Where Should You Keep Your Down Payment Savings?
One of my readers recently emailed with a really thoughtful question. They are saving for their first home and wanted to know the best place to keep their down payment money. They have been following the blog and learning about the home buying process. They’ve already hired one of my preferred real estate agents in their market, but they are still in the savings phase, with plans to buy in the next 6 to 24 months.
Their first question was whether they should invest the money in the stock market. My advice was simple. No. Even though the market can go up, it can also drop just as fast. Since their timeline is short, they should not take on that kind of risk. Money needed in the short term should never be invested in something that could lose value overnight.
Is a CD a Good Option?
The next question was about CDs. And yes, a certificate of deposit can be a good option in theory. It’s a safe place to earn a fixed interest rate. But there is one problem. I’ve found that most buyers who say they are a year or two away from buying often end up purchasing much sooner once they start actively looking. The excitement builds, they find a place they love, and they want to move forward. That is why I hesitate to recommend a CD. If you break a CD early, you usually lose some or all of the interest you would have earned.
The Best Option: A High-Yield Savings Account
My top recommendation for storing down payment money is a high-yield savings account. These accounts typically pay much more interest than regular savings accounts, usually somewhere between 3% and 4%. Most of the time, you will find these accounts at online banks rather than traditional brick-and-mortar banks.
And yes, they are safe. Just make sure the bank is FDIC-insured, which protects your deposits up to $250,000. This gives you both peace of mind and flexibility. If you decide to buy earlier than planned, the money is easily accessible. If you stick to your timeline, you earn some interest along the way.
A Personal Recommendation
I personally use a few high-yield savings accounts through online banks and have had great experiences. The rates are often much higher than what you would find at traditional banks.
Make Your Savings Work For You
If you are serious about buying a home, make your savings work for you. A high-yield savings account is the best blend of safety, flexibility, and return. It keeps your down payment accessible without exposing it to market risk or tying it up in a CD.
Need Help Getting Started?
If you are thinking about buying your first home and have questions about where to begin, reach out. I can connect you with a trusted real estate agent in your market and help you start your journey with confidence.
