Opening a high yield savings account at an online-only bank as a FI/FIRE step

[Uncle Freddie]

Bogleheads,


I am following the directives of FI and FIRE folks, and my next step is finding a high interest savings account -- at a national, online-only bank -- to park 6 months of expenses in.

6 months of expenses for me is $25,000, which happens to be the sweet spot for most of the banks regarding their most favorable interest rates.

After a lot of Googling, I have narrowed it down to these 3, mainly because of their advertising and name recognition.


Ally Bank: https://www.ally.com/bank/online-savings-account/

American Express: https://www.americanexpress.com/en-us/b ... d-savings/

Axos Bank: https://www.axosbank.com/Personal/Savin ... d-Savings/


Do you have anything to say about these 3 banks?

Do you have any other banks to recommend?


Thanks,

Fred

[sd323232]

i think sofi bank is one of the best. i have account with them.

[DinkinFlicka]

I've used Ally's online savings for my emergency fund for the past several years. This past year, I moved funds out of the savings account into 11-month no penalty CDs when interest rates started dropping. I've had no complaints with Ally as a place to park cash.

[CoAndy]

Big fan of Ally here.

[exodusNH]

Bogleheads,


I am following the directives of FI and FIRE folks, and my next step is finding a high interest savings account -- at a national, online-only bank -- to park 6 months of expenses in.

6 months of expenses for me is $25,000, which happens to be the sweet spot for most of the banks regarding their most favorable interest rates.

After a lot of Googling, I have narrowed it down to these 3, mainly because of their advertising and name recognition.


Ally Bank: https://www.ally.com/bank/online-savings-account/

American Express: https://www.americanexpress.com/en-us/b ... d-savings/

Axos Bank: https://www.axosbank.com/Personal/Savin ... d-Savings/


Do you have anything to say about these 3 banks?

Do you have any other banks to recommend?


Thanks,

Fred

I've got $25K at CIT Bank (0.50%) and $10ish at Vio bank (0.66%). Both are fine. They both transfer funds out very quickly. They both use the same banking platform.

Just watch out for the 6 transaction limit from an archaic federal rule (Regulation D) which may be federally suspended at the moment, but the banks may still impose limits.

[retired@50]

Generally, when comparing FDIC insured deposits, let the interest rate be your guide.

The trouble with these types of accounts is that the published interest rate can change with little notice. In my experience, it usually happens at month end, so I tend to take a peek at the beginning of each month to see if my interest rates have changed.

Since we're talking about what is likely your emergency fund, having penalty-free access, within 2-4 business days, is another consideration.

Regards,

[Tamarind]

For me Ally has a good combination of solid rates (never the best, but usually near the top) with very good mobile/online interface and customer service. I can definitely recommend them.

[Vulcan]

Like many here I've been using Ally as my primary bank for both checking and savings for many years (even though I also have accounts with Fidelity and Schwab, among others).

They have excellent customer service, competitive rates, best-in-class website with bill pay, and excellent product offerings.

I would recommend it as a default option unless you know exactly why you prefer another bank.

One aspect in which Fidelity/Schwab have an edge is international 3rd party ATM fee reimbursement (Ally's is domestic only).

[CurlyDave]

1. I don't think there is any such thing as a high yield savings account these days.

2. I have never seen anyone explain a credible scenario where I might need 6 months expenses all at once, so long as I avoid very naughty activities with shady underworld characters.

[JoMoney]

I haven't banked with AXOS or ALLY, but I recognize the names as being pretty consistently on the list of higher-yielding banks.
Personally, I've been looking at rewards checking accounts and the like, and found a brick-n-mortar bank with a branch near me offering a 3% "Performance Checking" on up to $25,000. I've seen some others pointing to online Credit Unions offering rewards checking yielding 3% on up to $20k.

At the current <1% interest rates on many High-Yield Savings, it really hasn't been enough to pique my interest at shuffling things around, but 3% was/is.
I'm also reminded of what I experienced in the 2017-2018 period when I was shuffling cash around to various accounts, it seemed to me that brokerage money market funds were more often offering a better rate as market rates were increasing, but the high-yield bank account rates were kind of sticky and slower to move...

[anonsdca]

I went with Merchants Bank of Indian. 1% MM, beat everyone when I surveyed the landscape last month. Easy to open online, FDIC, the rate has been 1% for a while.

