diff --git a/app/controllers/categories_controller.rb b/app/controllers/categories_controller.rb
index 0b37fc4b60..161015e760 100644
--- a/app/controllers/categories_controller.rb
+++ b/app/controllers/categories_controller.rb
@@ -4,7 +4,7 @@ class CategoriesController < ApplicationController
   before_action :set_transaction, only: :create
 
   def index
-    @categories = Current.family.categories.alphabetically.to_a
+    @categories = Current.family.categories.alphabetically_by_hierarchy.to_a
     @category_groups = Category::Group.for(@categories)
     @category_ids_with_transactions = category_ids_with_transactions(@categories)
 
diff --git a/app/models/category.rb b/app/models/category.rb
index 229dfa3247..772c2f5a5e 100644
--- a/app/models/category.rb
+++ b/app/models/category.rb
@@ -5,7 +5,11 @@ class Category < ApplicationRecord
   belongs_to :family
 
   has_many :budget_categories, dependent: :destroy
-  has_many :subcategories, class_name: "Category", foreign_key: :parent_id, dependent: :nullify
+  has_many :subcategories,
+         -> { order(:name) },
+         class_name: "Category",
+         foreign_key: :parent_id,
+         dependent: :nullify
   belongs_to :parent, class_name: "Category", optional: true
 
   validates :name, :color, :lucide_icon, :family, presence: true