Too often when you are saving for your home down payment you feel like you're not saving enough or saving fast enough. Using a high yield savings account can help you add to your savings even faster by taking advantage of higher rates. Moreover, these accounts provide a great way to protect your down payment fund because of their FDIC backing. Typically when we think about saving for our down payment, we understand that every penny counts, but we normally will head to our local bank to open a savings account. Today, that can be a short sighted option with so many other possibilities open to us.
Online Banking & High Yield Accounts
Many of us are familiar with online bank accounts as most of our regular banks offer them these days. Fewer of us however are familiar with those banks that offer high yield savings accounts online that are not directly tied to their brick and mortar locations.
A great example is Many of our local banks are offering significantly lower rates that this. ING is entirely online and therefore you do not incur the costs that your local bank may charge to maintain a savings account. Also, having a high yield savings account that is maintained online allows you to track your savings and watch it grow.
Another example of an online high yield savings account is Emigrant Direct currently offering slightly under 3%. Historically, ING and Emigrant have been the two most successful online high yield savings accounts and it might make sense to open an account with each bank.
Another advantage of online high yield savings accounts is that most of these accounts do not have minimum balance requirements and they also do not have minimum deposit requirements (which your local bank may in fact have). Be sure to check for FDIC insurance on your deposits and conform with all requirements before you select a high yield savings account to put your down payment in.
Money Market Accounts - An Alternative
It might be worth researching to see if broker dealers or mutual fund companies offer money market accounts that have higher yields than these offered. For instance, Putnam Funds offers Money Market Fund Class "A" which ultimately may pay upwards of 4% to 5% on an annual percentage yield. Carefully check the prospectus before you invest in any funds that promise you returns and make sure your investment is safe.
Money market funds also have the downside of not being FDIC insured so if you select one for your home down payment make sure that the company behind the fund is secure and that you will not have any issues that come up and blindside you resulting in losing all or part of your down payment.
Slow and Steady
As frustrating as it may sound, a slow and steady deposit of funds to a high yield account can help your savings grow. As you save additional funds check out alternate accounts to be sure that you're always getting the most interest on your deposits which will help grow your down payment even faster! Stay the course. You will get where you're going. A closing tip: Why not automatically save a certain amount each month that transfers automatically from you checking account to your high yield down payment savings account? This is forced savings and something I take advantage of myself.
Want to learn more about your savings options? You may wish to check out our article on saving for your down payment early with the right savings accounts.
This article is written by guest author Doreen Martel exclusively for Save For House.