Saving for first house

[Bades]

Hello all, recent college grad, started my job in August 2011 - I want a house in the near future - here is my situation:

Financial Breakdown
Income (after taxes, health insurance, 401k) - approx $3000/month
I also freelance web services which I appoximate will bring in around 5k annually
Putting away about $300(7% gross) towards 401k a month (currently have $1,300)

Investments $4,900 in my e*trade account (stocks & MFs)
Savings $10,600 - I have my cash in a 1.00% online savings account (through discoverbank.com)

Debt I have $4,400 left on my car loan - I bought the car Dec 2010 and took out a loan basically to build credit, now after a year has passed I won't be charged an early payoff fee and I plan to pay it off in full come this Feb.

Credit - My credit is very good, I've been using a credit card almost exclusivley now for about 6 years. Rarely ever go over 40% of the credit limit. Always pay it off in full and have never had a bad payment.

Simple Breakdown:
After ALL expenses for a month - I'm able to save one entire paycheck ($1500).

Goal
My short term goal is to buy a house (in apartment right now) and get married within the next 2-3 years. Girlfried makes decent money but doesn't get to save a lot because of Student loans and Car loan. She contributes to half of our rent, bills, and groceries too.

Question
Should I just leave the money I'm saving up for a house deposit/engagement ring in the 1% Savings Account - or is there a relatively safe invesment that could get me around 2-3% annually?

Thanks and please provide any insight on anything you might see the seems off with my financials

[riverwed070707]

What about a high interest checking account? I earn 3.5% on my credit union's standard checking. I think there are some online banks that do the same if there isn't one in your area. Generally require that you make 15 debits a month, but its the easiest way to keep it fluid and still earn a little money.

[JoshuaHeckathorn]

CD rates are laughable these days, so the best rates you're going to get for your short-term savings are in an online savings account like the one you're using. I haven't seen much of anything over 1% recently.

[pdweaver]

I think you are doing great. Interest rates are low these days and to be honest 1% is good. Because you will need the funds in the next few years i wouldn't suggest Mutual Funds or anything that could lose value I would say keep doing exactly what you are doing. In your case wait until you have 20% for the home, try and pay cash for the ring (getting the diamond online can save you money, blue nile and diamonds on web are good sites ranked well with BBB), and don't go overboard with buying so your money works more.

[maat55]

Check around your area for a high yield checking. Like as riverwed070707, I'm getting 3.1%. I would not put any funds you intend to use within the next 5 years in any volatile investment. The 1% is fine if it is the best you can locate.

Sounds like you are doing great. Keep it up.

[Bades]

Thanks guys, yeah CD are horrible, my Savings Account is yielding more than most 1 year rates. I'll have to look into these 3% Checking Accounts... are they mostly found out Credit Unions?

[bjl584]

Originally Posted by Bades

Thanks guys, yeah CD are horrible, my Savings Account is yielding more than most 1 year rates. I'll have to look into these 3% Checking Accounts... are they mostly found out Credit Unions?

Credit uions and online banks will usually give you better rates than a regular bank.

For your house, rule of thumb is 20% down and a 6 month emergency fund in place before buying. I'd advise to keep saving and keep renting until you fullfill the above requirements.

[Bades]

Originally Posted by bjl584

I'd advise to keep saving and keep renting until you fullfill the above requirements.

Sounds like a plan, thanks everyone!

By the way - how is my investing, particulary my 401k contribution looking? My company will match dollar for dollar up to 5%, unfortunately will not start contributing until after a full year of service is complete (Aug 12'). There seems to be a tradeoff for every move I could make. Contribute more to 401k, take longer to get a house, and vice versa. I guess this is determined mostly by personal goals and how fast you want to get there?

[bjl584]

Originally Posted by Bades

Sounds like a plan, thanks everyone!

By the way - how is my investing, particulary my 401k contribution looking? My company will match dollar for dollar up to 5%, unfortunately will not start contributing until after a full year of service is complete (Aug 12'). There seems to be a tradeoff for every move I could make. Contribute more to 401k, take longer to get a house, and vice versa. I guess this is determined mostly by personal goals and how fast you want to get there?

Many will say to invest at LEAST to the company match, then slowly increase your contributions over time until it is maxed out. (16,500 a year I think.)

