Categories are not tied to specific accounts. Purpose (categories) and location (account) are completely independent concepts. I would drop the Ally Buckets; I can't imagine it's doing anything YNAB doesn't already do.

Move as much money as you want into the higher rate account. (It's just a transfer in YNAB, no category.) Most will keep enough in checking to support the next 2-4 weeks of outflows. The running balance and scheduled transactions makes this easy to evaluate at a glance.

You don’t need Ally’s buckets. That’s what YNAB does. You are just going to add extra complication if you continue to use them. I have Ally too. All funds and more are in YNAB categories. That’s all you need.

You are putting an extra constraints on your budget that prevents you from making even more interest on your funds.

Powder Blue Case said:
In my concrete mind, I see $50 in my YNAB furniture sinking fund category so if I move it to my Ally savings acct to earn more interest and distribute it within Ally to my furniture bucket, that means I  have to move it from my YNAB furniture category and put it in the YNAB Ally savings category and then physically distribute it in Ally. I guess what's getting me is that I'm trying to make the balances see in YNAB match what's really in each category/bucket. And this way it doesn't appear as if it's still sitting in our checking acct.

This may be the piece you're missing. Since your checking and Ally savings are both in your budget, all of these funds combined make up your budget funds. If you transfer funds from checking to Ally, or from Ally to checking, it has no effect on your budget funds. You just moved them from the top shelf of the fridge to the bottom shelf. Or from the bottom shelf, to the top shelf. The fridge contains all your money with different locations within to store it.

Here's how you would handle your example above. You see $50 in your YNAB Furniture category. These are your furniture funds. If you added $50 a month for a year and didn't purchase any furniture, you'd then have $600 in your Furniture category. If you want these funds in Ally, you just transfer them there, no buckets, just one big pile of money. This does transfer does not require a category. You are just moving your funds around. This has no effect on your budget. YNAB is keeping track of your categories including Furniture.

You probably don't want to transfer $50 at a time though each month. You have other sinking funds too. You can transfer one lump sum to Ally for all of them at once. Again, no category required.

But the big abstract leap is to not worry about a one to one balance in your Ally account that adds up to all of your savings categories. Instead, just keep enough in checking to pay for all of your upcoming bills and then transfer ALL the rest to Ally. 💡

Now, when you're ready to purchase an item such as Furniture, you transfer enough from Ally savings to your checking account so you can pay for the item. Let's say it costs $300. You would transfer $300 to checking, pay the store $300, and categorize the transaction as Furniture in YNAB. If you had $600 in your furniture category, this transaction would subtract $300 from Furniture leaving you with $300 for future furniture expenses.

Superbone said:
But the big abstract leap is to not worry about a one to one balance in your Ally account that adds up to all of your savings categories.

 This is always a big mind leap for people coming to YNAB.  A lot of people try to "manage" their money through accounts.  Put up your hand if you did this (✋ me).  Or have everything in one "savings" account with a spreadsheet to keep track (also me).  It took me a while to put ALL my accounts on budget in YNAB and let the categories do the work of keeping track of what was what.  Ideally, you would have a daily (chequing) account that is used to pay bills etc. and a high(er) interest no fee account to pile money. That's it. Two accounts.  How simple is that? Technically we have this set up now. We did have other accounts that are now closed. And we have a few credit card accounts - one "operating" card which we use for everything and get (lots of) cash back every year. The others are used to bounce around the remaining debt on various 0% or low interest offers. Again, once the debt is gone we will have 2 credit cards - one in my name and one in hubbys name (for credit purposes).