How to save for a house

[Goldy]

I am thinking of buying a house in a year or two and I am wondering how I should save for that house. Well, not HOW to save but more where do I put the money I have saved. Right now much of my savings account money is only making .16%. So, where would you save 60k for a downpayment that you might need to access in 2 years. We might not even buy a house in two years time. I would be frustrated setting aside 60k at a nominal interest rate when I could have invested it better and possibly made more money.

Thoughts?

[Ima saver]

It needs to be somewhere safe, I would suggest the highest paying C.D. that you can find.

[skydivingchic]

Have you looked at the online savings and rates thread at the top of this section? Interest rates suck right now, but there is no reason you can't be earning 2% or so instead of 0.16%. Also, CDs as Ima mentioned are an option.

I have a checking account that pays 4% up to $25,000 but you have to make 10 debit card transactions a month. If you can keep savings separate from checking account money on paper, that might be an option for you. These types of checking accounts can be found here.

As long as you need the money in several years you need to be in safe, FDIC insured type accounts.

[cptacek]

I have a checking account that pays 4% up to $25,000 but you have to make 10 debit card transactions a month. If you can keep savings separate from checking account money on paper, that might be an option for you. These types of checking accounts can be found here.

This is a good idea. I had one of these, where it took 10 electronic transactions, not 10 debit card transactions. If you can find one like that, you could set up 10 bills to pay out of it, making sure to deposit the money to cover it so as to not eat into your savings. Or, you could set up 10 automatic bill pays to yourself that you mail to yourself every few days and then just deposit them again. Probably against the spirit of the law, but probably not against the letter of the law. Or, just buy 10 packs of gum a month for $.25 each

But, my real point is that you don't have to transfer all of your other checking business to this account and have to keep track of which is "savings" and which isn't. You can have multiple accounts, and if you find two banks that are doing this, you could be making 4% interest on $50,000 instead of $25,000.

[investingnoob]

I recommend opening a savings account with ally bank.
1.75% interest rate.

I'm also saving for a house, in hope to buy in a few years.
I'm not afraid of some risk for higher returns, so I have a Vanguard bond index fund. But if you want your money safe then go with a CD or ally bank.
I just hate locking my money away in a CD and not able to get it.

[reptile411]

You don't need to save for one now Of course the more you front the less you pay through 30 years. It cost me $55 to buy my house at 6.0% for 30 years. All I had to do was pay the $55 appraisal fee. Talk to your lender about the USDA urban development loan.

[Joan.of.the.Arch]

Department of Agriculture urban development? Sounds like there might be a typo in that last post.

[MonkeyMama]

I'd get an online bank with maybe 2%. (I recommend Ally too. Their rates have historically been higher than most. They don't tend to raise rates just to attract people, and then lower them. Though they are restructuring a bit right now, so who knows).

Check CD rates. Not a great investment right now, but keep an eye out for some good rates. There are always promo rates that are decent. I wouldn't lock in a CD for any length of time though - rates are just too low - they will rise.

Earning cash at .16% is better than risking it, for sure. But there are other safe options.

[disneysteve]

I wouldn't lock in a CD for any length of time though - rates are just too low - they will rise.

I agree that CD rates will be rising but I see nothing wrong with locking in for 6-12 months. I think 6 months is at 1.64% and 12 months is at 1.96% currently last time I looked. That sure beats 0.16%.

[MonkeyMama]

I agree that CD rates will be rising but I see nothing wrong with locking in for 6-12 months. I think 6 months is at 1.64% and 12 months is at 1.96% currently last time I looked. That sure beats 0.16%.

You don't have to tie up your money to get 2% today though.

BUT, I meant, "for a long time" more than anything. If you can find greater than 2% for 6 months - I'd take it.

[Scanner]

I will only be using cash vehicles as I will be saving for a house soon too. That being said, the only alternative I would consider is insured muni bonds.

[disneysteve]

I will only be using cash vehicles as I will be saving for a house soon too. That being said, the only alternative I would consider is insured muni bonds.

I would only do a bond if it will mature before I need the money. I wouldn't do it if I'd need to sell the bond before maturity since you could lose money that way.

[Broken Arrow]

Munis certainly have their place, although I'm not sure if they're the most practical thing for this situation.... Here's what I can find for a maturity date of 2011. The pickings seem a bit slim to me, and I don't know if the OP can meet some of the minimum balance requirements.

Contrast that with a bank savings rate of 2% APY, which even after capital gains tax, is at least as competitive if not more so than munis, all the while being much more liquid and with much lower balance requirements. Oh yeah, FDIC protection too.

Personally, my checking pays 3% APY, so that's where I stick all my short-term cash....

[Scanner]

Broken Arrow:

I agree on the maturity thing - you don't want to have to sell the bond to get your money and then take a loss.

On the yield thing. . .thre is some formula to figure on your effective yield after taxes.

ON a 2% return. . .you probably end up really making about 1.3%.

If you get a muni bond at 2%, your effective yield may be about 2.8% being tax-free, depending on your tax bracket.

And muni bonds can be just as insured as FDIC.

You can see how the spread widens after taxes.

A whole whopping 1.5%

[investingnoob]

Really though if you buy cd below or close to 1.75% your crazy. Just get ally bank savings.
now if you found a 3% cd for 1 yr go for it, I just don't like locking cash up for nothing