Saving for short/medium term

[phonzie]

I am planning on buying a home 2 years from now. During that time, I would like the money I'm saving for the down payment to be earning as much interest as possible. Right now the best money market rate on bankrate.com is 1.40%. I don't really want to do a CD, because you can't add money to it after it's opened, and I plan to keep adding money after every paycheck I get. Any recommendations for other places to put my down payment money? I don't want to risk losing the money (eg, investing in stocks). I'm in the 33% tax bracket. Thanks

[disneysteve]

Welcome. With a 2-year time frame, you need to keep the money safe. That pretty much limits you to money markets and CDs. Keep in mind that CDs can be purchased with no minimum, so there is no reason you couldn't buy one every couple of months even if it is for a small amount if it will get you a better rate than the money market. Anything under 1 year, though, probably won't outperform the money market.

[snshijuptr]

You can still do a CD, but just open a new one with every months contributions. I'm currently saving up for a house with a set date for my goal. Every 6 months I open up a CD and put all of my current savings into it. That way for a short term I earn 1.1% in my savings and then can move it for a longer time into a 2.4%+ CD.

[skydivingchic]

With that short a time frame and the need to preserve capital, there aren't any real attractive options. There are plenty of us in this boat right now. You already know about savings accounts and CDs. One other option to consider is a reward checking account with a local bank. Look for one here:

https://www.checkingfinder.com/

I have one of these accounts through Bank of Little Rock (though I live nowhere near there) as well as the associated savings account. They are currently paying 3.75% on up to $15,000 for the checking account and 2% for the savings account.

The catch to these types of accounts is that you have to make a certain number of debit card purchases each month (usually 10-15), accept electronic statements, and make a direct deposit or direct debit each month. For this to work as a savings vehicle for your down payment, you would need to have a way to separate the money you were saving for the down payment and your spending money to meet the account requirements. You could do this with a spreadsheet.

I have all my personal and emergency fund savings in these two accounts as well as the money one would normally keep in a checking account. I use Mvelopes, so keeping the savings portion of the checking account separate is not a problem for me. I keep an eye on the checking account balance so and transfer money to savings when it gets close to the $15,000 limit, so that I maximize my interest earnings. For my required debit card purchases, I use it to buy smaller purchases like a cup of coffee until I hit the required 10 transactions for the billing cycle, then switch to my rewards CC.

[Slug]

If you're disciplined, the rewards checking is probably the way to go. A CD ladder would be your second choice. Either way, you preserve and grow capital.

If you were less risk averse or on a longer time horizon, you could buy some shares of BP with a dividend currently yielding 7.75%, but you should stick with the above.

[maat55]

You might look around for an high yield checking. I'm getting 4.1%. It will usually come with a few hoops to jump through, but not that bad.

[amarowsky]

You might look around for an high yield checking. I'm getting 4.1%. It will usually come with a few hoops to jump through, but not that bad.

Could you elaborate on these "hoops" that must be jumped though? Because that is a quite amazing rate right now.

[disneysteve]

Could you elaborate on these "hoops" that must be jumped though? Because that is a quite amazing rate right now.

They usually require you to make a certain number of debit card transactions each month, like 10 or 12. Sometimes, you have to have one direct deposit set up.

[jIM_Ohio]

The return you get will be such a small portion of the down payment.

If you have 10k in savings getting 2%, that is $200 in interest per year. If you get 3% rate, its $300. Is that $100 going to get you a better house?

Even if you have 100k to put in savings... $1000 barely gets you an upgrade on a new house- meaning its decent money "on paper", but the interest itself is not much of the money you will use to close on the house.

You are correct to keep money safe (CDs or money market) and most of your time is best spent on getting house for the right price (it would be easier to negotiate $1000 off price of house than to earn that extra $1000 in savings).

[maddog21]

You could find a few very low volatility stocks that pay huge dividends. Right now the market is beat down and there are a lot of bargains. The truth is you have to take some level of risk in order to get ahead. Of course you will pay a commission every time you invest so you probably don't want to buy 1 share at a time.

[maat55]

They usually require you to make a certain number of debit card transactions each month, like 10 or 12. Sometimes, you have to have one direct deposit set up.

Mine requires 12 swipes on my debit and you only have to enter the bill pay once a month, you are not required to use it.