Place to park Down Payment Savings?

[LizfromtheBronx]

Hi all, this is my first post here. I've been reading for a few weeks now, and think you're all great! I've embarked upon a plan to pay down my debt, and save for a down payment on my first apartment (co-op, I live in NYC).

My first question (there will be many more, I am sure...) - where do you suggest I park my savings for my down payment? There isn't anything there yet, to speak of, but later this year I expect to begin socking the $$ away in earnest. Just a regular "high yield" savings account? CD's?

Any advice is welcomed and appreciated. Thanks!

Liz

[KiwiJo09]

I put my savings into smartypig. It's worth checking out. Any CD's will have penalties if you remove your money too soon. The savings accounts in Florida are terrible, so I use smartypig. It's online. Just make sure anywhere you go, your money is FDIC insured.

[mcfroggin]

ING has a pretty good yielding savings account. Safe way to save money. No risk.

[Slug]

How long do you think you'll be saving for this down payment?

[snshijuptr]

CD's are good if you have a no-buy period in mind. For example, we put our DP money into CD's because we know for certain we will not be buying anything before I graduate in June 2013. We will probably move after this so there is no way we will buy a house before that time. All of our CD's mature before this date.

You can use bankrate.com to find good CD rates.

[LizfromtheBronx]

Right now, I am targeting March of 2015 to buy (I am estimating it will take me that long to save the DP + closing costs + reserve fund of 9 months of mortgage/maintenance payments).

I was thinking of putting the savings after the first year into a 2 year CD, the second year savings into a 1 year CD...etc etc. Looking over rates (just a quick glance), it doesn't look the rates for the amounts I will be dealing with are anything better than a typical online savings account...so I'm not sure if it's worth the hassle. (I'm very organized, and keep all of my info in spreadsheets, but think it might just give me another spreadsheet to obsess over!!!)

[LizfromtheBronx]

Just another quick note - my cousin sent me a referral link to ING Direct, where I get a $25 bonus for making a $250 initial deposit, and she gets $10. I'm thinking of going with them, just because they're a stable, well known internet bank.

[KTP]

I would put your money into I-bonds actually. Right now they are paying 0% fixed but 4.6% on the inflation part. After one year you can redeem them for just 3 months loss of interest, which if there is no inflation would be zero cost. If we get big inflation they will pay a lot more than a 1 year CD. If you are married you could in total buy $20,000 of I-bonds this year and $20,000 next year. By 2015 all $40,000 in Ibonds would be redeemable for little or no penalty. Much better IMO than a 1% CD...

[LizfromtheBronx]

I would put your money into I-bonds actually. Right now they are paying 0% fixed but 4.6% on the inflation part. After one year you can redeem them for just 3 months loss of interest, which if there is no inflation would be zero cost. If we get big inflation they will pay a lot more than a 1 year CD. If you are married you could in total buy $20,000 of I-bonds this year and $20,000 next year. By 2015 all $40,000 in Ibonds would be redeemable for little or no penalty. Much better IMO than a 1% CD...

I'm not married, so I am guessing I would only be able to purchase $10k per year...not sure I really understand the penalty/interest/inflation thing here? Can you purchase them in smaller increments? I obviously won't be putting $10k aside at a time, I expect to put around $15k per year (hopefully more) aside starting next year.

[lendnotborrow]

Where to put DP funds

I- Bonds are generally good for long term investment needs. These bonds can be purchased in denominations of $ 50 up to $10K within any calendar year. If you sell your bonds before 5 years, you will get a 3 month interest penalty (meaning if you sold your bonds within 20 months, you would only receive 17 months of interest income). Something to note, you will be taxed on the income made while you have the bonds. If you're ok with the taxable interest and the penalty, then go for it
If you want to avoid all of that, then a good savings account will work well for your scenario. Look into money market accounts too.

[KTP]

I- Bonds are generally good for long term investment needs. These bonds can be purchased in denominations of $ 50 up to $10K within any calendar year. If you sell your bonds before 5 years, you will get a 3 month interest penalty (meaning if you sold your bonds within 20 months, you would only receive 17 months of interest income). Something to note, you will be taxed on the income made while you have the bonds. If you're ok with the taxable interest and the penalty, then go for it
If you want to avoid all of that, then a good savings account will work well for your scenario. Look into money market accounts too.