[Stubbie]

+1 Ally. Great customer service.
I also have a Fidelity cash management account. Write checks, ATM reimbursement, bill pay, great customer service. MM funds are not paying anything but you can buy a short term treasury fund or ETF to park your cash while you are waiting for that emergency if you don't mind stepping up a rung on the risk ladder.

[aristotelian]

There is an active thread on HM Bradley right now. They offer tiered savings up to 3%. The only hoops to go through are direct deposit and saving more than 20% of quarterly deposits. Warning: it is a new fintech.

[retiredflyboy]

+1 Ally. Savings and checking/ATM.

[Wiggums]

We use ally. Rates are low everywhere

[ohboy!]

Checkout Celcius, they are not a bank but they pay 20x more. Motto is unbank yourself.

I have had several hys accts. All fine. Barely worth the hassle for $50k even. Can make more on a new credit card bonus. Way more. Just dont use Citi for HYS.

[anon_investor]

+1 Ally. Savings and checking/ATM.

+1. FDIC insured, free checks for the checking account, they have 24/7 phone support, many of the other online banks do not.

[Uncle Freddie]

Thanks to all of you, this really helps narrow the decision.

Time for a dumb question.

I have cash sitting in my Vanguard brokerage account in VMFXX.

This money is already 12 months of expenses.

VMFXX earns about as much as a high-yield savings account would, according to https://investor.vanguard.com/mutual-fu ... ance/vmfxx

Why would I not just leave my 6 month emergency fund in there, keeping life simple and avoiding having yet another set of account credentials to remember?

Or am I missing the point, and the idea is that your 6 month emergency fund should be in an FDIC-insured place that also earns decent interest, not your brokerage account?



Thanks,

Fred

[ohboy!]

Thanks to all of you, this really helps narrow the decision.

Time for a dumb question.

I have cash sitting in my Vanguard brokerage account in VMFXX.

This money is already 12 months of expenses.

VMFXX earns about as much as a high-yield savings account would, according to https://investor.vanguard.com/mutual-fu ... ance/vmfxx

Why would I not just leave my 6 month emergency fund in there, keeping life simple and avoiding having yet another set of account credentials to remember?

Or am I missing the point, and the idea is that your 6 month emergency fund should be in an FDIC-insured place that also earns decent interest, not your brokerage account?



Thanks,

Fred

You are referencing some “rules” that are not Boglehead “rules”.

Have you looked at high yield rates and what that will give you on $25k? It’s peanuts. If you have direct deposit you would be better off with a new bank account bonus. As I said before, a new Chase credit card pays way more than the interest you stand to make. This endeavor is mostly not worth the time.

Source: I currently have 3 “HYS” accounts. There is nothing high about them, and even having yield in the name is a stretch.

[JoMoney]

...Have you looked at high yield rates and what that will give you on $25k? It’s peanuts. If you have direct deposit you would be better off with a new bank account bonus. As I said before, a new Chase credit card pays way more than the interest you stand to make. This endeavor is mostly not worth the time...

When I was looking for a HYS the best option I found that suited me was .70%, I just checked the bank I was looking at and it's now down to .60%
Even at the .70% that's only a $175 on $25,000, and's before taxes, which in my bracket+state would take about a third of that $175.
On the other hand, I needed to open a new account to get a medallion stamp anyway, and found Chase giving a bonus of $150 for opening a savings, and $200 for opening a checking, and only required keeping the accounts open 6 months.

I also found a rewards checking account paying 3% on up to $25,000, which I decided was a little more interesting / worth my time

[David Jay]

Freddie:

As a Michigander, Lake Michigan Credit Union offers 3% on $15,000 ($30,000 if spouse opens separate checking account). There are a few hoops, like a minimum number of debit transactions, but those are pretty easy. They have maintained the 3% for a number of years, this is not an "intro" rate.

That also gives you a brick-and-mortar if you need it.

[Leif]

-1 for Ally. Had CD related problems with them.

+1 for AmEx. Fast transfers of funds. Rate is .55

+1 for Synchrony bank. A bit higher yield, but slower on transfer. If you can allow 1 week to send money FROM them then their higher rate may be worth it to you. Rate is .60

[Uncle Freddie]

After reading https://investor.vanguard.com/emergency ... gency-fund , and also given the fact that I already have a year's worth of expenses sitting in VMFXX, it seems like I could just let that money be my emergency fund, and be done with this FI/FIRE step.

