, pushing net income higher than many HYSAs, depending on what state you live in. If you're planning a separate brokerage account, that's easy to setup in Fidelity, and you could quickly move money between accounts. I was an HYSA guy for several years, and was jumping from one to the other chasing the best interest income, but I moved to this option when I realized I didn't have to mess with the strings attached to a lot of them and would reliably earn about the same or more than the HYSAs. In terms of safety, the Fidelity account is SIPC insured, protecting you from Fidelity failure. You can google the rock solid stability of these treasury based funds if you're concerned about market related issues. And if you prefer to just keep your cash in plain old cash, you'd choose the cash sweep option at 2+%, and the money gets placed in FDIC insured banks, but I've never even looked at that for my purposes as I'm happy with SPAXX and FDLXX. Oh and I just noticed another person here recommended you check out Finance Buff. He actually has a thorough review of Fidelity CMA that's worth checking out.

Hi,

I found that cash parked in my Vanguard taxable brokerage account is automatically in “money market”, so it accrues slightly better returns than my Ally account

Depending on your expenses and risks (health conditions? Children? Cars?), I don't think 20k is that large. I agree with what the others said about using MMFs in place of HYSAs - I made the switch around a year ago and find it much simpler, since I never have to worry about rates. I just buy different funds to create my buckets.

One thing to keep in mind with Capital One is that they have a history of not raising interest rates on existing accounts, only for new customers. If you go with them, make sure to keep an eye on things with any rate increases.

I think if you're looking for both high interest and a "buckets" feature, Ally is your best bet. They consistently have some of the highest interest rates, and they have a buckets feature. I personally use them and they're great.

Capital One is not a bad choice either, but I think Ally is better for what you're looking for.

Capital One 360 is fine and an excellent pairing with Fidelity as your 2 financial institutions. At Fidelity, open a Cash Management Account to do most all things "banking", better. Hold SPAXX there for the HYSA-like "interest". The ONLY thing Fidelity cannot do is cash deposits, which is where Capital One 360 lets you deposit cash at any CVS or Walgreens.

Don't go chasing rates at other places. It's a waste of time.

You could listen to 10 different people talk about how they came up with their floor for their emergency fund, but it's usually a compromise between you and whoever you share this resource with to define that floor. The rule of thumb might not be a good enough floor for people with only 1 income stream, 6 kids, or preexisting medical conditions that always reach an out of pocket max (or all 3 of those variables combined!). My wife and I both work (no kids), and have 12+ months of expenses covered in an HYS with SOFI. We sleep great at night knowing that we could both leave our jobs and do nothing for a year if we really wanted to. Once you define that floor, I wouldn't hesitate to keep adding to that same account and get a little interest from the HYS until you hit a goal and want to draw back down to that floor. Treasuries is the T-bill and chill method I heard not too long ago, but too much effort for the .25% extra you might get vs the HYS in my opinion.

You don't mention what your monthly expenses are, but the rule-of-thumb for an emergency fund is 3-6 months' worth of living expenses. If your monthly expenses are between $3.3K and $6.7K, a $20K EF is within that range.

While you can withdraw Roth IRA contributions at any time tax-free, it's better to leave that money invested for the long term. I find it helpful to think of every dollar having a job. The job of Roth IRA dollars is to appreciate in value as much as possible. The job of EF dollars is to be an insurance policy. So I'm on Team Wife 😊

Capital One and Ally both offer "buckets" in their HYSA, but I wouldn't prioritize this feature over interest rate. Consider using Money Market Funds (MMF) at your brokerage for cash savings instead of banks. Banks do stuff like this all the time:

Whereas MMF simply pay you the market rate of the moment. The Finance Buff has a great article walking through the differences between bank savings accounts and MMF.

Ditch Banks — Go With Money Market Funds and Treasuries