When you’re saving up for a down payment on your first home, it’s important to keep your money not only in the right place, but a safe place. If you put it in the wrong account, the best case scenario is you could lose out on valuable interest earnings and the worst is you could end up losing the savings.
If you’re wondering where to keep your down payment before buying a home, you’re not alone. It’s a common question with no easy answer. While there are a few different options, it ultimately comes down to what makes the most sense for your situation. Here are a few down payment tips to help you make the best decision for your money.
One of the first places to look when you’re saving for a down payment is your savings account. A high-interest savings account is a great place to keep your down payment money. Many banks offer accounts that earn interest on a daily basis, which can help your money grow quickly. Just make sure you don’t have too much money in your account so you’re not tempted to spend it!
Money Market Account
Another option for your down payment savings is a money market account. Money market accounts typically have higher interest rates than savings accounts, but they may require you to keep a minimum balance. This can be a great option if you’re disciplined about not spending your down payment money and you want it to grow quickly.
Keep in mind that you’ll want to shop around for the best interest rates on savings and money market accounts. Be sure to compare account fees, minimum balances, and other factors before you decide where to keep your down payment money.
Certificate of Deposit
When saving for a down payment, many people turn to Certificate of Deposit (CD) accounts. A CD account is a great place to park your down payment money, as the interest rates are often higher than savings or money market accounts. And, unlike a savings or money market account, you can’t easily withdraw your money from a CD account before the maturity date. This can help you stay disciplined and avoid spending your down payment money before you’re ready to buy a home.
Of course, there are downsides to CD accounts. The biggest downside is that you may have to pay a penalty if you need to withdraw your money before the CD matures, so knowing your timeline is important. Only use CDs if you know you are not going to use the funds in the next 6 months to a year.
Where not to keep your money
Your Checking Account
Don’t keep your down payment cash in your checking account. It’s too easy to spend, and you’ll need every penny to save for closing costs, moving expenses, and furnishings for your new home. While it may be tempting to spend your down payment money on something else (a new car! that European vacation you’ve always wanted!), resist the urge. You’ll be glad you did when you’re signing the paperwork for your new home.
Stocks or Mutual Funds
Investing your down payment money in stocks or mutual funds is a risky move. The stock market is unpredictable, and you could lose some or all of your investment if the market takes a dive while you’re saving for your home. Mutual funds can also be volatile, and you may not earn as much on your investment as you had hoped.
In a Piggy Bank
If it didn’t work for Daffy Duck, it won’t work for you.
The most important thing to do when saving is finding a method that will work for you and sticking to it. If you need help, talk to a financial advisor. They can help you figure out the best way to save for your down payment and reach your homeownership goals.
Whatever method you choose, make sure you start saving early and often to give yourself the best chance of reaching your down payment goal. Saving for a down payment can be difficult, but it’s worth it when you finally find the home of your dreams.
Happy house hunting!