I’ve been using Ally Bank since January, when we decided to start setting aside cash for a potential down payment on a home. For many years prior, my only bank account was with a local credit union yielding nearly 0%, in which I keep my $12k emergency fund. I figured if I was going to expand my cash pile, it was finally time to stop procrastinating and open a High Yield Savings Account (HYSA). Other than their consistently above-average interest rates on savings accounts, one thing that attracted me to Ally was their “Buckets” system.
Here at Frugal Flannel, I’m always on the lookout for ways to improve my financial life, and a product being free is a great initial qualifier to merit a closer look. Arguably, I’m even getting paid to use Ally compared to the low interest rate that my credit union has been providing. (Speaking of getting paid, this article is not sponsored in any way. This is my honest, unbiased review.)
Overall I’ve found Buckets to be very useful. It’s not a life-changing widget by any means, but I think the real value here is in automating and simplifying my finances even further, and I certainly plan to continue using it. Read on for an overview of Buckets, how I use it, and a discussion of Ally’s interest rates in general.
What is Buckets?
Essentially, Buckets is a digital version of the “envelope system”. The envelope system is an old-school budgeting method where people keep physical cash inside of individual envelopes, each one labeled with an expense category. The envelopes are filled up with your budgeted amount of cash per category at the beginning of the month. This method is still in use by a few people today, particularly those who have issues with digital spending like credit cards, as the physical act of going into the envelope to remove cash can help them to control their spending more consciously.
In my opinion the ability to create and label various sub-accounts in your savings account shouldn’t exactly be a ground-breaking feature, but here we are over 2 decades from the advent of online banking and it’s finally a thing! For what it’s worth, you could always do something similar with Ally and a few other online banks by creating multiple savings accounts (each with a different account number) and renaming them, but this was more of a workaround than a fully-integrated account partitioning solution.
Enter Buckets! Under the “Organize” tab of your Ally Bank savings account details screen, you’ll see an option to start using Buckets. Clicking this brings up the following menu:
You can have a total of up to 10 different buckets, which can be a combination of Ally’s preset categories plus any custom categories that you’d like to create. You also get a “Core Savings” bucket, which is where any money not already allocated to another bucket goes by default.
How do I personally use Buckets?
I don’t really care to use this feature for a complete digital implementation of the envelope system, though you could certainly do that. I’m disciplined enough that I don’t need that, and my spreadsheet budget is generally sufficient to keep me in line.
What I do use Buckets for is a replacement of external accounting for earmarked money. Previously I was updating a spreadsheet with this info; for example I’d have “Down Payment Fund, $18.3k” recorded somewhere to help keep track of how much I stashed away for that particular goal. This was necessary to differentiate those funds from the generic, single pile of cash in my bank account. At the end of every single month when I pay bills and update my financial records, I’d have to remember to go into my spreadsheet and manually update these categories too.
Buckets helped me to automate and simplify the process of earmarking funds. Now I don’t need that spreadsheet section, because my Ally account looks like this:
Nice and tidy! I haven’t gotten around to moving my emergency fund from my credit union to Ally yet, but that will be my next bucket.
A cool feature is that you can set recurring transfers into a specific bucket, not just your general savings account. Since I budget $200 per month for travel, I just set that up as a recurring monthly transfer from my checking account into my vacations bucket:
I find it helpful to use a system like this for those costs that occur rarely, but are large enough that you definitely still want to budget for them. I’m really only withdrawing from my travel fund once or twice per year, so the bucket makes it easy to see how much I have available to spend, and removes the need to track that manually. When I eventually spend money on a vacation, I just transfer it from the bucket back to my checking account, and let the recurring transfers slowly refill my travel fund.
I don’t bother with the “Surprise Savings” feature
To use Surprise Savings, you link a checking account (which doesn’t even have to be an Ally account), and they analyze your spending to automatically transfer “safe-to-save” money to your savings account. If I understand correctly, they transfer any additional cash flow above your average monthly expenditures. But they’ll never move more than $100, and will initiate transfers no more than 3 times per week.
Personally I have no desire to use this feature. Part of my monthly financial ritual is to copy my spending in each budgeted category from Personal Capital into my spreadsheet. This spreadsheet then feeds into the budget reviews that I do every 6 months. I actually enjoy manually filling out my spreadsheet with my income and expenses, seeing my hard work materialize into a monthly free cash flow, and then transferring all of that away from my checking account into savings and investment accounts. That part of budgeting I actually like doing manually, because to me seeing $2000+ in monthly free cash flow is validation that I’m doing a great job with meeting my financial goals.
Which brings me to my other issue with Surprise Savings, apparently I just save too darn much and have more money than they can transfer! I know, what a First World problem to have! With the maximum transfer limit of $300/week, or roughly $1200/month, that’s well under my current average monthly cash flow, so I’d have to go in and initiate manual transfers whether I use this feature or not.
Thankfully Surprise Savings is completely optional, so I just leave it turned off. I could definitely see it being useful for people who don’t care enough to take a deep dive into their personal finances and want a fully-automated solution.
How do Ally Bank’s interest rates stack up?
At the time of writing, my Ally savings account pays 1.00% APY. I think it was 1.60% when I signed up at the start of the year. Unfortunately rates have been slowly dropping at all banks over the past few months in response to the Federal Reserve lowering the federal funds rate in an attempt to stimulate the economy.
June 2021 Update: Interest rates have continued to drop across the board, and Ally’s savings account now pays 0.50%. The highest offer on a savings account that I can find right now is Vio Bank at 0.57% APY. Other industry-leading online savings accounts like Marcus by Goldman Sachs and Capital One 360 are also at 0.50%, exactly the same as Ally.
Sometimes banks offer a temporarily higher rate for the advertisement factor to attract more funds, then drop their rates a few months later. Which may be the case with that Vio Bank for example; I’ve never heard of them before now. Also, sometimes in a declining interest rate scenario, a few banks are slightly slower to drop their rates and will appear to pay more for a few days before settling in at a lower rate with their competitors.
What I do know is that Ally has consistently appeared near the top of the list for years, so they’ve got a track record of offering competitive interest rates. They seem to quickly raise and lower their rates in response to market forces, always staying near the front of the pack if not necessarily number one.
What I also know is that I’m not moving my money around multiple banks to chase an extra 0.07% yield that may not even be offered any longer by the time an ACH transfer processes. I’ve got better things to do, like write for this blog!
Overall I’ve been very happy with Ally Bank’s interest rates compared to their competitors, and the utility of their Buckets system makes them my top choice among savings accounts. Hopefully widgets like Buckets become standard fare in online banking, maybe even providing that first step in helping more people to get a handle on their finances.