[maxov]

This may be unfounded, but I am pretty skeptical of any bank or service that offers such high APY for a savings account. The effective federal funds rate is now about 0.6%, and Wealthfront is really clear in their communications on how the interest on their cash account is directly tied to that rate. More generally, although I am not an expert, I am not sure how any bank will be able to maintain interest rates that high without somehow making money off you, or coaxing you into doing something that is actually profitable for them, when you don't see it. Especially because if they actually want to call their account a checking account, they are subject to the same legal imitations (amount in reserve, ability to make loans) as other banks.

Looking at One Finance and HMBradley, these 3% APY accounts seem to only be added to as a percentage of your direct deposit paycheck. For HMBradley, that rate only seems to kick in if you save 20% or more of your paycheck each month. I am not a financial advisor, but this seems way more than anyone should be keeping in cash. Main reason being you should only keep it for liquidity and emergencies and nothing else, because otherwise you're basically losing money to inflation.

The median American household makes $60k and has a net worth of $120k. The standard financial advice is to have an emergency fund to cover about 6 months of expenses, which we can say conservatively (adding in any other cash people keep) would be maybe $30k. To stay at that level with about 1/4 net worth in cash, you should save 25% in cash after expenses. The most common budgeting rule is 50% (needs)/30% (wants)/20 %(savings), meaning that to stay "even" you'd actually want to save at most 4% of your paycheck in cash (this way, 25% of your net worth growth will be in cash). This is not even enough for the lowest HMBradley tier of 0.50% APY.

I think all the assumptions I made are pretty conservative, namely that expenses grow linearly with income. I'm going to guess that if you're higher income (eg 2x median) your expenses will not be (they will maybe be up to 50% higher), so you should save even less to keep your emergency fund. Therefore 25% of net worth in cash seems to be a pretty good rule of thumb, if even too high for higher net worth households. You don't bump into that unless your total spending is 20% of your paycheck each month (the number of people like that must be really small). So one way or another, you're losing pretty significantly keeping that much in cash.

[joshstrange]

I’m pretty sure I agree with all your points, that’s why I don’t use HMB as anything more than a place to keep my emergency funds and get a high interest rate. I direct a small portion of my paycheck via direct deposit and that’s enough to trigger their logic to activate the saving rate (you are required to have DD). HMB is better than One’s “Auto Save” pocket because I can move in money at anytime and it qualifies for the saving rate vs One having to only come from DD (you can’t move money into that pocket).

Edit: With the way I only send a small % of my paycheck to HMB, I don’t have to care about saving X% since according to their calculations I’m always saving 100% of my “paycheck”. The rest of my paycheck goes to One Financial where I use it as-needed without worrying about disqualifying myself from a higher saving tier.

[maxov]

Gotcha. I didn't consider just putting a small amount of direct deposit into HMB, that's pretty clean! Might try it myself :) I doubt they expect most users to do something like this though, which may explain why they're able to offer a rate that high.

[joshstrange]

Absolutely. I know a number of people use this “trick” and it’s been working for me for over 6 months. I can’t remember if referral codes are allowed here but I have 2 invites which let you jump to Tier 1 (3%) right away instead of having to go up 1 tier a month (it skips waiting 3 months before you hit 3%). I used a Black Friday deal that gave the same “perk”.

Full disclosure: using my code would give me 1 “undo” or something like that. Essentially it would let me move up a tier 1 time if I were to fall for some reason. I don’t think I have any use for something like that but I always fell a little scummy offering referral codes so I didn’t want to leave it out.

If you want it, my email is in my profile.