If I am missing something, please let me know. If the philosophy behind the online-only HYSA is a physical separation of money, or being FDIC insured, then I want to know that. (I don't think money in VMFXX is FDIC-insured?)

But it seems to me that I could skip opening a high-yield savings account, which in my opinion is just another bank account for me to get emails and useless promotions about. And opening that account would require me to temporarily unfreeze my credit report at the credit bureaus against inquiries, in order to let Ally or whomever do their required checks before they create the bank account. Not a huge deal, but still a lump of work on my part, digging around the bureau websites, that I would rather not deal with.

FWIW, my main savings and checking accounts are at a credit union that I have been with for 30 years, but they only earn 0.05%.



Thanks,

Fred

[DinkinFlicka]

-1 for Ally. Had CD related problems with them.

What CD related problems did you have with Ally?

[DinkinFlicka]

After reading https://investor.vanguard.com/emergency ... gency-fund , and also given the fact that I already have a year's worth of expenses sitting in VMFXX, it seems like I could just let that money be my emergency fund, and be done with this FI/FIRE step.

If I am missing something, please let me know. If the philosophy behind the online-only HYSA is a physical separation of money, or being FDIC insured, then I want to know that. (I don't think money in tVMFXX is FDIC-insured?)

Money market funds can break the buck where the NAV drops below $1.00. Not sure if VMFXX did, but some money market funds had this happen in 2008. During a financial crisis when I'd most likely need to dip into an EF, I would not want to worry about this.

VMFXX earns about as much as a high-yield savings account would, according to https://investor.vanguard.com/mutual-fu ... ance/vmfxx

I think you are looking at the annualized average. VMFXX is currently yielding 0.02% which is much less than a HYSA.

[JoMoney]

^ I think "breaking the buck" is a pretty low concern relative to the idea that the funds could be frozen for some period of time. Losing 1-2 cents wouldn't be catastrophic, but having two wait a year or more while everything unwinds and settles to get your .98cents on the dollar back, when you were expecting that money to be liquid and available to you quickly could be a big disaster.

[RJ5]

I use Ally for checking and transactions


For my emergency fund of 1 full yr of expenses, I hop around to different banks each year for the promos. I usually do 2 or 3 bank promos a year
Then once I've exhausted all bank promos, I can sometimes go back and repeat promos with the same bank.

When not doing a bank promo, I keep my emergency fund in T-Mobile Money (Customer's Bank) which is 1%, if you are a T-Mobile customer you get 4% on the first $3,000. And I keep my real estate money for my next real estate deal in First Foundation Bank (0.6%)

Live Oak Bank also has 0.6%

Honestly though, whether it's Ally 0.5% or someone else's 0.6%, it's just splitting hairs at that point. The only reason why I do the bank promos is because I can get $1,000-$2,000/ yr in promos recycling the same $50,000. at least it's something.

[Uncle Freddie]

After reading https://investor.vanguard.com/emergency ... gency-fund , and also given the fact that I already have a year's worth of expenses sitting in VMFXX, it seems like I could just let that money be my emergency fund, and be done with this FI/FIRE step.

If I am missing something, please let me know. If the philosophy behind the online-only HYSA is a physical separation of money, or being FDIC insured, then I want to know that. (I don't think money in tVMFXX is FDIC-insured?)

Money market funds can break the buck where the NAV drops below $1.00. Not sure if VMFXX did, but some money market funds had this happen in 2008. During a financial crisis when I'd most likely need to dip into an EF, I would not want to worry about this.

VMFXX earns about as much as a high-yield savings account would, according to https://investor.vanguard.com/mutual-fu ... ance/vmfxx

I think you are looking at the annualized average. VMFXX is currently yielding 0.02% which is much less than a HYSA.

Thanks DinkinFlicka; do you have a URL to that yield info about VMFXX? Are you looking at the "Compound yield" number on this page? https://investor.vanguard.com/mutual-fu ... view/vmfxx

Thanks,
Fred

[chazas]

I think Ally is a fine bank - but I just moved all my cash reserve fund from Ally and from Alliant Credit Union, where they were at .50%/.55%, to T-Mobile Money, which is and has been at 1%. I'll just sit there until rates rise substantially and I can get more than a few bps more elsewhere. TMM is also technically a checking account at Customers Bank, so no limits on transfers.

