ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Tip: Use a High Interest Savings Account to Save for a Home

Updated on January 16, 2011

It is really important that you save up for a house before applying to get a home loan. Doing so allows you to accrue a better down payment. This reduces the amount of money that you need to get on loan, saving you a lot of money in interest charges over the years. One great tip that you should pay attention to is to use a high interest savings account when saving up for your home.

What is a high interest savings account?

As the name suggests, this is a savings account that has a higher rate of interest than a traditional savings account. The high interest account may be in the form of a money market account or a CD. Typically this means that you will be required to leave the money in your account for a certain period of time before you are allowed to withdraw it. For example, you may get a high interest 6-month CD so you would have to wait until the money had been in the bank for 6 months before withdrawing it to use as the down payment on your home.

Why use a high interest savings account when saving for a home

Obviously the core reason to save your money using a high interest savings account is because it means that you’ll be earning more interest on your savings. The more money that you have to put into savings and the longer that you’re willing to save it for, the higher rate of interest you can enjoy. This means that just be keeping your money in the bank you’ll be earning additional money. You don’t need to do anything else except keep saving it there to have additional funds at the end of the loan period.

For example, let’s say that you currently have $10,000 saved up towards the down payment for a home. If you were to invest than in a high interest savings account with an interest rate of 3% compounded monthly over a twelve month period then you would end up with more than $10,300 in total. That means that you’ll have an extra $300 for your down payment after a year of keeping your money in savings.

This savings option makes sense for any type of savings. However, it especially makes sense when saving for a home. That is because saving for a home requires that you save up a large sum of money. That means that you’re going to be saving for an extended period of time. High interest savings accounts have the best return on your investment when you are willing to invest the money over a long period of time. Since you’re already waiting for awhile before using that money, it shouldn’t be particularly inconvenient to put that savings into a high interest account.

Some things to consider

Some of the things that you might want to consider when using a high interest savings account to save for a home include:

o   Length of CD term. It is important that you think about the length of time that you want to keep the money in savings before you use it to buy a home. The longer that you keep your money in the account, the higher rate of interest you may be able to get and the more money you’ll have earned on the savings when it’s time to withdraw from the account. However, you won’t be able to buy your home until that time period is over (because early withdrawal from high interest savings accounts usually incurs a fee). Somewhere between one and five years is usually right for most people who are using a high interest savings account to save for the down payment on the home.

o   You won’t be able to add additional savings to the account. Most high interest accounts don’t allow you to keep making additional deposits into the account during the term period. There are a few ways that you can handle this. One is to look for an account that does allow you to make deposits either regularly or annually. Pay attention to the interest rates, though, as such accounts sometimes don’t offer the highest rates in the market. Another option is to save up periodically and open additional CD accounts. For example, you might open your first CD account as a five-year account. Then you might save for another year and open a second account as a four-year account. Then you would save for another year and open a third account as a three-year account, etc. All of these would be able to be withdrawn at the same time and used for the down payment on your home.

o   You won’t be able to withdraw the money. If you’re just starting out with saving for a down payment on a home then you may not be sure how stable your finances are going to be. This can make it scary for you to consider using a savings account that doesn’t allow you to withdraw your money. If you are too wary of this option then consider using a no-fee CD or a high interest checking account as an alternative. You won’t get as high of an interest rate on your investment but you will have the option of withdrawing the money as needed. Of course, every time that you do withdraw that money, you’re taking away from the amount of money that you have for the down payment on your home. That’s just something to be aware of.

How much money do you hope to save up for the down payment on your home?

Comments

Submit a Comment

  • amymarie_5 profile image

    Amy DeMarco 

    7 years ago from Chicago

    Thanks, you answered all my questions.

  • amybradley77 profile image

    amybradley77 

    7 years ago

    I already knew this, but good to here again. You make it much more easy to understand here too. Good work. A.B.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)