Author Topic: Should I keep home downpayment savings in a CD?  (Read 557 times)

HappyCamper5

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Should I keep home downpayment savings in a CD?
« on: January 06, 2019, 02:11:04 PM »
I am in the process of saving for a downpayment on a home. The market is high where I am so the plan is to buy in a few years if prices drop. I don't earn much but I have managed to save $8,800. The money has been gradually growing and just sitting my a savings account for years making next to nothing on interest. I am considering opening up a CD online with Ally or Capital One. I have never opened up a CD before, is there anything I should look out for? Is there a bank you recommend? From my research, I would probably start out with a 12 month and then add more time after that. Thank you!

Rob_bob

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Re: Should I keep home downpayment savings in a CD?
« Reply #1 on: January 06, 2019, 06:18:36 PM »
I have 11 month penalty free CD's at Ally.  It is very easy to purchase CD's at Ally especially if you have their high yield account as well to fund the purchase with, currently yielding 2%  IIRC.

I use the no penalty even though the rate is a bit lower because I want access to the money on short notice.  Since you are waiting to buy a house the 1 year or longer CD's would work for you.  The Fed seems like they might slow the rate increases so current CD rates might not change too much going forward.

TexasRunner

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Re: Should I keep home downpayment savings in a CD?
« Reply #2 on: January 07, 2019, 02:47:58 PM »
Citibank has had a pretty good CD deal lately.  https://online.citi.com/US/ag/certificates-of-deposit

Go for a 2-year and you can roll into a 1 year later if you're still not ready...  But sitting in cash is costing you money.

Radagast

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Re: Should I keep home downpayment savings in a CD?
« Reply #3 on: January 07, 2019, 10:19:58 PM »
Pretty good summary here:
https://www.doctorofcredit.com/high-interest-savings-to-get/

Or you can look into short term or ultrashort term bond funds, or even Total Bond Market if you are willing to trade slightly more risk for slightly more return.

Don't bother with anything lower than the yield of Vanguard Prime Money Market, which is 2.46% right now. Use it instead.
https://investor.vanguard.com/mutual-funds/profile/VMMXX

Seriously people, don't get a CD or savings account which yields less than VMMXX. I see people doing it all the time and don't understand why. Or if you are extremely risk adverse, 2.31% for Vanguard's Federal Money Market Fund https://investor.vanguard.com/mutual-funds/profile/VMFXX. Yes, Federal Government Money Market is safer than CDs. It has several months less term risk, and is guaranteed by the Constitution against the entire assets of the US, while Congress can change FDIC on a whim. If you are willing to accept more term risk then your yield can increase from there, but do not accept less than that.

(Maybe a no withdrawal penalty CD is OK, because you can keep it for 11 months if rates drop, or ditch it if they go up. But then, a Treasury Bill maturing in 15 December 2019 yields 2.584%, so at 2.3% Ally is definitely charging you for insurance http://www.wsj.com/mdc/public/page/2_3020-treasury.html)

TexasRunner

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Re: Should I keep home downpayment savings in a CD?
« Reply #4 on: January 08, 2019, 08:18:12 AM »
Citibank has had a pretty good CD deal lately.  https://online.citi.com/US/ag/certificates-of-deposit
Go for a 2-year and you can roll into a 1 year later if you're still not ready...  But sitting in cash is costing you money.

Ya, scratch this suggestion.  When I had last looked they were up around 2.7% but it was recommended by someone on the forum.  I hadn't opened it again thinking whatever deal that was still going on.  0.70% is terrible, go for bonds or a high-yield savings at that point.