[Average Investor]

I think Ally is a fine bank - but I just moved all my cash reserve fund from Ally and from Alliant Credit Union, where they were at .50%/.55%, to T-Mobile Money, which is and has been at 1%. I'll just sit there until rates rise substantially and I can get more than a few bps more elsewhere. TMM is also technically a checking account at Customers Bank, so no limits on transfers.

I just moved funds to t-mobile money as well. Service is more limited than Ally and others (for example, can only ACH in or deposit checks of $3000 per day) but since this is just my emergency fund not an issue.

[Kevin M]

MM funds are not paying anything but you can buy a short term treasury fund or ETF to park your cash while you are waiting for that emergency if you don't mind stepping up a rung on the risk ladder.

SEC yield on iShares 1-3 Year Treasury Bond ETF is 0.00% as of 1/14/2021, so a typical short-term Treasury fund or ETF isn't going to help; you are not getting paid anything to take the extra risk.

Kevin

[Kevin M]

After reading https://investor.vanguard.com/emergency ... gency-fund , and also given the fact that I already have a year's worth of expenses sitting in VMFXX, it seems like I could just let that money be my emergency fund, and be done with this FI/FIRE step.

If I am missing something, please let me know. If the philosophy behind the online-only HYSA is a physical separation of money, or being FDIC insured, then I want to know that. (I don't think money in tVMFXX is FDIC-insured?)

Money market funds can break the buck where the NAV drops below $1.00. Not sure if VMFXX did, but some money market funds had this happen in 2008. During a financial crisis when I'd most likely need to dip into an EF, I would not want to worry about this.

VMFXX earns about as much as a high-yield savings account would, according to https://investor.vanguard.com/mutual-fu ... ance/vmfxx

I think you are looking at the annualized average. VMFXX is currently yielding 0.02% which is much less than a HYSA.

Thanks DinkinFlicka; do you have a URL to that yield info about VMFXX? Are you looking at the "Compound yield" number on this page? https://investor.vanguard.com/mutual-fu ... view/vmfxx

Thanks,
Fred

That's one place to get it. The compound yield is the number to compare to the APY of a bank account. Both SEC yield and compound yield for VMFXX are 0.01% as of 1/14/2021.

Kevin

[Kevin M]

If I am missing something, please let me know. If the philosophy behind the online-only HYSA is a physical separation of money, or being FDIC insured, then I want to know that. (I don't think money in VMFXX is FDIC-insured?)

The main idea is to earn slightly more money. At 0.5%, $25K earns about $125 in one year, while at 0.01% it earns about $2.50.

It's true that VMFXX is not FDIC insured, but it is very safe, being mostly in US government obligations. I would use it if it offered higher yield than an online savings account. I am happy to use it in IRAs where I don't want to mess around doing IRA transfers to a bank to earn slightly more interest.

As others have mentioned, I would prefer an 11-month Ally no-penalty CD at 0.50% over a savings account at 0.50%, unless I knew I would be spending the money very soon. With the NP CD, you lock the rate in for up to 11 months, while having penalty-free access to the money 7 days after opening the CD.

Also as others have said, you can get slightly higher yields at other banks or credit unions, but Ally is a good, full-featured online bank.

Kevin

[skipper]

After reading https://investor.vanguard.com/emergency ... gency-fund , and also given the fact that I already have a year's worth of expenses sitting in VMFXX, it seems like I could just let that money be my emergency fund, and be done with this FI/FIRE step.

If I am missing something, please let me know. If the philosophy behind the online-only HYSA is a physical separation of money, or being FDIC insured, then I want to know that. (I don't think money in VMFXX is FDIC-insured?)

But it seems to me that I could skip opening a high-yield savings account, which in my opinion is just another bank account for me to get emails and useless promotions about. And opening that account would require me to temporarily unfreeze my credit report at the credit bureaus against inquiries, in order to let Ally or whomever do their required checks before they create the bank account. Not a huge deal, but still a lump of work on my part, digging around the bureau websites, that I would rather not deal with.

