A down payment on a house can be very expensive. In fact, you will likely need to save tens of thousands of dollars in order to be able to deposit the required amount when purchasing a property.
It may take a long time to save enough money. And once you have your down payment funds available, it may still take a while before you finally find the right home and are ready to use the money to make your purchase.
This means that you have to decide where to keep your deposit. And for most people, there is a clear choice as to where that money should go.
Why your down payment should be in a high yield savings account
The money you plan to use as a down payment on a home should be kept in a separate high yield savings account that has been specifically set aside for your future home.
A high yield savings account is the ideal place for these funds for several important reasons. First of all, a high yield savings account can give you a chance to earn the most interest without putting your money at risk.
You certainly don’t want to invest the money you save on a house. Investing your money can be too risky with funds you will need soon, as you could end up buying stocks or exchange traded funds (ETFs) just before a downturn. This means that you will lose some of your money and may not be able to recoup your losses until it is time to buy the property.
If you find a high yield FDIC insured savings account and put your down payment into it, there is no risk of loss. And these accounts tend to offer a better return on investment than standard savings accounts or other equally safe investments. When you’re saving a lot of money to buy a home, even a small difference in the interest rate can have a pretty big impact on your account income. Those extra dollars from a higher rate can help you meet your down payment goals more easily.
Keeping your money in a separate high yield savings account also reduces the likelihood that you will end up spending the money on something else. You won’t easily confuse money with money you have available for other things. It would be a big risk if you kept your down payment funds mixed with your regular checking account or emergency fund.
And, since homeownership is likely important to you, you’ll be less likely to loot the account and spend the down payment if it’s on a dedicated account.
By securing your money in a high yield savings account and leaving it there, you should hopefully be able to raise enough to buy a home sooner rather than later. Then all you have to do is apply for the right mortgage, find the perfect home, get your offer accepted by sellers, and get ready to move in.