Here’s why using a savings account for a down payment on a house is a smart money move


Saving money for a down payment is a tough step towards home ownership. Fortunately, a high yield savings account can help you maximize your savings so you can reach your down payment goal faster. (iStock)

One of the hardest parts of buying a home is saving money for a down payment. Typically, home buyers must pay at least 20% of the sale price. For example, if the price of the home is $ 200,000, the down payment should be around $ 40,000, which equates to 7.5 months of income for the average home buyer. Although a mortgage covers the majority of the purchase price of the home, the down payment is not covered by the bank.

A down payment for a home is a substantial amount, which is why it is wise to start saving money for your home purchase as soon as possible. Putting money aside in a traditional savings account is a good start, but to maximize your savings and earn as much as possible, you should consider other savings options. High yield savings accounts, certificates of deposit, money market accounts, and cash back credit cards are just a few of the ways you can increase your savings potential.

When it comes to saving money for a down payment on a home, every penny counts. If you don’t want to leave money on the table, you can maximize your income with these high yield savings options on the Credible Market.

4 REASONS TO OPEN A HIGH RETURN SAVINGS ACCOUNT NOW

Why you should consider a high yield savings account

Most people who are considering buying a home will start to put their down payment in a traditional savings account. Unfortunately, this type of savings account does not offer a high Annual Percentage Rate of Return (APY) to help maximize earning opportunities. A high yield savings option, however, can offer account holders a considerably higher interest rate – sometimes more than double the rate of a standard savings account.

Another advantage of a high yield savings account is that most are offered free of charge, meaning you won’t have to pay unnecessary expenses just to save for a down payment. These accounts are also insured by the FDIC up to $ 250,000. A high yield savings account also limits the number of withdrawals you can make, helping you resist the temptation to use your home savings for another expense. While these accounts have variable interest rates that could drop after you deposit, the rates are still generally higher than APY rates on traditional savings accounts.

If you want to increase your personal capital and reach your savings goals faster, you can visit Credible to find a high yield savings option that best matches your goals.

WHY PUTTING MONEY IN A HIGH RETURN SAVINGS ACCOUNT IS A GOOD IDEA

Other savings strategies

According to the FDIC, the national average savings account only earns 0.04% APY, which means other investment accounts may offer significantly higher interest rates. You can also consider additional savings strategies like a certificate of deposit, money market account, or even a cash back credit card program. Check out your high yield savings options through an online brokerage firm like Credible to see how you can save extra money and reach your savings goal quickly.

1. Certificate of deposit (CD)

Opening a certificate of deposit, or CD, has its advantages. This savings option usually offers a high fixed interest rate, while a high yield savings account has a variable interest rate. This lets you know how much you will earn during the life of the CD. However, a CD requires a one-time flat-rate deposit which cannot be accessed without penalty until the CD matures. A CD is a smart, temporary savings option for potential homebuyers who don’t need immediate access to these funds.

DO I HAVE TO PLACE MONEY IN A HIGH RETURN SAVINGS ACCOUNT ON CD OR MONEY MARKET?

2. Money market account

Money market accounts may not offer the same high interest rates as a high yield savings account, but they generally offer higher rates than a traditional savings account. Money market accounts generally require a minimum balance to be maintained and limit the number of withdrawals per month. While these may be seen as drawbacks for some account holders, a money market account can be a beneficial option for potential home buyers due to its limited access and slightly higher interest rates.

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3. Credit cards with cash back

Since credit scores influence mortgage rates, many potential buyers use their credit cards responsibly to build positive credit histories. If you’re already using this credit enhancement strategy, why not make some extra cash while you’re at it? Many credit cards offer cash back rewards for purchases that you can deposit directly into your high yield savings account or otherwise. It helps you boost your credit score and your down payment savings by doing nothing more than doing your regular weekly shopping.

If you hope to someday buy a home, it’s never too early to start saving for a down payment. Even if you’re not sure what your price range is, every dollar you save now will help you reach your savings goal when you need it. There are many savings strategies to consider, and a high yield savings account can be one of the fastest, low-risk ways to maximize your down payment savings. No matter how much you may have to deposit, you can save extra money with Credible’s high yield savings options.

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Have a finance-related question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.

About Matthew R. Dailey

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