Personal goals play a part in everything. If you save too much for retirement, then you won't have any left over for a house. If you save too much period, then you won't have a life. It's about balance. You need to sit down and figure out your goals. I would probably contribute to the match on the 401K, and use the rest to save for your house, pay off the car, and build an emergency fund. Once you buy your house you can bump up retirement contributions and start saving for other things.

[cashrich]

Originally Posted by maat55

Check around your area for a high yield checking. Like as riverwed070707, I'm getting 3.1%. I would not put any funds you intend to use within the next 5 years in any volatile investment. The 1% is fine if it is the best you can locate.

Sounds like you are doing great. Keep it up.

I am really curious where are you both getting above 3% in checking account?

[JoshuaHeckathorn]

Originally Posted by cashrich

I am really curious where are you both getting above 3% in checking account?

They can be found at a credit unions, but what I've seen in the past is that the rate is only given on a small amount of your actual balance. Maybe the first $1,000 or something like that. Anything above that and the rate drops significantly.

[cashrich]

Originally Posted by JoshuaHeckathorn

They can be found at a credit unions, but what I've seen in the past is that the rate is only given on a small amount of your actual balance. Maybe the first $1,000 or something like that. Anything above that and the rate drops significantly.

Yes I have found the same, my local CU gives 5% APY for first 500$ after that its 0.25%.

Also noticed today that CapitalOne dropped their rate from .91 to .85% does this mean rates are going down in general?

[JoshuaHeckathorn]

Originally Posted by cashrich

Yes I have found the same, my local CU gives 5% APY for first 500$ after that its 0.25%.

Also noticed today that CapitalOne dropped their rate from .91 to .85% does this mean rates are going down in general?

Yea, all the rates have been heading South. Still, .85% is a lot better than most CDs or money market funds you'll find.

[candiedcarolyne]

Originally Posted by cashrich

I am really curious where are you both getting above 3% in checking account?

I get 4.91% on my savings account.

I use a Netspend account for my savings. The one I use is specifically sponsored by our local grocery store, and the customer service counter at the store acts just like a full service bank for the account. Specifically, it's called a "Netspend® H-E-B® Visa® Prepaid Card account" and it goes through Inter National Bank.

Copied from the terms and conditions of the account:

The interest rate for your Savings Account is 4.91% with an annual percentage yield of 5.00%.

Also, it's insured by the Federal Deposit Insurance Corporation for up to $250,000 per Accountholder.

The checking account portion is a bit costly at either $8 per month or $1.50 per transaction, but is free with direct deposit. I don't use the checking account portion for that reason. When I need money from my savings, I transfer it to the checking account and withdraw it at the store, or transfer it to my regular bank, depending on how quickly I need it.

I've been using it for 4 years and have never had a problem with my savings.

Hope this helps

[cashrich]

Originally Posted by candiedcarolyne

I get 4.91% on my savings account.

I use a Netspend account for my savings. The one I use is specifically sponsored by our local grocery store, and the customer service counter at the store acts just like a full service bank for the account. Specifically, it's called a "Netspend® H-E-B® Visa® Prepaid Card account" and it goes through Inter National Bank.

Copied from the terms and conditions of the account:

The interest rate for your Savings Account is 4.91% with an annual percentage yield of 5.00%.

Also, it's insured by the Federal Deposit Insurance Corporation for up to $250,000 per Accountholder.

The checking account portion is a bit costly at either $8 per month or $1.50 per transaction, but is free with direct deposit. I don't use the checking account portion for that reason. When I need money from my savings, I transfer it to the checking account and withdraw it at the store, or transfer it to my regular bank, depending on how quickly I need it.

I've been using it for 4 years and have never had a problem with my savings.

Hope this helps

I am in GA, where are you? anyone aware of something similar in GA?

[JoeHoye]

First off you're doing great, keep up the good work! When we analyze such things time horizon becomes a huge key. So keep is safe and keep it liquid. It is okay to shop to credit unions and the like but the key is what I said above...safety and liquidity! Hope this helps in some small way. All the best...Joe Hoye

[vitalogist]

Since you're saving for your first house and you did not mention any assets to get some liquidity flowing. Putting your money in a savings account is a conservative and wise move. Investing it in other at an interest rate of 2%-3% is honestly not enough if you factor in the risks you will have to take.