Which savings or money market account do you recommend that pays tax free interest with zero risk???

[LizfromtheBronx]

Just did a little research on I bonds...this looks very very interesting. I'm obviously not looking for a huge return, since this will be a (relatively) short term saving period, just looking for the best way to leverage the money I do put aside.

Over the past few days, I've funded a SmartyPig account (small opening balance, just to get started - $25), and a Betterment account ($20 so far, with a 59% bond, 41% stock mix). I plan on adding small amounts to these weekly this year. (Betterment's minimum transfer amount is $10 at a time, not sure about SP). The SP acct was to just get started, and to eventually build my EF. The Betterment acct seemed like a good way to start investing without having to know too much, and is really to learn.

Once the "main event" of savings gets started (March 2012), I will be putting away a minimum of $500 a month towards my goal (but probably more). If I decide to go the bond route, how would you suggest spacing the purchases? Weekly? Monthly? Should I put the yearly max into bonds (according to Treasury Direct site, $5k per calendar year)? Are the bonds really zero risk? I am very new to all of this.

BTW, the reason the main savings will not start until March 2012 is because I am currently paying $8k of CC debt. If all goes to budget, that's the month I will be done.

Thanks so much!!!

[jpg7n16]

Slug's question kinda got lost in the mix - how soon will you need the downpayment?

I saw that you said you're paying down debt until 2012, but there was no definitive on the downpayment timeframe.

How much will you need for your downpayment, and how long will it take you to get it? (I also saw that you said $15k/year saved, but then only $500/month planned to save. $500/month = $6,000/year, where's the other $9k coming from?)


That's really the crux of the issue. The investment advice will change if it's 1 year, or 4 years.

[LizfromtheBronx]

Sorry, I missed Slug's question..thanks for bringing that back around so I saw it.

Right now, my target date is March 2015. That's when I am calculating that I will have the amount I want to have before buying. Which is $60k. I am looking at apartments around $200k, will put down 20%, and want to have another $20k in reserve. If I happen to come up with the money sooner, I will start looking to buy sooner.

Starting in April 2012, my current CC payment, which is $500, will be re-directed to DP savings. In Nov 2012, I will be moving out of my current apartment to the neighborhood I hope to buy in. Rents are about $500/month cheaper there. I plan to rent there until I buy. I will be receiving $30k over the next few years from my father's estate, starting at the end of this year (from an annuity through his union that he named me as the beneficiary for).

Here's my "savings plan allocation"...

April 2012 - March 2015 (36 months) - $500/month currently being used for CC debt = $18k
Nov 2012 - March 2015 (29 months) - $500/month currently being spent on higher rent = $14.5k
~Nov 2011 - ~Nov 2014 (3 years) - $10k/year from dad's annuity = $30k

Obviously, these are rough numbers, and don't take into account taxes on the annuity, etc. I also haven't factored in raises, promotions and any income from my second job. I'm not worried about saving the money - just wasn't sure if there was a better place to put it rather than a savings account.

[jpg7n16]

Well you've got a couple options:

You fall into the middle of the short-term, long-term discussion, but your timeframe is under 5 years, so that rules out stock investments. Given their fluctuation, you can't really include them in your short-mid term plan.

Your best options would either be:
-savings account
-money market account
-short-mid term bond fund
-Treasury inflation protected securities (what are those? click here - Individual - Treasury Inflation-Protected Securities (TIPS))

And as your excess cash seems to be very high, that might indicate a higher ability to take on some risk (since there is ample income to replace a small loss in capital), so I'd be leaning towards the mid term bond fund. I'd go with a no-load because you don't have a super long timeframe to justfify paying a 5% commission.

You could come out a couple thousand ahead going this route (possible 4% yields for 3-4 years)

Bond funds are relatively stable, but not immune to risk. If they are too risky for you, just stick with either a basic savings account or a money market account.

You could also buy some TIPS, which are paying around 1%, but also adjust the principal each year for inflation Recent Note, Bond, and TIPS Auction Results They're state tax free if that matters.