HYOSA - Saving account

 HYOSA - High-Yield Online Savings Account

 

I've been using an online savings account for about 20 years now. I switch because my bank was providing a tiny .01% interest rate and I wanted something that would provide value and protection from my checking account.

 

I like having access to a savings account that I can get to my money within a couple of days or next day for a fee.  Some may say you don't need any cash in a savings account and invest that money.  I believe having 6 months expenses saved in these three categories is a good safely net for everyone.

Between Checking account (enough to cover monthly expenses with some buffer) and Savings about two months in chase to building interests and only touch for emergencies.  If I've done my math correctly thats about 3 months of saving in cash very accessible.  The last bucket for the next three month is investing is a safer allocation.  I put mine in Vanguard  LifeStrategy Moderate Growth. Yes the expenses ratio is a little hire then straight index fund, but it gives a good balance of US Stock, International Stocks, and bonds.  Basically 60/40 which is conservative in my mind. I fill them up like you would a bucket I fill the checking once that is filled all the spillover goes into the online savings account.  From there the rest goes into my saving investing until I reach the 6 months total.  This works the same for taking money out.  All money comes out of checking.  If you miscalculated you checking or an "emergency" happens you first pull from the online savings.  Only pull from the investments bucket if needed for that emergency not to fill up the online savings. This is because it will be a taxable event and you will having to pay taxes on any income made.  At this point you stop added to the emergency investment account and fill up the checking then the online savings.  Everything else after that is your to using for other investments.

HYOSA account are great and bad at the same time. The interest rate usually changes by a few points monthly e.g. 1.1% to 1.0% usually not enough for you to care, but like now they are around 0.4% which is sad since last year it was 1.5%.  Still better then the 0.01% from the traditions bank savings account.

I have heard from allot of people that there really isn't a point in having a savings account and anything about your monthly expenses could be in an investment account.  There is something to say about using a money market account for your online saving, but I like the ease of transfer encase I need the money quickly while online saving usually have a higher return.  Also since it is part of the emergency fund I want it isolated from other account being able to access.  Only my checking has access this account accept maybe auto deposits from work. You can make the same argument for those who say it should all just be invested into the market.  I can easily see that if you have significant stock pile to invest/invested in a taxable account this could work.  The problem I have is if your investments went down by 20% would you still be able covered for an emergency and be able to pay taxes on the selling of your investments.  I personally like to be a little more cautious then only having a checking account and investments only.

Really if you are working to build any kind of savings you can be wrong.  Last year was a reality check for everyone. Hope for the best and prepare for the worst.