FWIW, my main savings and checking accounts are at a credit union that I have been with for 30 years, but they only earn 0.05%.



Thanks,

Fred

For TRUE emergency fund, I like a variation of your idea here. Someone upthread asked do you really need 6 months of money on standby for an emergency? What kind of emergency are you talking about? The kind where you know you need $25k RIGHT NOW or one where you imagine a world where you would want a CASH RESERVE in case cash, or money, or legal tender, or whatever you want to call your bartering substitute weren't available to access? I fought this for a long time until I defined my emergencies, then called it good. For me,

• TRUE emergency fund is my $20k limit credit card that has zero balance; as long as I'm the only one with the emergency (and not the country or world at large), then I'll pay it off with other funds later.

• But then I have an FDIC cash reserve earning 0.1% at best, but I don't care; it's ready money outside my AA and future plans and as long as the banks are working, I count it good.

• Then I have a CASH cash reserve (hole in the ground) that I can lay my hands on no matter what the banks are doing, as long as folks will still take greenbacks.

• After that, it's the wild west, and everyone has to figure out what to do on their own.

The catch is your money in MM or LYS is losing to inflation, whereas HYS is keeping up. Have to decide how important that is to you for emergency money or cash reserve; it's not important to me for every last cent to be earning something.

[Uncle Freddie]

After reading https://investor.vanguard.com/emergency ... gency-fund , and also given the fact that I already have a year's worth of expenses sitting in VMFXX, it seems like I could just let that money be my emergency fund, and be done with this FI/FIRE step.

If I am missing something, please let me know. If the philosophy behind the online-only HYSA is a physical separation of money, or being FDIC insured, then I want to know that. (I don't think money in VMFXX is FDIC-insured?)

But it seems to me that I could skip opening a high-yield savings account, which in my opinion is just another bank account for me to get emails and useless promotions about. And opening that account would require me to temporarily unfreeze my credit report at the credit bureaus against inquiries, in order to let Ally or whomever do their required checks before they create the bank account. Not a huge deal, but still a lump of work on my part, digging around the bureau websites, that I would rather not deal with.

FWIW, my main savings and checking accounts are at a credit union that I have been with for 30 years, but they only earn 0.05%.



Thanks,

Fred

For TRUE emergency fund, I like a variation of your idea here. Someone upthread asked do you really need 6 months of money on standby for an emergency? What kind of emergency are you talking about? The kind where you know you need $25k RIGHT NOW or one where you imagine a world where you would want a CASH RESERVE in case cash, or money, or legal tender, or whatever you want to call your bartering substitute weren't available to access? I fought this for a long time until I defined my emergencies, then called it good. For me,

• TRUE emergency fund is my $20k limit credit card that has zero balance; as long as I'm the only one with the emergency (and not the country or world at large), then I'll pay it off with other funds later.

• But then I have an FDIC cash reserve earning 0.1% at best, but I don't care; it's ready money outside my AA and future plans and as long as the banks are working, I count it good.

• Then I have a CASH cash reserve (hole in the ground) that I can lay my hands on no matter what the banks are doing, as long as folks will still take greenbacks.

• After that, it's the wild west, and everyone has to figure out what to do on their own.

The catch is your money in MM or LYS is losing to inflation, whereas HYS is keeping up. Have to decide how important that is to you for emergency money or cash reserve; it's not important to me for every last cent to be earning something.

Thanks skipper, this helps.

One thing: What is AA? Is that a typo and you meant BA (brokerage account) ?


Thanks,
Fred

[tomsense76]

Asset allocation (AA)

[Pandemic Bangs]

Do you have anything to say about these 3 banks?

Ally and Marcus.

The rates are so low that even on a big balance it will not impact your FIRE math.

I also think this must be by far the easiest step in preparing for FIRE.

[radiowave]

Another +1 for Ally. Agree with Kevin M above, the 11 mo NWP CD is a good place to park some short term cash and still easy to liquidate if needed. i don't exactly consider 0.5% return "high yield savings" but it is about as good as anything, and FDIC insured up to $250K per person.

We paid off the mortgage in Dec and had an excellent experience with a very personable and professional CSR who walked us through the wire transfer, called the mortgage company while we were on the phone to confirm all the numbers then followed up the next day to let us know everything went as planned.