Saving for a Down Payment: Where Should I Keep My Money?

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Hey Taylor - I’m looking to buy a house within the next two years and want to make sure I’m growing my money as fast as I can. I’ve currently got my funds in a savings account with a 1.4% APY, but is there another type of account that will get me better returns? I’m putting around $1,000 a month into the account. - Bradley

Hey Bradley - Glad you’re building up your cash reserve instead of taking on a big mortgage. Unfortunately, the only way to speed up your yield is by taking on more risk. 1.4% is probably as good as you’ll find, and any other investments will subject you to too much volatility.

With a truncated timeframe like the one you’re working on, there’s not much to do beyond what you’re already doing. Keep putting money in savings, make sure it’s liquid and ready to move, and then find ways to increase the amount you put away each month. If there are corners you can cut or ways to earn a little extra, that’s the best way to reach your goal more quickly.

Until you have a significant amount in your savings account, you shouldn’t even be thinking about the yield. Yes, you want an account that provides a good return, but you should be focusing your efforts on the actual earning and saving. The harder you work to put money into your account, the more the amount will grow and the more your yield will come into play. Ideally, you’ll start putting in $1,500 and then $2,000 each month. Then, before you know it, that 1.4% will start looking a lot better.

Remember that, typically, higher returns come from somewhat risky investments, and those investments often hurt your bottom line before they help. This makes long-term stock investing work well, but short-term saving doesn’t fit the same mold. It’s important to adopt this mindset as you continue earning, saving and investing.

I wish I had a more exciting answer, but it seems like you’re aiming for a practical approach and I’d hate to mislead you. Stay the course, look for ways to spend less and save more, and you’ll have the money you need sooner than later. Good luck finding your new home!