It’s no secret that saving for a house can be a difficult task. Beyond that, it can take years to build up enough savings to finally make your dream of owning a home a reality. And since it can be such a long, tough road, it’s important to keep your money in a place where it will most benefit your efforts. Which leads to the obvious question, where should you keep your money while saving for a house?
In general, when saving for a house, it is best to keep your money in a dedicated, high-yield savings or money-market account. These types of accounts will allow you to earn a little bit of interest (typically between 1% and 2%), without sacrificing any liquidity or taking on the risk of more aggressive investments.
That said, with so many different choices out there, it can be hard to decide where to keep your money while saving for a house. And depending on your home savings timeline, there are a few other options you might want to consider.
As I often say, the thing about personal finance, is that it’s personal. In other words, what’s right for one person, might not be right for you. All you can do is equip yourself with as much information as possible in order to make the best decision for your financial situation.
That’s why, for the rest of this article, I’m going to go over a few different places you can keep your money while saving for a house. Hopefully, the information that follows will help you on your journey to buy a house.
Let’s jump in!
1. Savings Account
It might seem a little obvious, but when it comes to saving for a home, one of the greatest options is a high-yield savings account.
Though, just to be clear, the term “high-yield” can be a bit misleading. I mean, even the best savings accounts out there rarely earn more than 1% to 2%.
Nevertheless, if you can find one that does earn a decent amount of interest, it is a good place to keep your home savings. Sure, you might not get rich off of that kind of compound interest, but a little bit is better than nothing.
The thing I like about savings accounts, is that they are virtually risk-free. I mean, if your money is stolen, you are protected through your bank or credit union’s insurance. If the market tanks, your interest rate may drop a bit, but you won’t lose any money.
Beyond that, savings accounts are designed to restrict your money just enough to make it inconvenient to withdraw any of your hard-earned savings. This is beneficial because as your home savings grows, it can become more and more tempting to spend it. And if you are the kind of person that struggles with impulse buying, the less convenient it is to spend your home savings, the better off you’ll be.
That said, if you keep your money in a savings account, and you happen to run into a big enough financial emergency that you need to dip into it, you can. Your money may be slightly inconvenient to access, but it is still very liquid, which is nice.
Side Note: We recommend keeping at least 3 months worth of expenses in a separate “Emergency Fund” savings account so that you never have to pull from your home savings. Having a financial cushion in the event of an emergency will protect your assets, and help you stay on track with your long-term financial goals.
Recommended Savings Account
Ok, now that we’ve covered a few reasons you might want to keep your money in a savings account while saving for a home, the real question is, where should you open a savings account?
Now, once again, this is a very personal choice. And quite honestly, there are a ton of really awesome savings accounts out there. That said, here at Be The Budget, we recommend the CIT Savings Builder. Now, full disclosure, we are an affiliate for CIT Bank, but that’s only because we LOVE their products.
Seriously, my wife and I have a CIT Savings Builder account, and a CIT Money Market account (more on that later), and we absolutely love both of them.
So, why do we recommend the CIT Savings Builder?
- You can open your account entirely online, and it only takes a few minutes to do so. It is about as painless and convenient as you will ever experience with a bank. No standing in line. And no waiting on hold for hours at a time in order to open an account. That alone was enough to sell me.
- It only takes $100 to open an account. In other words, you don’t need to have thousands of dollars to open an account.
- Their interest rate crushes the national average. As long as you deposit at least $100 per month into your account (which is pretty likely since you’ll be using it for a home savings account), you will earn their top-tier interest rate. Seriously, my wife and I earn hundreds of dollars per year with our account, which is a far cry from the $0.03/month we were making with our previous “high-yield” savings account.
2. Money Market Account
As I mentioned at the beginning of this post, a Money Market account is another great place to keep your money while saving for a house.
Money market accounts are essentially a hybrid between a savings account and a checking account.
Similar to a savings account, your money will earn a decent amount of interest. Though, since both savings accounts and money market accounts have to operate within the rules of Regulation D, you will be restricted to six convenient transfers and withdrawals per month. Beyond that, you will be charged a fee.
In the case of saving for a home, this really shouldn’t impact you. I mean, if the whole point of your money market account is to save for a home, there should be very few reasons (if any) for you to pull any money from it, let alone six withdrawals per month.
On the flip side, like a checking account, many money market accounts will allow you to write checks, pay bills, or make electronic payments (i.e. Zelle) directly from your account. So, essentially, once you’ve saved up enough money to either pay for your down payment, or buy a house in cash, you don’t have to worry about transferring the money out of savings. You can just pay for it directly from your account.
Now, the one thing I will say about keeping your home savings in a money market account, is that you need to have enough self-discipline to not spend it. That might seem like common sense, but it’s something to consider.
In other words, if you don’t have any trouble letting your money sit in an account, untouched, then a money market account is a great place to keep your money while saving for a house. Otherwise, you might want to opt for a savings account.
Recommended Money Market Account
If you think a money market account sounds like the best place to keep your money while saving for a house, then we recommend the CIT Money Market account. Once again, we are an affiliate of CIT Bank, but only because we personally use and love their products. Like I said earlier, my wife and I have both a Savings Builder and Money Market account with CIT, and we couldn’t be happier with their service.
So, why do we recommend the CIT Money Market account?
- Once again, it is incredibly easy to set up. When we set up our money market account with CIT Bank, it only took about 10 minutes. I have personally never experienced that kind of convenience with another bank. They hit speed and convenience out of the park.
- Great interest rate. And, unlike the Savings Builder, you don’t need to deposit $100 per month into your account to earn it. That said, it is a variable interest rate that can move up and down at any time, depending on market conditions and interest rates.
- No monthly service fee. Unlike many money market accounts that carry a monthly service fee, which can be waived if you meet certain requirements, the CIT Money Market account doesn’t have a monthly service fee to begin with. As a frugal-living fanatic, this is a breath of fresh air!
3. Brokerage Account
If your home savings timeline is more than about five years, and you have the stomach for a little more risk, then you might want to consider investing your money through a brokerage account.
Now, obviously, this is a much less predictable way to save for a house, but in the long run, if you are cautious with your choices, and avoid risky investments, it can really pay off.
Just to be clear, as an investor, you are taking on the risk of losing money. So, if you don’t know what you’re doing, you should either hire a financial advisor from a well-respected company (e.g. Charles Schwab, Fidelity, or Edward Jones), or just stick with the predictability and safety of a savings or money market account. In other words, don’t listen to your broke friend that day-trades penny stocks at the advice of some blogger writing from his mother’s basement.
Recommended Brokerage Account
If you have a pretty good handle on where you’d like to invest your money, we recommend either TD Ameritrade, or Ally Invest. Both of these platforms are easy to navigate, and have all the tools and resources you need to make educated decisions with your money.
Important: The information in this article should not be taken as financial advice. At times, we offer recommendations for products and services we, ourselves, like and use, however, since every financial situation is different, what has worked for us, might not work for you. As always, what you do with your money is up to you. Therefore, always make sure to do your own research. Better yet, whenever possible, you should seek the help and advice of a financial advisor.
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