I too brew batches around the 3 gallon size. I used a 5-gallon cooler just fine when I was sparging. About a year and a half ago I adopted a no-sparge model that works for me. Think of it as BIAB without the bag (no lifting, gravity drain into the kettle, etc.). That's when I went to a 9-gallon rectangular Coleman Xtreme, which works great for me for this purpose.
I kept the 5-gallon cooler just in case I want to sparge a batch for any reason, and it would be a three-minute job to swap out the ball valve and modified plumbing supply line. But if I were not using the no-sparge model, I would have stayed with the 5-gallon. It worked well for that purpose, and even with no-sparge there is enough space in my 9-gallon mash tun that I lose temp faster than I did in the 5-gallon. (I throw a blanket over the tun, which seems to help.)
Regarding equipment cost, I found that 5-gallon cooler on sale for $15 -- but the Home Depot version is $20 today, which seems like a good deal.