Saving For a House: Options?

[CJWrite]

Hi, I'm new here, and I'm trying to save for building a house.

I know a little about some long term savings options, but I'm still not completely convinced as to which one I should go for.

I'd like an account that I can easily deposit money into. I'd also prefer a somewhat high interest rate. At the moment, I'm leaning toward a money market account. I also looked into an account at Smarty Pig, but that makes me kind of leery.

Any advice?

[JoshuaHeckathorn]

You'll get the best rate from a high-yield online savings account like ING Direct or HSBC Advance. I believe both are at .80% right now, which is crappy, but it's a lot better than most money market accounts!

[disneysteve]

Welcome to the site.

When you say "long term" what do you mean? More than 5 years?

If you plan to buy within 5 years, I wouldn't suggest taking much if any market risk with the money as you don't have time to recover from a market downturn. If long term means greater than 5 years, then you might want to consider some market exposure which involves more risk but also the potential for greater returns, though for house savings, I'd still stay pretty conservative - maybe 90/10 or 80/20 allocation at most.

[CJWrite]

Welcome to the site.

When you say "long term" what do you mean? More than 5 years?

If you plan to buy within 5 years, I wouldn't suggest taking much if any market risk with the money as you don't have time to recover from a market downturn. If long term means greater than 5 years, then you might want to consider some market exposure which involves more risk but also the potential for greater returns, though for house savings, I'd still stay pretty conservative - maybe 90/10 or 80/20 allocation at most.

Sorry. I should have specified. I guess long term for me, housewise, means 5 years. I'm looking at something of a five year plan right now. I'd prefer to stay away from any sort of high risk, though.

[CJWrite]

You'll get the best rate from a high-yield online savings account like ING Direct or HSBC Advance. I believe both are at .80% right now, which is crappy, but it's a lot better than a money market account!

Actually high yield savings accounts and market money accounts are the two types of accounts that I've been looking into most.

I was under the impression that MM accounts had higher interest rates than HY savings. What's the real difference between the two? Limited transactions? I can deposit however much I want into either account each month?

If I opened an Ally MM account today, I would get 0.84% interest. I think my home bank is something like 0.50%. The smarty Pig accounts are something like 0.70% interest, and they come with a debit card where I can earn an extra .10% interest on all my purchases.

There's so much stuff out there though, that it makes my head spin......

[JoshuaHeckathorn]

There's really not much difference from the investor's point of view, and money market accounts don't always have higher interest rates than high-yield online savings accounts. In fact, most of the ones I've come across recently have lower rates.

It looks like Ally offers the same rate for both its MM account and the HY savings account. They will also offer you a debit card to use along with the MM account. I use credit cards for all my purchases, not debit cards, so that wouldn't appeal to me at all. The same goes for the debit card offered by SmartyPig. SmartyPig also drops its rate considerably on balances over $50K.

Personally, I stick with HY savings accounts for short-term savings, and I choose the business that I think has the best website and allows me to move money around easily between all my different accounts. The rates are all so low these days that I don't do any rate chasing either. I used to back in the day, but it's just not worth it right now.

[CJWrite]

There's really not much difference from the investor's point of view, and money market accounts don't always have higher interest rates than high-yield online savings accounts. In fact, most of the ones I've come across recently have lower rates.

It looks like Ally offers the same rate for both its MM account and the HY savings account. They will also offer you a debit card to use along with the MM account. I use credit cards for all my purchases, not debit cards, so that wouldn't appeal to me at all. The same goes for the debit card offered by SmartyPig. SmartyPig also drops its rate considerably on balances over $50K.

Personally, I stick with HY savings accounts for short-term savings, and I choose the business that I think has the best website and allows me to move money around easily between all my different accounts. The rates are all so low these days that I don't do any rate chasing either. I used to back in the day, but it's just not worth it right now.

Thanks!

I'll probably go with the Ally MM. Their websites pretty simple. And, I'm not too comfortable with using Smarty Pig for some reason...

[kv968]

Thanks!

I'll probably go with the Ally MM. Their websites pretty simple. And, I'm not too comfortable with using Smarty Pig for some reason...

I think you'll do fine with Ally. I've been using them for years and they're one of the best as far as I'm concerned. Easy to use, great customer service and no hidden fees. You may occasionally find another online MM that offers a few more basis points here and there but it's not really worth it to chase them for such a small difference. Ally's pretty much has always been one of the highest offerings out there. Unfortunately all the rates out there now are horrible.

Ally's online savings account used to pay a little higher than their MM account due to the fact that they didn't offer checks or an ATM card with it but they've been the same rate for some time now. With that said, I'd just go with the MM account as you're planning. Just be aware that you if you withdrawl or transfer money more than 6 times per month in a MM account you'll have to pay a fee. Although that shouldn't be a problem since you're just using it for savings. You can deposit as many times as you'd like.

[snafu]

Before learning you were risk adverse, I was about to suggest looking at Brazilian Government Bonds which are currently paying 9.5% down from 12% in September 2011. The current interest rates for USA savings is not keeping up with inflation.

[BudgetSurgeon]

An excellent source to find the latest & greatest, and highest-rated MM's, CD's, and HY Savings accounts can be found at:

http://www.bankrate.com

It is updated on a daily basis, and is a reputable source.

[dh1989]

I have a decent sum of money set aside for a house myself. I keep a split between cash in a high yield savings account (if you can call it that these days) and stock/mutual funds. For the invested portion I stay as diversified as possible and avoid any small cap stock or otherwise highly volatile investments.

It's all about your comfort with investing and your taste for risk. Personally I am willing to take some risk to see my money grow over the next few years rather than lose to inflation.