Here’s Where You Should Keep the Money You’re Saving for a Down Payment

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If you’re saving money for a home down payment, you should make sure it’s earning interest and safe from being spent. Find out why. 

When you buy a home, you’ll want to save money for a down payment. Most mortgage lenders require you to put at least some money down in order to qualify for a home loan.

Since it takes time to save up the funds for a down payment, you’ll need to keep that money somewhere as you work on getting the full amount you need to be ready to get your mortgage. For most people, the right place to put that money is a high-yield savings account. Here’s why.

Interest earned will help you grow your account balance

When you are trying to save for a home down payment, every little bit helps. That’s why putting your money into a high-yield savings account makes sense.

High-yield savings accounts can earn interest at around 10 times the national average rate. When you are putting aside tens of thousands of dollars for a home down payment, keeping the money in an account with a higher rate can make a big difference. Say, for example, you have $15,000 in the account. Over the course of a year, you’d earn about $600 in annual interest if your account was at 4%, but only $60.00 if it’s at 0.4%.

There’s no reason to give up hundreds of dollars in interest payments when a high-yield savings account is available and just as easy to use as a regular savings account.

Your money will be safe and free from risk

If you find a high-yield savings account that is FDIC insured, you will be protected against loss in case of a bank failure. Up to $250,000 in money is insured per person per account. This essentially means you cannot lose money when you put it into a high-yield savings account.

You can’t afford to risk losing the funds you’re trying so hard to save for your home. This is the main reason to put the money into a savings account rather than investing it in the stock market. While you could potentially earn a higher return on your investment by putting your funds into the market, there’s also a risk you could buy right before a market crash and lose your investment.

Although it’s inevitable that the market will eventually recover from a crash, as the market is cyclical, it may not happen before you need your money for your down payment. You don’t want to get stuck with less money than what you worked so hard to save when you find the perfect home.

The funds will be accessible when you find the perfect home

Finally, the last reason to use a high-yield savings account is because your money is accessible. Depending on your account, it usually takes a day or two to move the money from savings into a checking account. Or you may be able to wire the money directly from your savings account to the title company for your home purchase.

For all of these reasons, a high-yield savings account is definitely the best place for your down payment savings. Start putting your money into one today so you can get into your home ASAP.

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