Saving For A Down Payment


APRIL, 2018

AK Equity Group

When saving for a down payment, there are short-term investment options that will allow you to earn a return on your money while keeping it accessible, ready for when you find the right property.

Your down payment should be easily accessible at any time if you find a home or real estate you’re interested in, so it’s probably not the best idea to stash your funds away in an investment account that will require many years before you can withdraw the funds. The best options to save for a down payment are short-term accounts.

Consider opening short-term instruments or accounts where you can still earn some form of interest on your down payment as you build it up, such as a money market fund like a Certificate of Deposit (CD), money market account, or Treasury Bill (T-bill).

Here’s a quick breakdown of the best options to earn while saving for a down payment:

Certificate of Deposit (CD)

  • This is a savings certificate with a specified interest rate and fixed maturity date
  • It’s issued by commercial banks
  • The funds cannot be accessed until the maturity date
  • The maturity date can range anywhere from one month to five years

Money Market Account

  • This is a personal savings account
  • It can be opened through commercial banks
  • This account may have a fixed interest rate depending on variables such as the government and banking industries

Treasury Bill (T-bill)

  • This is a short-term debt obligation backed by the government
  • It’s issued at a discount from par
  • The pricing is unique depending on government debt
  • Maturity dates can vary from weeks, months, to years
  • Any interest earned is reflected in the amount that is to be paid out at maturity

Keep in mind that since these instruments and accounts may all be short-term, you’ll receive short gains. The longer the investment, the more interest you’ll earn. Down payments should be accessible like cash, so putting money away in a long-term investment option might not be the best choice. Instead, consider saving in a CD, money market account, or T-bill.